The Budget Battle

[Marat]

I have a few criticisms of Captain Panic's interesting theory.

 

First, it has to be recognized that the category of 'bad investments' can never be radically diminished or negated, since that would be like trying to design a perpetual motion machine by discounting friction. Every economic system necessarily generates friction, and most of what you describe as 'bad investments' are necessary expenditures to address the problems of friction. Thus in a certain percentage of all exchanges and interactions in a capitalist economy there will be disagreements and injuries, and these have to be resolved in a palpably fair and rule-governed way that ensures social cohesion despite these conflicts. The category of worker who deals in the application of these rules to deal with the friction in capitalist exchanges is called a 'lawyer,' so you can't just dismiss them all without losing an essential mechanism for greasing the wheels to reduce friction in the machinery. Similarly, Wall Street is necessary in a capitalist economy to direct the supply of productive forces and surplus capital to where it is needed and can profitably be invested, and without a huge army of experts in addressing the friction created by the resource distribution problem, the machinery of the economy would collapse. So you can't just fire all the stock brokers, commodity analysts, investment bankers, etc., without leaving the distribution friction problem unaddressed.

 

Second, you can't analyze a modern economy simply in terms of tangible productive forces without reference to money, since no modern national economy is entirely self-contained, but rather, all economies operate in interaction with the world economy. The levers which govern the interaction of the national economy with the world economy do not exist in the form of machines, skilled and unskilled labor, or natural resources, but are instead abstractly represented as cash, fluctuating currency values, and debt, so you cannot just consider the economy in the purely material terms your analysis initially proposes.

 

Third, we have to think in terms of the real value for real human beings produced by the economy and not just in terms of total commodity production or total GDP. The idea of 'gross national happiness' as a concept to replace GNP has been proposed recently in an attempt to reflect the fact that what really constitutes the productivity of an economy is its capacity to make the people living in it happy -- rather than just in the total weight of trinkets that can be manufactured and heaped up. By this measure, what you call 'neutral' redistributions of wealth from one person to another can actually be extremely profitable in producing greater amounts of real human happiness, even if they leave to total economy still at the same size as prior to the transaction. Thus, for example, if an individual who now has $10 billion in personal wealth has 1000 units of personal happiness from this (how many pairs of shoes can he wear at the same time? how many rooms of his house can he enjoy at the same time?), and a street person living in a dumpster now has just one unit of personal happiness as a result of his poverty, we can probably raise his happiness to 100 units of personal happiness by transferring to him just $100,000 of the billionaire's money. If we repeat this operation 100,000 times, as we can we the total cash available, then we will have a total of 10,000,000 units of personal happiness at the end of all the exchanges from the rich individual to the destitute ones, whereas before we only had only 101,000 units of personal happiness with exactly the same amount of money. Rational redistribution of wealth to produce greater equality by answering more of the basic needs of people at the cost of sacrificing personal luxuries will always produce a net gain in human happiness with no additional resources.

[Pangloss]

So yes, people want the budget cut, but without cutting any specific program or programs. And I want a pet unicorn. Some wishes are unreasonable.

This does not mean that the majority support the current level of spending by the government. It just means they don't agree on what, specifically, should be cut.

[Mr Skeptic]

This does not mean that the majority support the current level of spending by the government. It just means they don't agree on what, specifically, should be cut.

 

Sure it does. When you average the people together, they support the current spending level of the government. If this were not the case, then you could give a counterexample. Go ahead and try to find any counterexample: give me any non-contradictory budget reduction proposal that the majority would agree on. You can't do it. People want lower taxes that would be implied by spending cuts, they don't want the spending cuts. They want to have their cake and eat it. And they can't have both. And their choice is clear: we wish we could cut spending, but don't you dare do it.

 

What it comes down to is that people have conflicting desires. But it is clear which of those wins.

[Pangloss]

Nevertheless, that doesn't mean the majority supports current spending. This new poll from USA Today shows a statistical dead heat between proponents and opponents of spending cuts:

 

48% opposed reducing or eliminating government programs while 47% were in favor of cuts.

http://www.usatoday.com/news/nation/2011-02-22-poll-public-unions-wisconsin_N.htm

 

But 71% oppose a tax increase. Huh. How clear is it now?

[Mr Skeptic]

That exactly supports what I've said.

[Pangloss]

No it doesn't, it shows people divided, not a majority in support of current spending.

 

The majority already agrees with higher government spending than would be allowed by our current tax revenue. Now they just need to be convinced that they should pay for it instead of borrowing it.

 

This does not mean that the majority support the current level of spending by the government.

 

Sure it does.

 

48% opposed reducing or eliminating government programs while 47% were in favor of cuts.

[Mr Skeptic]

OK, let me give a specific example. Let's say we have 3 people, each of which would be willing to spend no more $1 for 1/3 of their favorite pie, but nothing for any other flavor. One wants apple, the other wants peach, and the third wants cherry, and they are at a restaurant that offers these pies for $2 each. Now, you can average these three people together and say that 100% of them want pie and are willing to pay a total of $3 for the pie. However, you can see that is just lying with statistics when you notice that they don't buy the pie and split it 3 ways. They don't want a pie.. they want a specific pie. The people in this example are united in agreeing that none of them wants to buy any pie at that price, yet they are united in agreeing that they would want "a pie".

 

People want to reduce government spending, but not just any spending -- they to have their favorites. You cannot average out disagreement into agreement, it just doesn't work that way in reality. If you pool people who disagree together, you have to cancel out the bits they disagree on. Ignoring the fact the people disagree and then claiming they are in agreement is disingenuous. As you yourself said, they are divided about reducing spending -- and that means not a majority. The flip side is that if there is not a majority for reducing spending, it means there must be a majority for either the current spending or greater.

 

Remember, reducing "spending" is not an option. Specific things have to be cut, not "spending". Wishing to cut "spending" without wishing to cut any program is nothing but wishful thinking. As I said before, feel free to show that the majority really does want to cut actual spending on actual programs rather than just engage in wishful thinking, by showing an example of a budget reduction proposal that is not self-contradictory and the majority agrees on.

 

From your article:

Almost two-thirds of those polled say their states face budget crises, but respondents oppose or are split on potential solutions, from tax hikes to spending cuts.

 

No one is in favor of any reductions. In theory yes, in practice no.

 

48% opposed reducing or eliminating government programs while 47% were in favor of cuts.

 

Read it again. It says 48% oppose cutting or eliminating certain state programs, compared to the only 47% who support such cuts.

[Pangloss]

Well I agree with what you're saying there, I just don't think it's quite as hopeless as all that. People don't like their favored programs to be cut, but I think if you poll specific issues you never find 100% of the people in support of maintaining fund on that specific item. So it's just a matter of getting people to go along for a generally unpleasant ride.

 

IMO the best way to do it is to stop lumping things together in packages and force individual votes on each issue. Politicians hate that because it puts them on record as opposing a specific issue when they really just want to cut spending, but the people would support that kind of approach because each issue would essentially be given an up-or-down vote.

 

Requiring a majority public consent on each issue would straighten out the budget. It would just take too long to implement. But if the politicians can't straighten things out, we'll dump them and elect different ones. That's what happened in 2008.

[CaptainPanic]

I have a few criticisms of Captain Panic's interesting theory.

 

First, it has to be recognized that the category of 'bad investments' can never be radically diminished or negated, since that would be like trying to design a perpetual motion machine by discounting friction. Every economic system necessarily generates friction, and most of what you describe as 'bad investments' are necessary expenditures to address the problems of friction. Thus in a certain percentage of all exchanges and interactions in a capitalist economy there will be disagreements and injuries, and these have to be resolved in a palpably fair and rule-governed way that ensures social cohesion despite these conflicts. The category of worker who deals in the application of these rules to deal with the friction in capitalist exchanges is called a 'lawyer,' so you can't just dismiss them all without losing an essential mechanism for greasing the wheels to reduce friction in the machinery. Similarly, Wall Street is necessary in a capitalist economy to direct the supply of productive forces and surplus capital to where it is needed and can profitably be invested, and without a huge army of experts in addressing the friction created by the resource distribution problem, the machinery of the economy would collapse. So you can't just fire all the stock brokers, commodity analysts, investment bankers, etc., without leaving the distribution friction problem unaddressed.

Meh.

I never suggested it's a black or white option. Zero or one. I have mentioned multiple times that I do not wish to close down Wall-Street, I do not wish to shut down the entire justice system.

 

I just said that your systems went over the top, and became too big. It must become smaller.

 

When a business reduces its overhead, it doesn't fire its entire financial department, and go without financial control - it reduces the number of employees. I suggest that the same might be useful in the USA (and Europe).

 

Second, you can't analyze a modern economy simply in terms of tangible productive forces without reference to money, since no modern national economy is entirely self-contained, but rather, all economies operate in interaction with the world economy. The levers which govern the interaction of the national economy with the world economy do not exist in the form of machines, skilled and unskilled labor, or natural resources, but are instead abstractly represented as cash, fluctuating currency values, and debt, so you cannot just consider the economy in the purely material terms your analysis initially proposes.

You dismiss my simplified, but understandable model, and replace it by some subsets of the actual problem.

 

I never said that cash, fluctuating currency values, and debt cannot be part of an economy. I am not saying we abandon it. I'm just saying that if you look at the overall Big Picture, then all that matters is labor and resources on one end, and goods and services on the other end. IN and OUT. What happens between the IN and OUT must be optimized. And it is not optimal.

 

Why wouldn't we be able to regard indeed the entire globe as a system of labor and resources? Nature sure as hell doesn't need cashflow, fluctuating currency values, and debt to make an economy. (Yes, nature itself is a form of economy as well, and if you fail to see that, then you really have to go further back to the roots of our economy).

 

Third, we have to think in terms of the real value for real human beings produced by the economy and not just in terms of total commodity production or total GDP. The idea of 'gross national happiness' as a concept to replace GNP has been proposed recently in an attempt to reflect the fact that what really constitutes the productivity of an economy is its capacity to make the people living in it happy -- rather than just in the total weight of trinkets that can be manufactured and heaped up. By this measure, what you call 'neutral' redistributions of wealth from one person to another can actually be extremely profitable in producing greater amounts of real human happiness, even if they leave to total economy still at the same size as prior to the transaction. Thus, for example, if an individual who now has $10 billion in personal wealth has 1000 units of personal happiness from this (how many pairs of shoes can he wear at the same time? how many rooms of his house can he enjoy at the same time?), and a street person living in a dumpster now has just one unit of personal happiness as a result of his poverty, we can probably raise his happiness to 100 units of personal happiness by transferring to him just $100,000 of the billionaire's money. If we repeat this operation 100,000 times, as we can we the total cash available, then we will have a total of 10,000,000 units of personal happiness at the end of all the exchanges from the rich individual to the destitute ones, whereas before we only had only 101,000 units of personal happiness with exactly the same amount of money. Rational redistribution of wealth to produce greater equality by answering more of the basic needs of people at the cost of sacrificing personal luxuries will always produce a net gain in human happiness with no additional resources.

I agree - happiness should be in the discussion. But it's not...

We're talking about the US deficit, and how to solve it. I proposed to fix the economy by cutting the most useless programs. You cannot fix a financial deficit with increased happiness.

[lemur]

I agree - happiness should be in the discussion. But it's not...

We're talking about the US deficit, and how to solve it. I proposed to fix the economy by cutting the most useless programs. You cannot fix a financial deficit with increased happiness.

It's not completely true what you're saying. People spend more money when they're unhappy. This spending drives GDP but it also creates demand for debt to borrow more money to spend, which creates the deficit/pricing cycle that keeps people unhappily in debt.

 

Plus, if people really loved their work/jobs, they would have no reason to want more than meager pay, because their work would be like recreation for them. Of course there are always going to be things you want outside of work, but the point is that the reason many people work so hard is to save up so they can stop working, because they don't like working. Do you think people who love their jobs more than anything in their lives and get paid very well for them are complaining about taxes? I don't think so. I think it's the people who are doing jobs they don't like and trying to save up to retire or just to do something away from work to get their minds off their work that don't like losing income to taxes.

 

 

[Marat]

Once it is agreed that we need some overhead costs to deal with the 'friction' generated by the economic and social system, then we get into the problem of how much we need. For all we know, the present overhead costs are already the minimum which the system requires. If you look at the justice system, for example, administrative boards often apply the law, but there simply aren't enough trained lawyers for all the members of administrative tribunals to be lawyers, so they make legally idiotic mistakes, which courts then have to correct -- if the people injured by those mistakes are sufficiently persistent to correct the errors made. Justices of the peace and magistrates in many jurisdictions (e.g., England) are not always lawyers, again because there simply aren't enough available, even though these officers should be professionally staffed. Legal aid facilities for the poor are understaffed everywhere, again because there aren't enough lawyers to meet the demand. So it seems that an optimally just system should have to employ many more lawyers than there now are.

 

You say that "you cannot fix a financial deficit with increased happiness," but perhaps you can, though indirectly. If the society were to direct its limited resources to produce the greatest amount of human happiness per dollar available, this rational application of funds would eliminate the huge amount of waste which now exists as a result of using money for luxuries of the few who are already rich -- which produce only marginal increases in happiness -- rather than the basic needs of the many who are not rich -- which produce vast increases in happiness. Since the deficit can be seen as the shortfall between the demand for taxes to provide services for the poor and the resistance to taxes generated by the desire of the rich to maintain their luxuries which are massively inefficient and wasteful in producing real human happiness compared to basic need satisfaction, this elimination of waste could also logically eliminate the deficit. You make one person happy with a yacht, but you make a thousand people happy if the value of the yacht is taxed away from the rich person and redistributed as basic shelter for a thousand homeless people.

[lemur]

You say that "you cannot fix a financial deficit with increased happiness," but perhaps you can, though indirectly. If the society were to direct its limited resources to produce the greatest amount of human happiness per dollar available, this rational application of funds would eliminate the huge amount of waste which now exists as a result of using money for luxuries of the few who are already rich -- which produce only marginal increases in happiness -- rather than the basic needs of the many who are not rich -- which produce vast increases in happiness. Since the deficit can be seen as the shortfall between the demand for taxes to provide services for the poor and the resistance to taxes generated by the desire of the rich to maintain their luxuries which are massively inefficient and wasteful in producing real human happiness compared to basic need satisfaction, this elimination of waste could also logically eliminate the deficit. You make one person happy with a yacht, but you make a thousand people happy if the value of the yacht is taxed away from the rich person and redistributed as basic shelter for a thousand homeless people.

I think you keep making the mistake of confusing wealth and income with spending and distribution of resources as all being linearly related. In reality, you can't redistribute labor for building a yacht as labor to build basic shelter for a thousand homeless people because the two are not in conflict because of resource-scarcity in the first place. It's not that there isn't enough materials or labor to build housing for the poor; it's that buying the materials and paying for the labor to build such housing costs money because everyone involved is involved in rat race to attain a middle-class lifestyle. This means that if you would tax a yacht-owner and put the money into building housing for the poor, that money would quickly go into raising middle-class income, which would drive the competition to charge that much more for building materials.

As a result, a certain number of people would fall into poverty while the standard of living of the middle-class was increasing by small steps.

 

What I think would help would be if people, especially middle-class people, would become happier with less. Middle-class culture seems to have the bad-habit of people judging each other for various forms of status from where you went to school to what kind of clothes you wear to what kind of food you eat, what you do on vacation, etc. This results in a great deal of unhappiness at trying to keep up in terms of social status and popularity. Also, middle-class culture seems to promote the idea that doing menial labor is bad, which causes middle-class people to consume a lot more services that require many people to accept lower-class jobs to facilitate the middle-class lifestyle. So if middle-class people were happier with eating at home more and cleaning their own houses, etc., the people who get stuck doing those jobs could be free to become middle class too.

 

What happens when you try to redistribute from the rich-down, is that the redistribution trickles up and raises middle-class income and/or increases the number of people with middle-class salaries. Then, the first thing people want to do when their income goes up is consume more services by going out to eat more, staying in hotels more, etc. So this actually increases the burden on lower-class service workers to provide the perks of middle-class consumption. And, what's more, I don't think class-elevation really makes people happy because they always feel a little uncomfortable with others cleaning up after them, etc. So I think economic happiness would increase if people had more access to do more things for themselves and do more things in general that require less service labor and other resources.

 

 

 

[CaptainPanic]

Once it is agreed that we need some overhead costs to deal with the 'friction' generated by the economic and social system, then we get into the problem of how much we need. For all we know, the present overhead costs are already the minimum which the system requires. If you look at the justice system, for example, administrative boards often apply the law, but there simply aren't enough trained lawyers for all the members of administrative tribunals to be lawyers, so they make legally idiotic mistakes, which courts then have to correct -- if the people injured by those mistakes are sufficiently persistent to correct the errors made. Justices of the peace and magistrates in many jurisdictions (e.g., England) are not always lawyers, again because there simply aren't enough available, even though these officers should be professionally staffed. Legal aid facilities for the poor are understaffed everywhere, again because there aren't enough lawyers to meet the demand. So it seems that an optimally just system should have to employ many more lawyers than there now are.

Keeping all other things the same, can you reduce the number of lawyers? No.

 

But why would you keep all other things the same?

 

It sounds like the people in the financial department in a large company. They're being told that they have to be more efficient with less people.

At first, they oppose. They say that "it's impossible, and management has lost its mind, because you can't do the same work with less people".

 

Then some people start to think outside the box, and someone realizes that this simply means that they must reduce the amount of work that is being done... Rather than doing all the tasks, they scrap some unnecessary tasks.

 

I have no idea how we can achieve this... all I know is that we have to.

[Marat]

Hegel said that the state has to be the embodiment of justice on Earth, and since the demands of justice are of a well-determined magnitude now -- as measured in the number of justices of the peace, magistrates, and administrative tribunal judges without law degrees but nonetheless applying the law, and indigent clients unrepresented by lawyers but needing representation before a court -- we can't just waive those demands away as though they were arbitrary.

 

Perhaps a better way to save money would be by cutting expenditures devoted to sustaining the massively expensive national religion, which consists in maintaining the illusion that we can make ourselves great by having 3000 tanks stockpiled at a cost of $10,000,000 each, or 14 aircraft carriers at $4 billion each with planes and equipment, even though there is no way they can profitably be used to address our real problems, such as making the wheat grow faster in Kansas, fixing the roads in New Jersey, improving the inner city schools in New York, or solving the shortage of affordable healthcare everywhere.

 

Obviously spending more than we take in each year is foolish, since the disconnect between income and outgo creates an obligation to devote more and more of the budget to interest payments, which buy nothing of real value for the country. This disconnect between taxation and expenditure arises in part because we are not as cruel as we aspire to be, and we still pay more for entitlement programs that manifest human solidarity with the poor and the sick than we are willing to take in as taxation. Since the level of humanitarian spending domestically in the U.S. is quite low compared to other developed countries -- and it also fails to fulfill our duty as a country dedicated to freedom to ensure that everyone has sufficient material means to be able meaningfully to access the possibilities of living a truly free life, that is, a life not so oppressed by material needs that free speech, free development of the personality, realization of a coherent life plan are not possible -- that humanitarian spending should not be decreased, but should logically be increased.

 

So then how do we deal with the deficit, especially if the National Religion that America Must Be Strong on Defense still cannot be surrendered even now that its superstitious nature has been exposed? As we go looking around for targets, the obvious source of excess cash to continue with expenditures on the National Religion and increase our humanitarian expenditures is to increase taxes on the wealthy. Just consider the following data and their obvious implications for solving the debt crisis:

 

In 1985 the richest 5% of Americans had a total wealth equal to 2.05 times the GDP.

In 2010 the richest 5% of Americans had a total wealth equal to 2.74 times the GDP.

 

Here there is clearly an excess, since capitalism could function just fine in 1985 with its level of reward for the wealthy, so the excess reward they now enjoy is superfluous, sequestered wealth, which should be taxed away and used to eliminate the debt.

 

In 1960, wages and salaries in the U.S. constituted 52% of the GDP.

In 2005, wages and salaries in the U.S. constituted 46% of the GDP.

 

This decline in the proportion of GDP taken up by wages and salaries means that too much is being skimmed off in profit and investment return by the wealthy, so again, this surplus wealth should be taxed back and devoted to increasing humanitarian spending and eliminating the debt.

 

The Gini Index measures the extent of inequality of wealth in a country. A Gini Index number of .00 would represent perfectly equal distribution of wealth, while a Gini Index number of 1.00 would indicate a perfectly unequal distribution of wealth.

 

In 1969, the Gini number of the U.S. was .39.

In 2009, the Gini number of the U.S. was .47.

 

So since a major role for taxation is the redistribution of wealth to achieve greater satisfaction of basic human needs for the many at the cost of excessive luxuries for the few, obviously taxes should be increased to improve humanitarian expenditures, restore some of the lost equality in America which is considered by many theorists to be a prerequisite of democratic social forms, and again, to help cut the debt.

[lemur]

It sounds like the people in the financial department in a large company. They're being told that they have to be more efficient with less people.

At first, they oppose. They say that "it's impossible, and management has lost its mind, because you can't do the same work with less people".

 

Then some people start to think outside the box, and someone realizes that this simply means that they must reduce the amount of work that is being done... Rather than doing all the tasks, they scrap some unnecessary tasks.

That is the way to reduce the number of labor-hours/unit-output. It is also possible to reduce demand for legal services in some ways (hopefully not to draconian). It is also possible to reduce the amount of money paid per labor hour and/or unit output by the recipients reducing the amount of consumption they and their families engage in. So there are multiple routes to streamlining, all with mixed benefits and drawbacks for various people/processes affected.

 

 

Perhaps a better way to save money would be by cutting expenditures devoted to sustaining the massively expensive national religion, which consists in maintaining the illusion that we can make ourselves great by having 3000 tanks stockpiled at a cost of $10,000,000 each, or 14 aircraft carriers at $4 billion each with planes and equipment, even though there is no way they can profitably be used to address our real problems, such as making the wheat grow faster in Kansas, fixing the roads in New Jersey, improving the inner city schools in New York, or solving the shortage of affordable healthcare everywhere.

Do you understand that the reason many people go to school is to get a military/industrial job so that they can get money and health-care? Do you really think that any hunger is being caused by the speed at which wheat grows? Do you think it's going to make health-care more affordable to put more money into it? You really should think about the HOWS of making such economic substitutions and address that. You act as if anything you could possibly want to achieve socially is just an item on a menu and that if you are willing to pay the money, it will get made and served to your taste. If you want more wheat produced, there's more to it than money. If you want better education, there's more to it than money. If you want more/better healthcare, there's more to it than money. It's naive to think the solution to every problem is as simple as diverting money from something else to it.

 

 

 

[Marat]

For shorthand's sake I refer to money, but you could just as easily substitute something more rooted in actual productive forces. So for taking a chunk of the federal budget away from the military and devoting it to healthcare, you could just as easily translate that into reducing the size of the armed services by 100,000 and having them work as day-care support for old people who otherwise have to take up resource-expensive hospital beds and nursing home space.