US Economics

[craigtempe]

If simply put, debt is loss of opportunity, what does that mean to distant future if nothing is done soon?

[iNow]

16 minutes ago, craigtempe said:

If simply put, debt is loss of opportunity, what does that mean to distant future if nothing is done soon?

Except when debt is a gain of opportunity, in an economy that can invest that debt and print money to pay it off or at least lower it’s real value. 

The US government is not a household. They need not budget as if they are. 

That said, I tend to agree we should address debt. One of the best ways to do so is to enforce tax laws and prosecute tax evasion. 

[Peterkin]

Curbing interest rates might help, as well. 

Fundamentally, Capitalism runs on debt: having to pay your investors back with interest is an incentive to grow (whether growth is needed or not, beneficial or harmful), which tends to generate more debt, etc. But it can be kept functioning for quite a long time with commensurate taxation and very strict regulation. 

Those are the somethings that need to be done in the very near future. Whether they can be done is a different matter:the  opposition is powerful and growing.

[swansont]

11 hours ago, craigtempe said:

If simply put, debt is loss of opportunity, what does that mean to distant future if nothing is done soon?

What kind if debt, whose debt, and why is this in ethics?

If I take on debt to start up a business, how is this a loss of opportunity?

[iNow]

1 hour ago, swansont said:

If I take on debt to start up a business, how is this a loss of opportunity?

Or get a mortgage on a house to move your children to a better school district with better air and water quality.

Or get a car loan so you can drive to a better paying job farther away.

Or take out a student loan to increase your future earnings potential and job opportunities.

Or ad infinitum....

 

Conclusions drawn from false premises are only ever correct by accident. 

[Peterkin]

Business debt is the least of it. The two big problem areas are national and household debt.

The first is largely spent on military ordnance, which returns no benefits or profits, but the interest can grow to be crippling to the entire economy. Even before that, it's used by conservatives, who pay the least tax, to reduce social services to the working people who pay most taxes, and defund government agencies like FEMA and CDC.  In a natural or man-made disaster, such agencies are incapacitated and the damage mounts up, so that governments have to borrow even more. 

On the household level, student debt or mortgage debt can very severely restrict an individual's or family's freedom to take advantage of opportunities that involve any financial risk. Marginal earners, with insecure employment, have to get to work - often two part-time jobs in opposite directions. They either rely on the inadequate-to-execrable public transport (that we 'can't afford' to improve because of municipal, state/provincial or national debt)  or have to buy a car. They don't clear enough to make large monthly payments, so they buy used cars at a much higher interest rate than well-to-do people with good credit, and pay out more over time than they would have on a new car that didn't need so many repairs. For the repairs, they resort to credit cards at $25-30% - they have no choice: if they can't get to work, they lose the job and the car is repossessed - but they still have to pay off the credit card, only with less income. So they get sick, and of course marginal employers don't provide health insurance and low-paid workers can't afford private plans. One ambulance ride or hospital stay, or even just tests and drugs, can wipe out the foreseeable finances of a whole family: they spend all of their disposable income paying off massive debt. No education for those kids! No better apartment, and no risk-taking for the parents: they'll have to take whatever job they can get and put up with whatever it entails.     

Meanwhile, the money-lending industry makes stupefying profits, without creating any material wealth. The shareholders can do as they please with those profits: they are under no obligation to reinvest any profit in the country that produced it. After whatever tax they can't evade, they can take that money to China or bury it in Bitcoin or salt it away in secret offshore accounts.

When the investment industry overheats and causes a depression, millions of debtors default. Manufacturing is already a shrinking and soon-to-be extinct source of employment with benefits and salaries as robots take over. Career opportunities expand in professions with long, expensive training, that add nothing new to the GDP, even though they funnel large quantities of money from one bank to another, many of them increasing consumer debt.

There is a good chance of a single climate event or political folly collapsing the economy.  

[TheVat]

14 hours ago, craigtempe said:

If simply put, debt is loss of opportunity, what does that mean to distant future if nothing is done soon?

It is not debt per se that is the problem,  it is debt maintenance (interest payments to those holding treasury bonds) that threatens to become a larger and larger part of my nation's annual budget.  If the USA is paying $450 billion per year on debt maintenance, that is $450 billion of collected revenue that cannot be used for things like education,  housing improvement, roads,  environmental protection, etc.   When debt maintenance becomes most of the budget is when countries tend to undergo an economic collapse.  This snowballs when the debt is defaulted on and citizens,  some of them holding the debt in the form of bonds,  lose that bond income. 

So,  yes,  we need to fix this and bring back fiscal responsibility.  Neither US party is much interested in doing this.   

[swansont]

37 minutes ago, Peterkin said:

The first is largely spent on military ordnance, which returns no benefits or profits,

Money spent goes into the economy

37 minutes ago, Peterkin said:

but the interest can grow to be crippling to the entire economy.

Hypothetically

37 minutes ago, Peterkin said:

Even before that, it's used by conservatives, who pay the least tax, to reduce social services to the working people who pay most taxes, and defund government agencies like FEMA and CDC.  In a natural or man-made disaster, such agencies are incapacitated and the damage mounts up, so that governments have to borrow even more. 

When debt is only a problem when the other side is in power, then you know that the debt isn't really the problem.

[TheVat]

Reducing national debt,  to reduce the drain of debt maintenance, is politically unpalatable to both parties.  In a representative democracy,  who is going to tell constituents that we need to tax everyone more to fix this?  Democracy,  as many have pointed out,  is not the optimal system for implementing harsh policies that voters (and powerful plutocrats) find repellent.   It favors shortsighted feel-good measures.  Unless politicians take on the task of educating their constituents rather than pandering to them.   

[iNow]

The risk of debt is being unable to borrow more at low interest rates. Too much debt means we're seen as too risky to lend more and interest rate on that lending jumps up.

We can borrow at nearly 0% interest right now. I'd say debt isn't the problem seasonal deficit hawks are claiming it is. 

[TheVat]

It's not lending rates now,  it's that we (USA) carry debt in the form of treasury notes that people have held for years.   Hundreds of billions.   Think how many low income kids could achieve the dream of college with that kind of money.   I guess some people think I'm weird being both left of center AND a fiscal conservative on debt. 

If everyone held the debt,  that is,  all Americans, much less a problem.   Unfortunately we are shipping a lot of those interest payments to either elderly Asians on pension plans or to a small percent of Americans who are wealthy investors.   Half of Americans do not have investments of any kind.   So we're not really just "paying ourselves interest. "  

[iNow]

I think perhaps you're conflating personal/household debt with government/US debt. They're different in important ways (last I checked, I don't have a money printing press in my basement or the ability to write trade legislation with other nations)

 

EDIT: I also cannot with the stroke of a pen decide whenever I want to collect additional revenues from my employer. The government, however, can tax whom and however much they want to whenever they want. 

Edited September 8, 2021 by iNow

[CharonY]

11 minutes ago, TheVat said:

It's not lending rates now,  it's that we (USA) carry debt in the form of treasury notes that people have held for years.   Hundreds of billions.   Think how many low income kids could achieve the dream of college with that kind of money.   I guess some people think I'm weird being both left of center AND a fiscal conservative on debt. 

If everyone held the debt,  that is,  all Americans, much less a problem.   Unfortunately we are shipping a lot of those interest payments to either elderly Asians on pension plans or to a small percent of Americans who are wealthy investors.   Half of Americans do not have investments of any kind.   So we're not really just "paying ourselves interest. "  

I think it is wrong to think of it as lost money. After all it was generated by spending and I think that your main criticism is not debt per se, but what the money was spent on. I think many fiscal conservatives are also confusing that matter a bit. As iNow suggested, lending at low rates can in effect increase your revenue, if you can invest it to get a better return.

Quote

If one had to draw on the corporate sector for analogy, an example might be a bank. A significant amount of debt issued by banks is in the form of insured deposit liabilities. Because insured deposits are safe and because they constitute money, investors are willing to carry deposits at low yields. As a result, deposits are a very cheap source of funding for banks.

This low-cost source of funds is used to carry higher return assets, like mortgages and business loans. One might say that the net carry cost of debt, in this case, is negative. To the extent that the federal government invests in programs designed to enhance productivity (e.g., healthcare and infrastructure), the same thing might apply to the national debt, which is willingly carried by investors at relatively low yields.

But even if government expenditures do not generate high pecuniary rates of return, the federal government may still be in a position to carry its debt at an effective negative rate. This would be true, for example, if the interest rate on the national debt was on average less than the growth rate of the economy or, as the condition is expressed in more technical terms, if r ‹ g.

It follows as a matter of simple arithmetic that if r ‹ g, then the government is in position to run a primary budget deficit indefinitely—that is, the effective carry cost of the debt is negative, even if the interest rate on the debt is positive.⁵ Figure 1 plots the year-over-year growth rate in nominal GDP against the five-year Treasury constant maturity rate.

https://www.stlouisfed.org/publications/regional-economist/fourth-quarter-2020/does-national-debt-matter

The actual discussion should be whether 1 billion in the military yields a better net than, say a billion in education, or infrastructure. In many cases that is what fiscal conservatives actually mean rather than issue of debt itself (except when conflating it with personal debt which, as the link above highlights, is mechanistically entirely different).

Unfortunately the specter of debt is often invoked in order not to invest into something (often if it runs counter the ideological principles of a given party) and in effect can hinder the economy. There are certain relationships that were thought to be indicative of economic stability (e.g. relationship between GDP and national debt) but empiric evidence have shown that not to be true. I think the discussion should really be in what do invest when cost of borrowing is low, so that we can have a solid foundation for the future, when it might not be.

 

[swansont]

9 minutes ago, CharonY said:

Unfortunately the specter of debt is often invoked in order not to invest into something (often if it runs counter the ideological principles of a given party) and in effect can hinder the economy. There are certain relationships that were thought to be indicative of economic stability (e.g. relationship between GDP and national debt) but empiric evidence have shown that not to be true. I think the discussion should really be in what do invest when cost of borrowing is low, so that we can have a solid foundation for the future, when it might not be.

Indeed. The desire to spend the money on a specific target colors the attitudes a great deal. Not so much the economic benefit, though the economic benefit narrative - often decoupled from the facts - can come into play. See e.g. trickle-down economics; even though direct benefits to the poor would have a much larger impact, these are the undeserving poor (from the narrative) so we must instead help the rich.

26 minutes ago, TheVat said:

It's not lending rates now,  it's that we (USA) carry debt in the form of treasury notes that people have held for years.   Hundreds of billions.   Think how many low income kids could achieve the dream of college with that kind of money. 

But we could do that anyway. Instead, we get tax cuts for the rich.

[TheVat]

To all who gave such incisive replies -- I'm not saying we can't just up corporate tax rates and tax on the wealthy, I'm saying the constant tension of real politics is against doing so to the degree that needs to be done to achieve social and green goals.  Politics is called "the art of the possible. "   Given that reality of an entrenched anti-tax culture (oh,  it would be great to be Denmark, but...) in the US,  it would be better if we weren't putting so much of the federal budget towards debt maintenance and sending those billions more directly to citizens most in need.   But,  don't get me wrong,  I am not knocking the attempt to majorly increase tax revenue collection, and bring about a renovation process in housing, education, healthcare,  etc. and really get people in Podunk to believe their taxes work for them.  I admire the Bernies and Alexandrias who idealistically fight for that.   But I'm pessimistic that they can counter the current power of shadow plutocrats and their grip on social media and a dark-money driven election process. 

[iNow]

Those issues are valid. They deserve attention and resolution. They are also different from “debt is bad” which was the subject under discussion here. 

The OP was simplistic to the point of being useless though, so it probably doesn’t matter. 

Edited September 8, 2021 by iNow

[Endy0816]

I think we'll just replace the Dollar at some point. Fix our debt problem that way instead and then start over.

[Peterkin]

5 hours ago, swansont said:

Money spent goes into the economy

Some of the money spent goes into the economy. Munitions manufacturers employ workers who pay taxes and live in the US. Does that offset the debt servicing and environmental cost the government undertakes? Half of what they manufacture is shipped - at great cost to the taxpayer - overseas to be blown up (none of that raw material or human labour is coming back into the economy).   The other half (47%) is exported to foreign countries - including those unfriendly to US interests, and which sales encourage future wars and diplomatic embroilments that will cost the US more down the line.  The shareholders pay as little tax as possible and take the profits wherever they want to. They also import many expensive components, shipping more tax-money abroad.  And they add nothing tangible to welfare of the population ... no, that's not quite true: municipalities can buy outmoded tanks and bazookas for their police at quite reasonable prices. Their hospitals get lots of casualties.  On the whole, I strongly suspect th arms industry, in spite of $multi-billion role in the economy is a net drain, if we tallied all the peripheral costs that rarely appear on ledgers. 

5 hours ago, swansont said:

6 hours ago, Peterkin said:

but the interest can grow to be crippling to the entire economy.

Hypothetically

Hence the word "can". It has happened on several occasions, in several countries.  If it happens in a major economic power, it can topple others. 

5 hours ago, swansont said:

When debt is only a problem when the other side is in power, then you know that the debt isn't really the problem.

No, it's a problem all the time, for all parties, at all levels of government, and for a great many, if not the majority of families. The polarization of politics merely exacerbates the accumulation of debt at all levels, as does lack of regulation. 

 

[iNow]

4 minutes ago, Peterkin said:

I strongly suspect th arms industry, in spite of $multi-billion role in the economy is a net drain

Then support this conclusion. Maybe you’re right. Maybe you’re FOS. Your suspicions, however, will convince nobody. 

5 minutes ago, Peterkin said:

It has happened on several occasions, in several countries. 

The US is not equivalent to Venezuela or Zimbabwe in the way you’re trying to suggest 

6 minutes ago, Peterkin said:

No, it's a problem all the time, for all parties, at all levels of government, and for a great many

How so, specifically? As I noted above, the risk posed by debt is others will become unwilling to lend to us at favorable interest rates. Last I checked, interest rates on lending to the US remain at historic lows. 

[Peterkin]

2 hours ago, iNow said:

Then support this conclusion.

I just lost an entry with three quotes, but I'll try to retrieve them.

Quote

https://www.thenation.com/article/archive/heres-where-your-tax-dollars-for-defense-are-really-going/It goes directly to private corporations and much of it is then wasted on useless overhead, fat executive salaries, and startling (yet commonplace) cost overruns on weapons systems and other military hardware that, in the end, won’t even perform as promised.

Quote

In the limited time we have today, I cannot possibly delve into every fascinating aspect of U.S. nuclear weapons—from the enormously costly but ultimately futile attempt to develop a nuclear-powered strategic bomber, to plans to deploy nuclear missiles underneath the Greenland icecap, to an early and highly secret effort to detect Soviet nuclear tests which inadvertently helped spawn the myth that aliens crash-landed in Roswell, New Mexico, to the numerous bunkers and command posts built in the 1950s and 1960s to allow military and civilian leaders to run the country during and after a nuclear war.

Quote

From 1940 through 1996, we spent nearly $5.5 trillion on nuclear weapons and weapons-related programs, in constant 1996 dollars.

That's just making them. Then, there are the waste products

Quote

the total price tag goes to $1.74 trillion over three decades.

 And when you don't want them anymore, destroying them.

Quote

The U.S. Army’s Chemical Materials Agency oversaw the destruction of just over 28,364 tons of chemical weapons—nearly 90 percent of the U.S. stockpile—for an estimated cost of $28 billion. That’s about $1 billion per 1,000 tons.

That doesn't even get into transportation, storage and guarding, and it doesn't even approach the waste form the factories themselves, the cost of cleaning those up, or the health hazards they cause the surrounding communities.  

[iNow]

I am fine redirecting our bloated defense budget on to better expenditures, but the opinion pieces above don’t account for jobs created in the industry nor how the people working them have invested into their communities or sent their kids to better schools to become job creators themselves, nor how the protections our military gives to our global allies improve trade treaties, etc. 

Anyway, this thread is about debt and while defense expenditures play a big role in that, it’s not the biggest.

Its also a mistake to treat this as a zero sum game where we’re all fighting for the same one pie… or as pure cost when they’re actually investments with returns. There are surely better investments to be made, but putting money into X doesn’t mean we lack money to put into Y, especially not when we’re discussing the US government which can print money and collect additional revenue with the stroke of a pen. 
 

 

https://www.visualcapitalist.com/u-s-federal-governments-spending-data-single-unified-data-set/

[Peterkin]

1 hour ago, iNow said:

but the opinion pieces above don’t account for jobs created in the industry

The 'opinion pieces' (only a fraction of the actual cost of the armaments industry) are backed up by some pretty solid numbers and research. If you see the balance tipping in favour of the American taxpayer, I'd like to see the figures. Thing 1 about government spending : how much is borrowed to cover it and who collects the interest? Thing 2 about government spending: How much does it benefit the nation as a whole? Thing 3 about government spending: What is the ratio of contribution to benefit?

Certainly, the revenue for the export of military ordnance is big $ figures, but the profit goes to the shareholders of those corporations, who can use or reinvest it however they want. It might stay in the same economy that generated the profits or go wherever they take it. But the government contracts have to come from the taxpayers and the incidental costs have to be borne by the taxpayers.

The other government expenditures, whether financed from contributions or with loans or a combination, the recipients of those moneys stay inside the country, spend it inside the country and create some wealth that doesn't jeopardize people or have to be neutralized later at the expense of the same people who paid for making it and paid again for moving it around and paid again for cleaning up after it and paid again for the damage it did to their environment.

 

 

1 hour ago, iNow said:

Anyway, this thread is about debt and while defense expenditures play a big role in that, it’s not the biggest.

Maybe not, but it seems to to jump for every war. https://www.theatlantic.com/business/archive/2012/11/the-long-story-of-us-debt-from-1790-to-2011-in-1-little-chart/265185/

Not one bullet or bomb or shattered jeep is ever coming back into the US economy, but the interest payments still have to be kept up after they're gone.

Edited September 9, 2021 by Peterkin
one word

[iNow]

14 minutes ago, Peterkin said:

If you see the balance tipping in favour of the American taxpayer, I'd like to see the figures.

Nice try at trying to shift the burden of proof to me, but I’m not the one making the claims ergo the onus is yours. 

14 minutes ago, Peterkin said:

Thing 1 about government spending : how much is borrowed to cover it and who collects the interest?

Depends on what’s being paid for and from whom it was borrowed. Was that a genuine question? 

Edited September 9, 2021 by iNow

[Peterkin]

I've supported my claims. I'm asking you to support yours.

1 hour ago, iNow said:

account for jobs created in the industry nor how the people working them have invested into their communities or sent their kids to better schools to become job creators themselves, nor how the protections our military gives to our global allies improve trade treaties, etc. 

 

[iNow]

24 minutes ago, Peterkin said:

Thing 2 about government spending: How much does it benefit the nation as a whole?

There’s no objective metric for this. It depends on how you measure it and who you ask. The way you’ve framed the question, however, is like “on a scale of 1 to awesome, how many chili dogs is this” and that leaves us wanting. 

24 minutes ago, Peterkin said:

Thing 3 about government spending: What is the ratio of contribution to benefit?

Again… benefit for whom, and by what measure?  

24 minutes ago, Peterkin said:

the revenue for the export of military ordnance is big $ figures, but the profit goes to the shareholders of those corporations,

Right, and also to others… some of whom I referenced before you made this post.  

24 minutes ago, Peterkin said:

The other government expenditures, whether financed from contributions or with loans or a combination, the recipients of those moneys stay inside the country,

Wait, what? Will you please clarify what you’re trying to say here? 

8 minutes ago, Peterkin said:

I've supported my claims. I'm asking you to support yours.

Again, nice try, but NO. I didn’t make a claim. I highlighted how the source you provided for yours was found lacking. 

Also, to repeat… I find the US military budget extremely bloated and would much prefer those expenditures redirected elsewhere. I just can’t allow such simplistic and elementary errors of thought such as yours to stand in a discussion that itself has real answers that are not opinion-based. 

We can spend money on other things even if we do nothing whatsoever about our bloated military budget. The debt only becomes a problem if we’re prevented from cheaply taking on more or raising revenues to reduce it. Neither of those limitations exist today, nor are they likely to present themselves at any time in the near future. 

Edited September 9, 2021 by iNow