So I know you didn't ask and probably don't care, but imma talk anyway. :p
You absolutely are not wrong, but I would actually go considerably further back than him.
If you think about it, prior to world war One there was no federal or state income tax. The world wars occurred, and the income tax was introduced in order to pay back the debts accrued. Instead of doing that, federal and state governments ended up figuring out a bunch of ways to spend that money so the federal debt shrink with respect to being a certain proportion of the economy, but didn't shrink in terms of dollar value. So this started the slow decline that we saw particularly in the 1970s where the baby boomers were coming of age into stagflation, and so Reagan's solution to this he claimed was to shrink government and lower taxes, but in reality he lowered taxes and spent more, resulting in a quadrupling of the federal debt.
People who have had access to debt should know what it feels like when you're spending the debt and when you have to pay the debt back. Spending the debt feels great. It feels like you have all this money, you see something and you want it and you can just walk up to it and buy it because you have the money.
We see something similar in global economies. Countries rack up massive debts, and while they're doing so they end up looking like they're performing an economic miracle. The phrase has been applied to the United states, japan, china, no doubt other countries as well. It's because the first phase, the euphoric phase of debt, does feel really good. In the case of an economy, it feels even better for a number of reasons. The multiplier effect means that an extra dollar injected into the economy isn't just spent where it ends up, but it will ping around in the economy except for more times resulting in a much larger impact on the economy than you might expect for the amount of money actually moving around.
Should be noted that ideally, that debt isn't coming out of thin air yet. That would be the second step. In this case, the government is economically incentivizing people to take money out of their savings and give it to them to spend with the promise that they'll get more money back later.
So in this case, you have three options once you have spent a bunch of debt. You can choose to pay it back, in which case all of those effects that make the debt feel so good to spend make the debt feel even worse to pay back. As you have that money taken out of the working economy and put back into someone's savings, the multiplier effect works in reverse, so it feels really really bad to pay it back just like it felt really really good to spend it. A second option would be tonight spend new debt but also not repay any debt. This is generally speaking what the United States did after the second world war, you'll notice that after an initial bout of paying back huge amounts of debt, the actual dollar value stayed relatively stable for a very long time. If you have a generally inflationary monetary system, this is effectively shrinking the debt. The downside to this is that it isn't free to hold debt. The government takes people to access savings with the promise that they will pay a return of a few percent. At the moment that return is I think about 5% for t bills, and that's not really a historically unreasonable amount. So even if you do absolutely nothing and just keep the debt exactly where it is, you're paying 5% per year for the privilege of having borrowed it at one time. At the moment, in the US at least the interest on the national debt is costing almost as much as the entire military. I might be misremembering, but I think that the interest on the national debt at this moment is equal to every dollar taken in personal income taxes in the same year. That's a lot of money. On the other hand, we got the benefit of spending unbelievable amounts of money over a 15 year period. The final option is to just spend more debt. And what this is doing is continuing to roll the snowball uphill. Eventually, that snowball keeps on getting bigger and bigger and the consequences of it rolling back down the hill get bigger and bigger as we go. On the other hand, it continues to feel as great as it can feel. There's another problem where the economy has a sort of hedonic treadmill effect where for example in the US in the past 15 years they've spent unprecedented amounts of debt to just barely keep the GDP positive. It's like people who take heroin, they build up a greater and greater resistance to the heroin as their bodies adjust to it.
Unfortunately, both sides of the political aisle have every reason to choose the third option. As an example from a simple political system, The Republicans want to cut taxes even though there's no good reason to be cutting taxes with 32 trillion dollars in debt, and every reason to be cutting spending. Meanwhile, the Democrats want to raise taxes, but also want to increase spending even more. The idea of paying down the debt and balancing the budget is political kryptonite, because it's going to hurt for everyone. Instead you end up with a compromise of cutting taxes and increasing spending.
Both sides will make arguments about the fact that not doing the thing that they want to do is going to hurt. Of course not cutting taxes and in fact raising taxes is going to hurt. Likewise, of course not increasing spending but in fact cutting spending is also going to hurt. But I will say that if nothing is done it's going to hurt a lot for everyone and I think we're already starting to see that.
So before I was talking about the debt as if it was being taken out of people's savings. That hasn't really been the case for a while. In particular in the last 15 years, central banks around the world ended up monetizing huge amounts of debt by having their central banks buy the debt from the banks, replacing it with money spun out of thin air. The "interest" "paid" on such debt is actually returned to the government as payments from the central bank, and the new debt issued can be largely snatched up. The cost of debt monetization as we've seen in the past few years is high inflation. That's essentially a tax on the poor and middle class, since the rich own assets that grow with inflation but the poor and middle class make wages that don't automatically grow with inflation.
Sure is great being so "rich" as the politicians tell us we are but normal people need university degrees just to live a normal life and even with one they often can't afford a house and a car. (Yes it's great we have computers and televisions and smart phones, I think most people would prefer shelter) it's gonna continue forever until people start to realize the problem with what every politician is doing.
Reading Plato's the Republic recently it was shocking how on the nose Plato's description of democracy is, and here we are, living out a 2500 year old prophecy yet again...
You absolutely are not wrong, but I would actually go considerably further back than him.
If you think about it, prior to world war One there was no federal or state income tax. The world wars occurred, and the income tax was introduced in order to pay back the debts accrued. Instead of doing that, federal and state governments ended up figuring out a bunch of ways to spend that money so the federal debt shrink with respect to being a certain proportion of the economy, but didn't shrink in terms of dollar value. So this started the slow decline that we saw particularly in the 1970s where the baby boomers were coming of age into stagflation, and so Reagan's solution to this he claimed was to shrink government and lower taxes, but in reality he lowered taxes and spent more, resulting in a quadrupling of the federal debt.
People who have had access to debt should know what it feels like when you're spending the debt and when you have to pay the debt back. Spending the debt feels great. It feels like you have all this money, you see something and you want it and you can just walk up to it and buy it because you have the money.
We see something similar in global economies. Countries rack up massive debts, and while they're doing so they end up looking like they're performing an economic miracle. The phrase has been applied to the United states, japan, china, no doubt other countries as well. It's because the first phase, the euphoric phase of debt, does feel really good. In the case of an economy, it feels even better for a number of reasons. The multiplier effect means that an extra dollar injected into the economy isn't just spent where it ends up, but it will ping around in the economy except for more times resulting in a much larger impact on the economy than you might expect for the amount of money actually moving around.
Should be noted that ideally, that debt isn't coming out of thin air yet. That would be the second step. In this case, the government is economically incentivizing people to take money out of their savings and give it to them to spend with the promise that they'll get more money back later.
So in this case, you have three options once you have spent a bunch of debt. You can choose to pay it back, in which case all of those effects that make the debt feel so good to spend make the debt feel even worse to pay back. As you have that money taken out of the working economy and put back into someone's savings, the multiplier effect works in reverse, so it feels really really bad to pay it back just like it felt really really good to spend it. A second option would be tonight spend new debt but also not repay any debt. This is generally speaking what the United States did after the second world war, you'll notice that after an initial bout of paying back huge amounts of debt, the actual dollar value stayed relatively stable for a very long time. If you have a generally inflationary monetary system, this is effectively shrinking the debt. The downside to this is that it isn't free to hold debt. The government takes people to access savings with the promise that they will pay a return of a few percent. At the moment that return is I think about 5% for t bills, and that's not really a historically unreasonable amount. So even if you do absolutely nothing and just keep the debt exactly where it is, you're paying 5% per year for the privilege of having borrowed it at one time. At the moment, in the US at least the interest on the national debt is costing almost as much as the entire military. I might be misremembering, but I think that the interest on the national debt at this moment is equal to every dollar taken in personal income taxes in the same year. That's a lot of money. On the other hand, we got the benefit of spending unbelievable amounts of money over a 15 year period. The final option is to just spend more debt. And what this is doing is continuing to roll the snowball uphill. Eventually, that snowball keeps on getting bigger and bigger and the consequences of it rolling back down the hill get bigger and bigger as we go. On the other hand, it continues to feel as great as it can feel. There's another problem where the economy has a sort of hedonic treadmill effect where for example in the US in the past 15 years they've spent unprecedented amounts of debt to just barely keep the GDP positive. It's like people who take heroin, they build up a greater and greater resistance to the heroin as their bodies adjust to it.
Unfortunately, both sides of the political aisle have every reason to choose the third option. As an example from a simple political system, The Republicans want to cut taxes even though there's no good reason to be cutting taxes with 32 trillion dollars in debt, and every reason to be cutting spending. Meanwhile, the Democrats want to raise taxes, but also want to increase spending even more. The idea of paying down the debt and balancing the budget is political kryptonite, because it's going to hurt for everyone. Instead you end up with a compromise of cutting taxes and increasing spending.
Both sides will make arguments about the fact that not doing the thing that they want to do is going to hurt. Of course not cutting taxes and in fact raising taxes is going to hurt. Likewise, of course not increasing spending but in fact cutting spending is also going to hurt. But I will say that if nothing is done it's going to hurt a lot for everyone and I think we're already starting to see that.
So before I was talking about the debt as if it was being taken out of people's savings. That hasn't really been the case for a while. In particular in the last 15 years, central banks around the world ended up monetizing huge amounts of debt by having their central banks buy the debt from the banks, replacing it with money spun out of thin air. The "interest" "paid" on such debt is actually returned to the government as payments from the central bank, and the new debt issued can be largely snatched up. The cost of debt monetization as we've seen in the past few years is high inflation. That's essentially a tax on the poor and middle class, since the rich own assets that grow with inflation but the poor and middle class make wages that don't automatically grow with inflation.
Sure is great being so "rich" as the politicians tell us we are but normal people need university degrees just to live a normal life and even with one they often can't afford a house and a car. (Yes it's great we have computers and televisions and smart phones, I think most people would prefer shelter) it's gonna continue forever until people start to realize the problem with what every politician is doing.
Reading Plato's the Republic recently it was shocking how on the nose Plato's description of democracy is, and here we are, living out a 2500 year old prophecy yet again...
- replies
- 0
- announces
- 0
- likes
- 0