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Republicans Are Upset About The National Debt Again

Discussion in 'GatorNana's Too Hot for Swamp Gas' started by studegator, Jan 19, 2021.

  1. l_boy

    l_boy VIP Member

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    Reagan did cut tax rates then permanently indexed brackets to inflation. But that was followed up by about smaller 11 tax hikes that offset more than 50% of the cuts.
     
  2. l_boy

    l_boy VIP Member

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    the notion that we should cut taxes because we think spending is wasteful is logically flawed. Cutting taxes does not cut spending. It just increases deficits. Cutting taxes actually seems to increase spending, because once you get rid of deficit restraints/paygo, if you cut taxes, why not increase spending too? That is basically what happened in Reagan years, Bush years and Trump years.
     
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  3. l_boy

    l_boy VIP Member

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    It’s this line of thinking that has me concerned long term. “Deficits don’t matter”. Where does that end? I understand that in cyclical downturns deficit spending is appropriate, and if interest rates and inflation are low, it may be appropriate or at least less harmful. And I doubt that deficit spending will hurt us in the short term and maybe even intermediate term.

    But again, where does it end? We got deficits back to approximately GDP growth under Obama, but Trump doubled them mainly due to tax cuts, and that was before Covid. So we went from half trillion deficits, to a trillion dollar deficits during a structural expansion, to several trillion during COVID. Each time it seems like “deficits don’t matter”. They don’t seem to move the needle on CPI inflation, and have small positive impacts on median income, but lead to significant asset inflation which drives wealth inequality.

    Couple all of that with unfunded entitlement programs that will only make things worse over the next decade.

    So we build up more and more debt and have the Fed buy a bunch of it back. Maybe it won’t have an impact right away, and maybe it will lead to marginally more growth, but at a high cost. Ultimately we can’t perpetually create prosperity by creating money out of thin air. It will eventually lead to some inflation. At that point the Fed has to decide to let the inflation run, or raise interest rates. But once you get much over 100% gdp govt debt, raising rates has a big impact on our debt service costs. Most of the budget will be debt service. So you really can’t increase rates much, so you let inflation run. Modest expected inflation is OK, but unpredictable and unexpected inflation is bad for business.

    MMT says at that point, just increase taxes. But we know how politically difficult it is to increase taxes. One of the problems of MMT or even some Keynesian fiscal policy is it assume congress will act on a timely and appropriate manner based on economic conditions. But we know nothing can be farther from the truth.

    So while I acknowledge the Republicans pathetic hypocrisy again all of a sudden caring about deficits (as I’ve predicted they would if in the minority again) I think it is healthy to have some fiscal austerity influences to offset the new MMT inspired economics of “deficits don’t matter” v 2.0.

    Also I’d say I’d be less concerned about deficits if it were for things like infrastructure or core R&D, which have a long term payoff. However big deficits to send people checks in the mail, pay people not to work, and increase entitlement programs probably don’t have long term positive payoffs, other than during a cyclical downturn.
     
    Last edited: Jan 20, 2021
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  4. tampagtr

    tampagtr VIP Member

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    I don't agree with all you say but that's very thoughtful and a well-constructed post.
     
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  5. docspor

    docspor GC Hall of Fame

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    Well, we did not predict that they would play the NE & they did come pretty close to NE & we weren't surprised that they did not converge on it, but only because it was a mixed strategy NE - not sure where you got that we were surprised or that that was our prediction; we were more interested in the dist of plays rather than NE play. So, I'm guessing you 1. probably don't care about my stag hunt paper (dating back to Rousseau) (spoiler alert! given there are 3 eq in that game & that we made it hard to focus on any one, they quickly converged on one; the same one with repeated cohorts! Kinda ruins your fun argument) and 2. me demonstrating very convincingly that you embrace sub-optimal behavior even when you know it is sub-optimal.
     
    Last edited: Jan 20, 2021
  6. l_boy

    l_boy VIP Member

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    Thanks for acknowledging the effort. I’m curious, where do you disagree? I’ll admit I’ve always been interested and followed economics since college, but recent years have me rethinking some of those beliefs. I read the likes of Krugman and Larry Summers both who cares smarter than I.
     
  7. docspor

    docspor GC Hall of Fame

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    but, that has nothing to do with sub-optimal decision making. I can offer you a bet with an infinite EV & yet suspect you will not pay more than $10 to take it, but I will certainly take more if you are willing to prove me wrong on that pt. C'mon! this may be a once in a lifetime opportunity! this may blow your mind, but I can construct a mechanism that will precisely determine how much YOU are willing to pay for INFINITE EV! amazing, yet true. let's go! In sum, I can demonstrate that you don't abide by your own notion of optimal AND, further, I can make you tell me the exact amount that you are willing to pay to take a bet with an infinite payoff. Further, I can foresee that you can bitch out with, but you don't have infinite $. Good pt. I'll cap it at $100,000. even still, you will not pay more than $100. let's do this.

    p.s. I realize I'm being a punk, but I am trying to make the pt that using EV to demonstrate sub-optimal behavior is ignorant.

    p.s.s. Of course, it is even easier to make that pt by simply asking yourself, "what makes me happy?" & you will see that maximizing wealth is not the answer. So, when you see people shooting craps or choosing more time with their families over trying to get mo monies, you'll have a less crude way of thinking about human happiness & optimization.

    p.s.s.s. You may also come to see that what appears to be silly pursuits may have value in understanding the human condition & what as a friend of mine at UF - a philosophy major & lead guitarist & singer for a gville band - said prior to launching into a song at Rickenbachers (sp???) - what drives us?
     
    Last edited: Jan 21, 2021
  8. l_boy

    l_boy VIP Member

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    clearly there are other behavioral factors that may lead to a different outcome than EV

    - in some instances people may actually be risk seeking vs risk averse or risk neutral
    - some people may find risk seeking entertaining in certain situations
    - people don’t always evaluate risk or expected value correctly. They overweight the probability of success of large but improbable payoffs.
    - gambling can be a compulsive behavior that has little to do with rationality or expected value.
     
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  9. tampagtr

    tampagtr VIP Member

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    Less than I thought after I read it over. I thought some of the language at the end was a little bit pejorative to some of the recipients of entitlement programs, and I also like to distinguish between Social Security and Medicare because Social Security is still funded for quite a few more years and can be easily funded with a small increase in FICA. Medical inflation is another matter that will only get tougher to solve, although some aspects of the ACA sought to bend the curve.

    But I’m not comfortable with MMT, think at some point there will be a price to pay. But I still think that massive deficit spending will have to be done due to climate, both R&D and infrastructure retrofitting. No easy answers, to be sure.

    Plus we have to continue the COVID measures.
     
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  10. citygator

    citygator VIP Member

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    Charlotte
    Democrats: tax and spend
    Republicans: cut taxes and spend

    Generalization but pretty true as even the Trump budgets were massively increased spending levels prior to covid. And Trump ran on fiscal responsibility but did not employ it. Will be interesting this round.
     
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  11. gator7_5

    gator7_5 GC Hall of Fame

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    My logic is not flawed. Those spending the money are flawed.
     
  12. studegator

    studegator GC Legend

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    We have a friend that works remotely for a government agency. He has been working for them for 16 years. He has worked for 3 different teams within the department and on every one, he is disgusted by how much waste (money spent) is involved in wages to personal who basically do little to nothing. His take is that if you have a team with 12 people, 2 of those team members will be doing 80+ percent of the total workload. Most of the rest could be let go with no production loss to the team mission. On his present one, where he has worked for about 4 months, one guy just plays games all day while clocked in. No one knows what he actually does for the Gov agency. Right now, on an "emergency" need for certain data info, only 3 workers out of a full team are doing all the work, 12-16 hours a day to get it complete for hand off. One of his jobs requires interaction with another gov agency based out of Atlanta. A quote to him from one person he has worked with and respects because of his work ethic, who works at that location "Everyone here thinks that if they put on a suit and show up, they have done a days work".
    This happens all over the government, I have no idea how you can fix such a massive waste. Every department need to be looked at and evaluated for true personal needs. The dead wood needs to be cut out. I suspect we would be surprised at the savings if this were actually implemented and personal hired based on real need.
     
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  13. gatorchamps960608

    gatorchamps960608 GC Hall of Fame

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    In all fairness, this isn't much different than a lot of departments in corporate America.
     
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  14. gatorpika

    gatorpika Premium Member

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    In terms of the federal government, you could fire 50% of the bureaucrats and not even notice the impact on federal spending. Payroll outside of the military is a very small part of federal spending and hardly worth worrying about. Even cutting a lot of discretionary spending isn't going to move the needle very much. The biggest buckets by far are entitlements and military spending.
     
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  15. gatorpika

    gatorpika Premium Member

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    That's far less true these days than it used to be. There are still some companies that operate that way, but a lot of that excess was cut in the last decade plus as corporations trimmed the fat to help their bottom line. You are more likely to find overworked people out there than underworked these days.
     
  16. gatorchamps960608

    gatorchamps960608 GC Hall of Fame

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    True, but there is still a lot of fat that could be cut in middle management.
     
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  17. gatorpika

    gatorpika Premium Member

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    Depends on the company, but from what I have seen most companies have much flatter management structures than they used to. I worked in the telecom sector for most of my career and there was definitely a ton of dead weight when I started. Over time they got rid of a bunch of people through centralization, outsourcing, M&A, etc. AT&T has been laying off tons of people for years now as they downsized after all their acquisitions. In watching my linkedin I see a lot of people that were VP level in the early 2000s whose careers never recovered and are now still just director or even manager level. A lot of them weren't dead weight either, it's just the slots went away especially after the great recession. When I was doing consulting I saw a lot of the same where middle management had wider areas of responsibility than they used to in the early 2000s and before.
     
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  18. PerSeGator

    PerSeGator GC Hall of Fame

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    I'm not sure if you just don't want read what I'm writing, or you're so excited to hear yourself talk that you forgot to. I've not once claimed to be some savant EV optimizer. Just the opposite, I've repeatedly said that humans rarely if ever make the plays game theory says they should, precisely because there are countless variables outside of the rules of any given game that influence human decision making.

    The math says that the only winning move in a casino is not to play -- yet people find it fun (or are addicted), so billions are bet and lost every year in that setting by people who know the odds are against them. NFL coaches don't want to be embarrassed by getting blown out or going against the conventional wisdom, so they punt on 4th, even if it makes it harder for their team to win. People pick individual stocks because they feel like it, despite intellectually knowing they're at a massive information disadvantage vis a vis professional analysts and are throwing away the mathematically proven benefits of diversification.

    This is all intuitively obvious to people who live in the real world because we do this kind of stuff ourselves. We know we're not EV maximizing computers. We know we have all sorts of different influences and psychologies driving our decision making.

    So when you say stuff like

    "at the time, the notion that a dominated strategy (D - never a best response & hence cannot be supported by any beliefs that a rational person could have) would by played at all let alone persist over time was somewhat novel."
    Folks like me just kind of shake our heads because that outcome should be expected by anyone who observes the world through their eyes instead of naive mathematical models that assume spherical cows.

    p.s. the inifinite ev navel gazing you're talking about is more of the same spherical cow nonsense. The assumptions you need don't work/exist here in the real world that us humans live in.
     
    Last edited: Jan 21, 2021
  19. tampagtr

    tampagtr VIP Member

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    It’s almost like we have a aphoristic rule by the name
     
  20. PerSeGator

    PerSeGator GC Hall of Fame

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    This is a good post. I think what has happened the last 15 years has really challenged a lot of what we thought we knew about economics.

    Milton Friedman said

    “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output."​

    Yet here we are: our output hasn't grown anywhere near as fast as our money supply for over a decade, yet inflation is nowhere to be seen. And I'm not convinced anyone really knows why. The best explanation I've seen is that the velocity of money (i.e. how often a given dollar changes hands) has dropped, so the money circulating has not outpaced output (even if the number of dollars has). But even then, why has the velocity of money gone down so much? What happens if it goes back up? Can it even go back up, or is there some kind of systemic reason it's perpetually declining? Are technology advances actually forcing un-registered deflation?

    I'm not sure. What you say is reasonable, but yet it also seems entirely possible that we might continue along this path with no ill effects, despite our growing debt and money supply.
     
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