Budget

Budgepocalypse Update

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Human sacrifice not called for in this year's budget proposal.

The good news is that the April, 2011 budget deficit of about $41 billion was roughly half the size of the April 2010 budget deficit, according to the Congressional Budget Office. The bad news, though, is that as the 2011 fiscal year chugs along, we've nonetheless managed to blow a bigger hole in the deficit than in the same time frame during the previous fiscal year. Here are the exciting first three lines of the CBO's monthly budget review:

The federal government incurred a budget deficit of $871 billion in the first seven months of fiscal year 2011, CBO estimates. That year-to-date total is roughly $70 billion more than the deficit incurred in the same period in 2010. Both outlays and revenues are about 9 percent higher they were last year at this time. 

The fastest growing type of federal spending? Interest on our Mt. Everest-sized pile of public debt, which grew by 16 percent, or $20 billion. It's a depressing fiscal feedback loop: We're spending more and more…in order to pay for the fact that we keep spending (and borrowing) more. 

To summarize: We're spending more, collecting more tax revenue, paying a rapidly increasing amount in interest, and running a higher deficit than we did during the same time frame in the previous year. Budgepocalypse, here we come. 

More on the budgepocalypse here and here

NEXT: The Facts About the Corporate Income Tax

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  1. Peter, we don’t have a budget problem. We clearly have a revenue problem, and must raise taxes.

    How do I know? Well, if the government ever says it doesn’t have enough money to keep spending more of it, then taxes must be too low. Simple as that.

    1. Plus, Tony says so.

  2. Hmm, who would make a good human sacrifice on Reason?

    1. Let’s start with you, maybe? =)

      1. Fails first part of “human sacrifice”.

    2. Good question, ball breath.

      1. Pssst…the f2m trannies she’s blowing don’t have balls.

  3. Regarding the Alt-Text, Sebelius told me that Paul Ryan’s budget is pro-human sacrifice.

  4. Apocalypto was a crazy flick. Say what you want about Mel, but that scene where the dude escapes by hiding in a pile of dead bodies was pretty insane.

    1. I really liked the film.

      1. Even that part with the primitive tractor pull?

        1. HA! Thanks for that.

    2. Considering it was already done-no

    3. “Say what you want about Mel Gibson, but the son of a bitch knows story structure!”

    4. I found the ending quite uplifting. Sure, all these savages are awful to each other, but Christianity–thank God–had finally arrived to wipe them out.

      1. If you remember, it looked like Col. Sanders was pulling up to introduce fried chicken. Better than eating boar balls.

      2. I liked it when Apocalypto dropped to his knees on the beach and cursed them when he saw the half-buried Statue of Liberty. Total mindfuck.

        1. Holy shit that would have been fucking awesome!!!

      3. but Christianity–thank God–had finally arrived to wipe them out.

        When did Syphilis, Small Pox and Plague become synonymous with Christianity?

        1. Opps looks like Syphilis may have come from the new world. (there is much debate)

          Small Pox and Plague then.

  5. I prefer “debtocaust”.

    1. I prefer Fin-anci-al Solution.

      1. Ya, but is it shovel ready for the hot oven economy?

  6. I don’t mean this in a trap way*, but can someone tell me how it is that in US history revenue collected seems to hit a ceiling despite changes in the rates and such but in many European nations this ceiling is ‘overcome?’

    * Cuz I actually buy the line from libertarians and conservatives on this. We can’t tax our way out of the current problem, even if tax raises did raise more revenue, which seems contrary to US history, I have no faith that our leaders won’t simply spend the increase. Additionally, I don’t want my taxes to go up.

    1. That is a far too complicated answer for me to do it justice, but I’ll say that its partly due to the U.S. tax code being largely income-taxation and capital-gains taxation skewed. The Europeans all have VATs in addition to income taxes. Whereas one can easily (especially in the US tax code where there are deductions available for all manner of socially approved behaviors) find ways to reduce taxable income on their 1004, and where one can delay their realized capital gains until more favorable rates come along, with a VAT, there is very little recourse for minimizing taxation short of black market activity or not conducting transactions at all.

      Now, beyond that, there’s also the issue of why it seems we always run up significantly larger debts relative to GDP than many European countries, and I’d postulate that has a lot to do with the progressive nature of our tax system. Usually, when economic contractions hit, the group that feels the largest contraction are those at the top of the income distribution, and when that group is responsible for the lion’s share of total tax receipts, the total tax revenue suffers dramatically.

      1. Thanks for the answer. RE: the second paragraph I’ve always understood that European nations if anything have more ‘progressive’ tax structures.

        1. The VAT for most consumer goods throughout EU major economies is around 20%. That is 20% that everyone pays everytime they buy something. The only equivalent in the U.S. is at the state level on sales taxes (and interestingly enough, when factoring in state revenues, taxation as a percentage of GDP is much less rigid than the 19% at the federal level). But that 20% VAT means that the tax structures in these countries are less progressive than the U.S. (figuring the 13.2% total SS contribution between both worker and employer). Beyond that, income taxation rates are higher and kick in at lower levels of overall income in most EU countries. The idea is that everyone has a stake in the state and its there for everyone’s benefit, so everyone should have to fund it, which to be honest seems sensible to me.

        2. If by progressive you mean high taxes on high income earners, yes. But, at least in Sweden but I’m pretty sure the situation is similar in other European countries, the total share of taxes paid by the rich is actually much higher in the US. This is because, unlike the US, European countries tax everyone hard.

          For example, a entry level retail job earning 20 000 SEK means that the company is paying 26400 SEK including all social fees, and the employee receiving 13800 SEK after taxes. An effective tax rate at 48%, for a entry level job. Add to this a 25% VAT. So to sum up, the reason for the high tax rate in Europe is high taxes for everyone. Plus VAT. Unless America begins tax it’s middle class and lower class hard, there is no way to achieve those revenue levels.

          1. I just wish progressives in this country would be honest about that and defend their vision of government’s role in society and the corrollary costs thereof. It is deeply harmful to suggest that we can sustain even the current govt footprint only through taxation of the rich ($250k+ category). As I’ve stated numerous times, we could annex every dollar of income above $250k in this country and still be $450 Billion in deficit this year.

            1. “I just wish progressives in this country would be honest…”

              You can stop right there.

      2. I wouldn’t overlook the mobility of capital, either.

        When most of your taxes come from income,, and when you have a progressive tax structure, you are creating incentives for the capital which produces income for high-tax brackets to leave the jurisdiction. Because capital is mobile, it will leave when taxes are onerous. One reason that high income tax rates don’t produce as much revenue as you’d think.

        VATs are transactions-based, and don’t create the same incentive for capital flight.

    2. Theres also the huge bit of the base that teh rates are taxing. The 90% tax rates liberals love to quote fromt he 50s, wellt hey nyl kicked in once you made the inflation adjusted equivelant of about 5 million per year today. Plus you could get around this easily by just taking in kind compesation like a new car.

      Now, the top rate, though much lower, kicks in at about 300k and you cant take in kind compesation in most cases.

      Part of the Reagan are tax cuts that gets missed a lot, is that is return for the rates comign way down, the brackets were also brought way down and in kind compensations tarted getting taxed except for healthcare etc.

      This is i big reason why the rates are not the only factor.

      1. Eurpean systems are far less progressive – via vats they hit their middle classes much harder. As a percent of tax total tax revenue, the top 20% pay the highest ratio of tac in the OCED.

        1. in the US that is.

    3. I thought you were a fucking Ph.D in Political Science.

      Then again nobody else in MY Poli Sci department understands this basic math shit either.

  7. I remember in school taking out cash advances on credit cards in order to pay the minimums on my credit cards. That worked for a few years. Then, when I was done with school and making money, I was able to pay the whole thing off.

    All we have to do is quadruple the government’s intake of cash, and the problem is solved. Anyone got any ideas?

    1. My liberal friends tell me “hey when you are going through a bad time it’s not crazy to go into debt some to get out, for example by going to school or getting some kind of training.”

      While that makes sense I’ve never gone through a bad financial time without cutting my spending either, and the Dems seem against that in any serious way.

      1. Everybody is against it; nobody wants to do the unpopular thing and risk being reelected. Think of GHW Bush and the “read my lips” pledge–he got savaged for raising taxes after the election.

      2. That’s just a conservative meme. They didn’t tell you that.

        1. Oh my, school’s out!

          1. School’s just a meme, dude. Who told you about it?

            1. I’m about to blow your mind: MNG talking about memes is a meme.

              Woah.

              1. OMG!

      3. When you hit the bad times it’s not crazy to get some additional schooling or training. But it might be crazy to go into debt over it. It depends on why you’re doing it. Are you retooling your human capital? Fine, go for it. But if you’re just hiding out until the next artificial boom hits, finishing off a degree in Oppressed Peoples Studies, then you really are crazy.

      4. What Brandybuck said.

        If you are borrowing for operating expenses, you are in deep trouble.

        If you are borrowing for capital improvements (including human capital improvements), maybe not, if the return on your investment exceeds the cost of borrowing.

        1. “If you are borrowing for operating expenses, you are in deep trouble.”

          Unless you accurately foresee hyperinflation on the horizon.

      5. Problem is the last year the federal government didn’t run a deficit was during the Eisenhower administration (FY 1958), and the deficit has been over $100M in 2008 dollars during 38 of the past 40 fiscal years (1974 and 2000 being the low deficit years). Also over $500M in 2008 dollars during 18 of the past 30 years.

        This isn’t a temporary running up of debt to get out of hard times.

        1. Those figures should be $100B and $500B respectively.

      6. I think Dems are capitulating left and right on spending. The only ones being ideological are the ones who refuse to entertain the idea of looking at the other side of the ledger.

        1. I think Dems are capitulating left and right on spending.

          The “Debt to the Penny” charts on the Treasury’s web site say otherwise.

  8. So, Reason, as a fairly young man, I’m going to be expected to pay for this shit.

    Thus, I need a cost/benefit analysis of moving to a low debt country, like Canada or Australia. Yes, they may have bigger gov. but at least they understand that debt is bad and you need to pay for shit.

    Canada is sounding awfully appealing, in that it’s basically America Jr. But Netflix there is weird, and I’d have to get way more into hockey than I am right now, so…

    1. What about New Zealand? I think it’s about as good as you’re going to do in the Commonwealth, and it’s possible to own guns, unlike Oz.

      1. Warty, unlike some people, I do not find sheep attractive.

        Although that Peter Jackson is dreamy, so maybe NZ could be a possibility.

        1. Just wash its hair, put some lipstick on it, and pretend you’re fucking a feministing poster. You do what you can with what you have.

          1. Warty, I will not tolerate you insulting sheep in that manner!

    2. Debt is not the issue, although us fiscally minded types certainly cringe at the debt. The real issue is how much they take from the citizens. That’s the only thing that matters to the economy.

  9. This is one of your best posts yet Suderman. It proves that morons like Alfred E. Krugman and our own pal Tony are wrong that the problem is primarily revenue. Revenue is going back up again, and yet the deficits are still rising!

    1. It also proves everyone wrong who thought that our government policy would lead to disaster instead of a growing economy, as it has. Was the recession really not as bad as everyone thought–the the point that the economy has rebounded despite the counterproductive stimulative policy?

      1. This recover is very anemic, Tony, and unusually so. Plus, enemployment is HIGHER than what the administration told us it would be if we DIDN’T pass porkulus.

        Ever heard of a dead cat bounce? Sure the economy is recovering but that is more likely due to too severe a belt-tightening on the downside than it is too long-term, foundational policies that give the best chance for a sustained recovery that acutally creates jobs.

        1. The recovery is pretty much where one would expect it to be given the amount of stimulus. Every Keynesian is saying it wasn’t quite enough. That’s not an attempt to weasel–that’s just a fact of numbers. Now look at how countries are doing that have imposed austerity policy.

          1. Yes, the stock answer of every statist. If only we had spent more money. Well, I’m glad we didn’t and as far as austerity is concerned the longer we wait to impose ours the worse it will be. When we finally do get around to it you’ll see capital and jobs flow to those countries that are doing it now.

            1. But there is not a mechanism that any austerity proponent can define to explain how it leads to growth. How does taking money out of the economy lead to growth? It’s a flat out contradiction, which is why Keyenes won and you guys lost long, long ago, you just haven’t accepted it yet.

              1. Here’s a mind-blower for you: it doesn’t necessarily lead to growth in the way that you and Lord Keynes would describe it. What it does do is reduce artificially created bubbles (S&Ls;, dotcoms, real estate, etc). The booms and busts that came before were 1) less frequent, and 2) of shorter duration. The long periods of malaise that the economy has experienced since your policies have become dominant were not normal prior to the 1930s.

                All Keynes has done is provided gov’t the means to constantly create new bubbles to try and make everybody feel better after the previous one popped. And every time, the recovery is getting more tepid. Eventually, there won’t be any recovery at all (at least that’s affordable; the bond market will cut us off someday. I don’t think that day is as close as some others, but the possibility cannot be discounted).

                And side note: the recovery is NOT where everyone expected it would be because we didn’t “spend enough”. The administration made it’s fraud claims about unemployment and growth even after they knew how much was going to be spent, and they’ve turned out to be dead fucking wrong.

                1. They admitted that the projection (made before Obama even took office) was too rosy. It’s not useful for this discussion except as a talking point. I think the evidence supports the opposite of your conclusion. Pre-Keynes there were frequent painful busts and large booms. Post-Keynesian policy this was smoothed out. We didn’t have a bust comparable to the previous largest one until after a couple decades of relaxing government control.

                  1. They admitted that the projection (made before Obama even took office) was too rosy. It’s not useful for this discussion except as a talking point.

                    Then I guess they shouldn’t have bothered bringing it up, because that’s exactly what they used to sell the plan.

              2. How does taking money out of the economy lead to growth?

                If you cut government spending by 5% and GDP declines by 1% – the real economy has grown.

                The problem with Keynesian metrics is that the pretend government spending is economically beneficial and include it in GDP calculations. A better metric would be PDP – Private Domestic Product.

                More broadly, slashing government spending improves the economy because allocating resource via market mechanisms, instead of by political fiat, leads to more efficient uses and optimized the satisfaction derived from those resources. Hence lower government spending is inherently better than higher government spending.

          2. Yes, let’s do that. Estonia was hit extremely hard by the crisis, and responded with drastic budget cuts to balance the budget and pay down debt. After a hard year Estonia rebounded and is now growing dramatically.

            1. Estonia has unemployment at nearly 20%–deep reductions in output and employment followed their austerity measures. Any growth they’re having is a result of higher exports.

      2. The economy is being propped up with deficit spending, not actual growth.

    2. And I don’t know if we’ve said the problem is “primarily” revenue. But just because revenue is going up doesn’t mean there isn’t more revenue to be found–it’s going up because the economy is in growth.

      1. it’s going up because the economy is in growth.

        Boy, isn’t this rich. You’re the guy who usually goes ballistic around here whenever that gets mentioned and the revenue to GDP chart spanning the last few decades gets posted.

  10. Just declare everyone over 70 legally dead, probate their estates and deny them the right to vote. (The last may not work in Chicago.)

  11. Interest on our Mt. Everest-sized pile of public debt, which grew by 16 percent, or $20 billion.

    I wonder if Keynesians think interest payments on debt are stimulative?

    And if so, what do they use for a multiplier?

    1. Precisely 1.86358423. If you dispute this number, you are a terrorist.

      1. Lies!!

        It is 1.86358424 and not a ten millionth less!!!

      2. I have a feeling that you obtained that number ex recto.

    2. The actual multiplier is i.

      1. +90?

        Fuck the spam filter.

    3. [Bald kid from The Matrix] “There is no multiplier”

  12. The fastest growing type of federal spending? Interest on our Mt. Everest-sized pile of public debt, which grew by 16 percent, or $20 billion.

    Does this take into account the refunds on interest that the Federal Reserve is required to pay? The Fed is now the largest holder of US debt, and it is legally required to refund all interest on US debt to the Treasury.

    I should also note that we are very close to approaching the debt ceiling, and no one seems particularly eager to raise it this time. I’m curious what happens if we bump into it.

  13. I’m curious what happens if we bump into it.

    I’m pretty sure the skies will rain fire, the oceans will rise to cover the land, and the living will envy the dead.

  14. Another thing I love is that revenue is on the rise again even though Obama not only extended all of the Bush tax cuts, but in fact cut payroll taxes for all employees.

    We fiscal conservatives usually get raked over the coals by the Tonys of the world when we say that revenues can go up even when taxes go down. Well, it’s happening before our eyes right now.

    1. You completely miss the point. You are trying to make a causal assertion. Do we have to be in recession in order to prove that tax cuts don’t increase revenue? The point is that we’d have more revenue without the tax cuts.

    2. Who knew that for the A = A crowd that it would be so hard to fathom that higher revenues means higher revenues.

  15. Tony, I’m going to try and make this post quick, because I really don’t have the patience for a prolonged discussion with yet another idiot who thinks he knows about economics on the Internet. I just got finished debating a syndicalist; it wasn’t pretty. I’ll make a nice, ordered list proving what an imbecile you are.

    1.) None of what Keynes said was new economics. The incorrect idea that economies are demand-driven (“demand creates supply”, you fools need to learn Say’s law) and that savings destroys wealth goes all the way back to Malthus. You know, that guy who said that the Earth would reach its peak supportable population in the 1800s. A reliable source.

    2.) Money is simply a claim on goods and services. It is only used for exchanges. That is it. Putting more of it into the system does not create more goods and services, and pulling it out doesn’t create less. When consumers change their spending habits money simply redirects the flow of resources and consumer goods into different avenues.

    3.) When people save money, wealth isn’t destroyed, capital is built up (i.e. time preferences fall as does the market rate of interest). Rather, consumption destroys wealth, as it consumes capital, and if it exceeds savings in the long run then the standard of living will fall.

    4.) The Philips curve is refuted empirically by stagflation and on theoretical grounds by the optimal money supply theory. Since you have no idea what the Philips curve is, I’ll simplify things for you; inflation does not cause economic growth, nor is it a sign of it.

    5.) Aggregate demand is a completely useless analytical tool because the price level doesn’t exist, it totally ignores the heterogenous nature of capital (Keynes simply calls capital a blob identified by the letter “K”. A profound man indeed), and it does not reflect changing conditions in the market.

    6.) New Deal-esq approaches to ending recessions have been attempted as early as the Roman Empire. They are not new or extraordinary, they are just dumb. So that’s one thing you and fiscal stimulus have in common.

    7.) Keynes portrayal of recessions as a general glut caused by a lack of consumer spending is incorrect. If consumers feeling bearish and ending their spending is the cause of recessions, then why are the greatest impacts of economic downturns felt in capital and capital-intensive industries, far removed from the consumer? If Keynes was right, then we’d be seeing huge downturns in the clothes and food market, not in the production of factories or heavy machinery.

    8.) Economic depressions were not managed more artfully by Keynesians. Stagflation happened under Keynesians. The Great Depression lasted for 15 years under two Keynesians, both of which made the economic downturn even worse. The current recession has happened under Keynesians. If you want to get really technical, then the modern boom-bust cycle began with the creation of central banks in industrialized nations. Prior to that, downturns could be blamed on easily identifiable events (e.g. the destructive effects of war, horrible droughts, etc.). Now it’s all our monetary policy’s fault.

    This is incredibly brief, I know. Pages and pages could be written on any one of the problems I brought up, and in fact, they have. I’m also beginning to wonder whether or not you’ve ever read “The General Theory” or really any work by a Keynesian. A real Keynesian would want low taxes and high spending to get as much spending in the economy as possible. High taxes are for the “boom” period when inflation

    1. Just responding to some points but I think you’ll get the gist.

      4.) The Philips curve is refuted empirically by stagflation and on theoretical grounds by the optimal money supply theory. Since you have no idea what the Philips curve is, I’ll simplify things for you; inflation does not cause economic growth, nor is it a sign of it.

      The old Philips curve is rejected by most economists, though Keynesians now have a modified version that incorporates stagflation.

      The practical evidence for stickiness in prices is overwhelming. Economics that doesn’t take human irrationality into account–that would be the theory to which you refer–is simply wrong economics. Stickiness explains why unemployment is still high as well. What you can’t explain is how cutting government spending will help anything.

      7.) Keynes portrayal of recessions as a general glut caused by a lack of consumer spending is incorrect. If consumers feeling bearish and ending their spending is the cause of recessions, then why are the greatest impacts of economic downturns felt in capital and capital-intensive industries, far removed from the consumer? If Keynes was right, then we’d be seeing huge downturns in the clothes and food market, not in the production of factories or heavy machinery.

      I don’t think you can claim any of these things is far removed from the consumer. Obviously the last sector where demand will sharply drop is basic necessities. But it’s still lack of demand that causes the glut, even if it is a chain reaction. What else would it be?

      The Great Depression lasted for 15 years under two Keynesians, both of which made the economic downturn even worse.

      I don’t care if it was two Martians, the question is what policy led to what. Ramped-up spending led to growth and emergence, pulling back led to recession. How do you squeeze an austerity solution to the depression into WWII and the New Deal? At the very least recovery happened in spite of the huge increase in spending.

      A real Keynesian would want low taxes and high spending to get as much spending in the economy as possible. High taxes are for the “boom” period when inflation

      Indeed. And I’m only arguing in favor of raising taxes in the context of deficit reduction, which I don’t think should even be the focus right now. The real curiosity is why Republicans and you guys are making a Keynesian argument for keeping taxes low–that it would harm the economy to raise them.

      The notion that we can never, ever raise taxes for any reason isn’t anyone’s theory. It’s absurd, dishonest fiscal hi-jinx with a political end.

      1. My main argument for keeping taxes at their current levels is that I don’t believe they will put the money to debt retirement. The latest budget deal confirms my suspicions. More money for the Feds will only result in more spending. The only way they will ever actually retire debt is in the face of a full-blown fiscal crisis.

      2. The old Philips curve is rejected by most economists, though Keynesians now have a modified version that incorporates stagflation.

        Milton Friedman modified the Philips curve to show how inflation cannot raise employment or productivity in the long run. Neo-Keynesians threw it out completely, realizing what a joke it was to begin with. That and Keynes view on interest rates are the two most laughable parts of his economic theory. Or maybe his view on where the objective exchange-value of money comes from. Or maybes its the animal spirits. Actually, scratch that, it’s all pretty funny.

        Economics that doesn’t take human irrationality into account–that would be the theory to which you refer–is simply wrong economics.

        Your problem is with the real expectations school, not the Austrians. Mises and Hayek understood that humans were not Gods, and could not predict the wants of consumers perfectly. That’s why malinvestment would still happen in a free market.

        What you can’t explain is how cutting government spending will help anything.

        It’s been explained countless times. Cutting government spending frees up land, labor and capital for the private sectors, lowers interest rates, lowers inflation, lowers the debt (decreasing regime uncertainty), and so on. Your problem is that you haven’t been paying attention.

        I don’t think you can claim any of these things is far removed from the consumer.

        The whole point of the structure of production triangle is that it explains how some aspects of production are, in fact, incredibly far removed from consumer spending. Raw steels is never bought as a consumer good, it is always bought as a production good.

        Obviously the last sector where demand will sharply drop is basic necessities.

        Except according to Keynes first order consumer goods would see the sharpest decline as a result of a drop in consumer spending, and then it would send shock waves up into higher levels of production. Theoretically demand-driven recessions are impossible (I’ll get to this in a second), and empirically capital or capital-intensive industries are always hit first.

        But it’s still lack of demand that causes the glut, even if it is a chain reaction.

        The problem is that recessions are never a general glut. There’s always what Hayek called a “cluster of errors” in the higher-order stages of production, in capital. Some industries do perfectly fine and turn over handsome profits during a recession. So, by definition, it cannot be general if only certain industries are effected and others aren’t.

        Moreover, when people don’t purchase goods and services in one sector, they either have to purchase them in another, invest their money, or save it (add it to their cash balance). We had a “recession” in the horse and buggy industry when the automobile became popular. It wasn’t economic armageddon. If people invest more of their money, price differentials will shift in favor of capital industries and interest rates will fall, leading to an expansion of the structure of production and capital, making society wealthier in the long run (conversely, a negative savings rate causes capital consumption). If people add money to their cash balance (from a historical perspective the amount of money people keep on hand is incredibly low when compared to spending or investing), prices will fall and the purchasing power of the monetary unit will rise, inducing other actors in the economy to empty some of their now-“heavy” cash balances into goods and services. So the effect is offset.

        Now, what would happen if everybody stopped spending and investing? Well, then the market would respond to people no longer desiring goods or services by just shutting down. Could this happen? Sure. But so could Gary Johnson getting the Republican nomination.

        I don’t care if it was two Martians, the question is what policy led to what.

        I was just refuting your claim that Keynesians handled economic recessions better than their predecessors. No need to get your panties in a twist.

        Ramped-up spending led to growth and emergence, pulling back led to recession.

        Except it didn’t. The standard of living declined all throughout the New Deal and WWII, unemployment was never lowered by the New Deal itself (ever hear of the Roosevelt recession?), military build-up made the situations worse by pulling massive amounts of resources out of the economy, and we never fully recovered until 1946, a year after the war ended. It’s also the year that Harry Truman started to discharge millions of soldiers and have sweeping cuts be placed on the backs of the military. And yet, no recession. Odd, very odd.

        Oh, and don’t say “pent-up demand”. Consumer spending never came anywhere near to what government spending was during the war. Sorry.

        How do you squeeze an austerity solution to the depression into WWII and the New Deal?

        See a few paragraphs above.

        At the very least recovery happened in spite of the huge increase in spending.

        My God, I thought I’d never see the day.

        Indeed. And I’m only arguing in favor of raising taxes in the context of deficit reduction, which I don’t think should even be the focus right now.

        So, essentially, you’re a full on orthodox Keynesian when it meshes with altruist feel-good pragmatism, but you’re not when it doesn’t. Can’t have it both ways, pal.

        The real curiosity is why Republicans and you guys are making a Keynesian argument for keeping taxes low–that it would harm the economy to raise them.

        Austrians aren’t saying that because it would reduce the imaginary fiscal multiplier (which is the Keynesian explanation for why raising taxes are bad), but because it make it harder on individuals to thrive in an economy that’s in the middle of a corrective process, and would lead to economic inefficiency by putting more resources into the hands of central planners.

        The notion that we can never, ever raise taxes for any reason isn’t anyone’s theory. It’s absurd, dishonest fiscal hi-jinx with a political end.

        There are plenty of theories for why we should never raise taxes, or should abolish them altogether. None of them have to do with the “taxation is theft” argument, either.

        I do have a few requests for you to follow through on before you reply, though. Flip through The General Theory a few times so you actually know what you’re supposedly arguing in favor of, because it’s becoming increasingly clear that you don’t know much of anything about it. Two, please reply to the other points I made. I know they refer to icky and complicated topics like “the heterogenous nature of capital” and “the Hayekian triangle”, but they are relevant points in exposing Keynes as a sooth-sayer. Third, go read up on the Austrian school so you’ll stop confusing me for a real expectations theorist or a monetarist. Fourth, please, for the love of God, learn about the effects of credit expansion on the structure of production and interest rates, it would make things so much easier.

      3. The old Philips curve is rejected by most economists, though Keynesians now have a modified version that incorporates stagflation.

        Milton Friedman modified the Philips curve to show how inflation cannot raise employment or productivity in the long run. Neo-Keynesians threw it out completely, realizing what a joke it was to begin with. That and Keynes view on interest rates are the two most laughable parts of his economic theory. Or maybe his view on where the objective exchange-value of money comes from. Or maybes its the animal spirits. Actually, scratch that, it’s all pretty funny.

        Economics that doesn’t take human irrationality into account–that would be the theory to which you refer–is simply wrong economics.

        Your problem is with the real expectations school, not the Austrians. Mises and Hayek understood that humans were not Gods, and could not predict the wants of consumers perfectly. That’s why malinvestment would still happen in a free market.

        What you can’t explain is how cutting government spending will help anything.

        It’s been explained countless times. Cutting government spending frees up land, labor and capital for the private sectors, lowers interest rates, lowers inflation, lowers the debt (decreasing regime uncertainty), and so on. Your problem is that you haven’t been paying attention.

        I don’t think you can claim any of these things is far removed from the consumer.

        The whole point of the structure of production triangle is that it explains how some aspects of production are, in fact, incredibly far removed from consumer spending. Raw steels is never bought as a consumer good, it is always bought as a production good.

        Obviously the last sector where demand will sharply drop is basic necessities.

        Except according to Keynes first order consumer goods would see the sharpest decline as a result of a drop in consumer spending, and then it would send shock waves up into higher levels of production. Theoretically demand-driven recessions are impossible (I’ll get to this in a second), and empirically capital or capital-intensive industries are always hit first.

        But it’s still lack of demand that causes the glut, even if it is a chain reaction.

        The problem is that recessions are never a general glut. There’s always what Hayek called a “cluster of errors” in the higher-order stages of production, in capital. Some industries do perfectly fine and turn over handsome profits during a recession. So, by definition, it cannot be general if only certain industries are effected and others aren’t.

        Moreover, when people don’t purchase goods and services in one sector, they either have to purchase them in another, invest their money, or save it (add it to their cash balance). We had a “recession” in the horse and buggy industry when the automobile became popular. It wasn’t economic armageddon. If people invest more of their money, price differentials will shift in favor of capital industries and interest rates will fall, leading to an expansion of the structure of production and capital, making society wealthier in the long run (conversely, a negative savings rate causes capital consumption). If people add money to their cash balance (from a historical perspective the amount of money people keep on hand is incredibly low when compared to spending or investing), prices will fall and the purchasing power of the monetary unit will rise, inducing other actors in the economy to empty some of their now-“heavy” cash balances into goods and services. So the effect is offset.

        Now, what would happen if everybody stopped spending and investing? Well, then the market would respond to people no longer desiring goods or services by just shutting down. Could this happen? Sure. But so could Gary Johnson getting the Republican nomination.

        I don’t care if it was two Martians, the question is what policy led to what.

        I was just refuting your claim that Keynesians handled economic recessions better than their predecessors. No need to get your panties in a twist.

        Ramped-up spending led to growth and emergence, pulling back led to recession.

        Except it didn’t. The standard of living declined all throughout the New Deal and WWII, unemployment was never lowered by the New Deal itself (ever hear of the Roosevelt recession?), military build-up made the situations worse by pulling massive amounts of resources out of the economy, and we never fully recovered until 1946, a year after the war ended. It’s also the year that Harry Truman started to discharge millions of soldiers and have sweeping cuts be placed on the backs of the military. And yet, no recession. Odd, very odd.

        Oh, and don’t say “pent-up demand”. Consumer spending never came anywhere near to what government spending was during the war. Sorry.

        How do you squeeze an austerity solution to the depression into WWII and the New Deal?

        See a few paragraphs above.

        At the very least recovery happened in spite of the huge increase in spending.

        My God, I thought I’d never see the day.

        Indeed. And I’m only arguing in favor of raising taxes in the context of deficit reduction, which I don’t think should even be the focus right now.

        So, essentially, you’re a full on orthodox Keynesian when it meshes with altruist feel-good pragmatism, but you’re not when it doesn’t. Can’t have it both ways, pal.

        The real curiosity is why Republicans and you guys are making a Keynesian argument for keeping taxes low–that it would harm the economy to raise them.

        Austrians aren’t saying that because it would reduce the imaginary fiscal multiplier (which is the Keynesian explanation for why raising taxes are bad), but because it make it harder on individuals to thrive in an economy that’s in the middle of a corrective process, and would lead to economic inefficiency by putting more resources into the hands of central planners.

        The notion that we can never, ever raise taxes for any reason isn’t anyone’s theory. It’s absurd, dishonest fiscal hi-jinx with a political end.

        There are plenty of theories for why we should never raise taxes, or should abolish them altogether. None of them have to do with the “taxation is theft” argument, either.

        I do have a few requests for you to follow through on before you reply, though. Flip through The General Theory a few times so you actually know what you’re supposedly arguing in favor of, because it’s becoming increasingly clear that you don’t know much of anything about it. Two, please reply to the other points I made. I know they refer to icky and complicated topics like “the heterogenous nature of capital” and “the Hayekian triangle”, but they are relevant points in exposing Keynes as a sooth-sayer. Third, go read up on the Austrian school so you’ll stop confusing me for a real expectations theorist or a monetarist. Fourth, please, for the love of God, learn about the effects of credit expansion on the structure of production and interest rates, it would make things so much easier.

        1. Damn squirrels. Sorry about the double post.

        2. Moreover, when people don’t purchase goods and services in one sector, they either have to purchase them in another, invest their money, or save it (add it to their cash balance).

          The problem is that recessions are always a general glut–which, as Friedman was aware, contradicts Austrian theory. Your problem (and the Austrian school’s problem) is a lack of concern for empirical reality. What works beautifully in theory is often contradicted by facts. The only reason I subscribe to the neo-Keynesian school is because it is simply the most empirically based. Recessions involve a general decrease in demand. It’s not about money shifting around–the shrinking demand is caused by less purchasing power. No one has demonstrated a way to end the vicious cycle this causes in reality except the Keynesians.

          Recessions are made worse when the economic stability of most people is precarious: income inequality in this country mirrors what it did just prior to the GD. How people spend and invest is moot if we’re seeing spending power itself reduced for 99% of the population. This balance must be taken into account.

          Your lack of concern for facts in favor of theory is why you’re allowed to completely rewrite Great Depression history to suit your needs. No serious person thinks that some form of budget austerity led us out. The fact is that once FDR finally stopped trying to balance the budget and we ramped up spending enough for the war, the depression ended with unemployment falling below 10%.

          1. The problem is that recessions are always a general glut–which, as Friedman was aware, contradicts Austrian theory.

            You need to stop Googling talking points and actually figure out what you’re talking about.

            Friedman’s plucking model does not contradict anything in the Austrian business cycle theory. It does not saying anything about a “general glut” (Friedman was in stark opposition to Keynes on demand-drive recessions), just that total output falls during recessions. Great, Mises and Hayek have said this before, but in different terms. Friedman was disproving what he believed to be Austrian theory, not what actually is Austrian theory. The same goes for when Keynes disproved what he believed to be Say’s law (“supply creates demand”) rather than what actually is Say’s law (“supply constitutes demand). You, again, fail to comprehend basic economics.

            Your problem (and the Austrian school’s problem) is a lack of concern for empirical reality.

            “Lack of concern”? The Austrian school only opposes empiricism in discovering economic theory, not using economic theory to analyse empirical data. The law of ceteris parabus is not satisfied by empirical studies. But as Hayek rightly said, empirical data can be used to show when a theory fails to fully explain something. For example, when it contradicts Keynes’ claim that recessions are general gluts, or that they start in consumer industries and spread outwards.

            What works beautifully in theory is often contradicted by facts.

            Certainly. The aggregate demand model is tidy and neat, but fails on empirical and theoretical grounds.

            The only reason I subscribe to the neo-Keynesian school is because it is simply the most empirically based.

            Are you serious? Keynes built his entire economic doctrine in the black box of the paradox of thrift and the animal spirits. Nothing in Keynesianism comes close to resembling actual reality. I’m just retreading ground here.

            Recessions involve a general decrease in demand.

            You can repeat that as many times as you want Tony, it won’t make it true. It’s becoming evident that you’re not comprehending anything that I’m saying.

            It’s not about money shifting around

            You’re right, it’s caused by credit expansion.

            the shrinking demand is caused by less purchasing power.

            Economic growth is hampered by inflation, sure. Now you’re clearly grasping for straws and are contradicting statement’s that you’ve previously made.

            No one has demonstrated a way to end the vicious cycle this causes in reality except the Keynesians.

            Now you’re arguing in bad faith. This is why only the masochists like me ever have discussions with you. You’re impossible to debate because you constantly change the position you’re arguing from. First inflation is good, then it causes recessions. Make the claim that empiricism is the basis for economics, ignore empirical reality when it flatly contradicts Keynesianism. Say that WWII spending ended the depression, stay silent when the massive cuts in military spending didn’t start a new one. You are the most dishonest, disgusting person I’ve ever met.

            Recessions are made worse when the economic stability of most people is precarious: income inequality in this country mirrors what it did just prior to the GD.

            Income inequality has gotten progressively worse since the 30’s and 40’s. If this is what was a cause of recessions, then we should’ve been in an increasingly worsening one for the past 60 years.

            How people spend and invest is moot

            This is so laughably ignorant that now I’m starting to think that I’ve wasted precious time debating a sock puppet.

            we’re seeing spending power itself reduced for 99% of the population. This balance must be taken into account.

            Do you know what purchasing power is? Because it has nothing to do with where wealth is concentrated.

            Your lack of concern for facts in favor of theory

            The axioms used in Austrian economics, and to a lesser extent in every school of economics, are derived from reality ala Aristotelianism. People like Murray Rothbard made careers out of analyzing historical data in light of economic theory. The Mises Institute publishes daily columns on current events. Theories are facts if they’re deducted correctly.

            No serious person thinks that some form of budget austerity led us out.

            Appeal to ridicule and popularity.

            The fact is that once FDR finally stopped trying to balance the budget and we ramped up spending enough for the war, the depression ended with unemployment falling below 10%.

            Sure, because we all know jobs are an end in themselves and are the sole indicator of a healthy economy. I mean, let’s ignore the fact that standard of living in America saw a sharp decline throughout the war. All we need are jobs. That’s why North Korea, a country where the unemployment rate is zero, has the best economy ever. Because of jobs. Just jobs.

            1. Also….

              I do have a few requests for you to follow through on before you reply, though. Flip through The General Theory a few times so you actually know what you’re supposedly arguing in favor of, because it’s becoming increasingly clear that you don’t know much of anything about it. Two, please reply to the other points I made. I know they refer to icky and complicated topics like “the heterogenous nature of capital” and “the Hayekian triangle”, but they are relevant points in exposing Keynes as a sooth-sayer. Third, go read up on the Austrian school so you’ll stop confusing me for a real expectations theorist or a monetarist. Fourth, please, for the love of God, learn about the effects of credit expansion on the structure of production and interest rates, it would make things so much easier.

  16. Well, that’s the most terrifying thing today. How can we even consider raising our debt ceiling with this kind of burden?

    http://www.intellectualtakeout…..-questions
    http://sunshinereview.org/inde….._2011-2012

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