When they ‘score’ a bill what it means is they are making a long-term guess about the revenue and spending impacts of a piece of legislation. But these determinations — and errors — are highly political. Goldman Sachs’s chief economist is an advisor to CBO. So is that of hedge fund D.E. Shaw. So are executives of bunch of health care corporations.

What you’re doing here is implying that because the CBO has advisors from Wall Street, they must be lying. If you think the CBO is corrupt, just go ahead and say so.

Here’s my interpretation of your paragraph: Excellent. The CBO is smart enough to have as advisors some of the smartest guys in the room, the ones from Wall Street. It’s a lot better to have people that understand the economy advising the CBO, rather than a bunch of yah-hoos who don’t, but have acceptable credentials with the US left.

Let’s move on.

These people have a formal role as a choke point in our legislative process as a sort of ‘voice of God’ telling elected leaders what the costs and benefits of proposed legislation is, even though those costs and benefits are arbitrarily selected based on hidden political assumptions.

I disagree. The CBO documents I’ve reviewed are extremely good at laying out their assumptions.

Here’s a real tangible error that caused long-term harm. CBO had been making an ideological assumption about monetary policy that since the financial crisis the interest rate paid on Federal debt would return to 5%. But the interest rate stayed at 1–2% for almost a decade.

This is not an ideological assumption; it’s a rational assumption that the Funds rate would revert to its historical mean as soon as possible. As we now know, that didn’t happen, but assuming a reversion to mean is a sensible assumption made by rational actors.

So when you hear something is ‘fully paid for’ just know it means that an economist with a bad model made a guess and is probably wrong.

When it comes to macroeconomic modeling, you can pretty much bet that the model has flaws. Good models simply have fewer flaws than bad ones.

But even more fundamentally, why do we care about whether a budget is balanced? We didn’t really have this weird fetish over deficits and an accumulating national debt until the 1970s.

That’s false. Go look at how much pressure FDR’s own advisors put on him to cut deficit spending back in the mid to late 1930’s.

By 1936 many economists and financial experts (notably FDR’s Treasury Secretary, Henry Morgenthau) feared the country would go bankrupt if the government kept deficit-spending (…) Consequently, Roosevelt ran (in 1936) on a platform that he would try to reduce, if not eliminate, the deficit.

Have a look at the unbelievable (and ultimately heinous) pressure placed on Germany to pay the Allies’ WW1 debt.

The Harding administration made it clearly understood that the United States had no interest in cancellation. (of war debts). This position was widely supported by the public, which felt that those who incur debts should repay them.

“And the reason you don’t see that sort of pressure earlier than that is because the entire government, without income taxes, was on “paygo”; Lincoln had certain Wall Street financiers out selling war bonds for him just to pay for the Civil War. (Although there was a small and temporary income tax levied for this purpose).

The primary source of war revenue for the Union was war bonds. These were notes sold to individuals that promised repayment after a set period and interest paid in the interim. As much as 65 percent of the Union’s war expenditures were funded by these bonds…

We’ve always had a “weird fetish” about debt.

The Federal debt is older than the Constitution, so if there are long term problems they haven’t shown up in 200+ years.

Hm. This seems to be an utterly unsubstantiated way of saying that every economic problem we’ve had since the beginning of the Republic had nothing to do with debt.

Since you seem to be writing to “progressives”, let’s put this in terms progressives can understand. Here’s where the money goes:

Image for post
Image for post

So why do people play this game of saying ‘we must reduce the deficit?’

You tell me. See that “Net Interest” block up there? That’s 315 Billion dollars a year, or 3.15 Trillion over 10 years. For anyone paying attention to the current crop of “progressives” and the “Green New Deal”, the entire price tag of the Green New Deal is estimated to be between 40 and 57 Trillion per year, depending on precisely what’s in it. Let’s use the 40 Trillion, because that’s what Anderson Cooper used the other night in his interview with Ocasio-Cortez.

Bottom line: Had we been fiscally responsible all along, Cooper wouldn’t have been asking AOC how she was going to pay for it, because 79% of the money needed is sitting right there, in that “interest” line.

But, because we haven’t been fiscally responsible, if you want to pass a “Green New Deal”, you’re going to have to double or triple taxes on the middle class to make it happen.

Well that’s an ideological question more than anything else. You might hear that America could go bankrupt, but that is a ridiculous notion. We owe dollars, mostly to ourselves, and we print dollars. America can no more run out of dollars than a bowling alley can run out of strikes.

Although it is true that we cannot go bankrupt, the value the international community places on our currency (set by FOREX) of our currency is pegged (somewhat) to our fiscal responsibility. You can “print” them up as much as you like, but if the amount you have in circulation is not feasibly backed by the productive capacity of the nation in the eyes of the world, you get Zimbabwe.

We are not free to “print up” as much as we like. That’s utter nonsense, and dangerous nonsense at that. If it were true, then this entire debate is a waste. Just print up a couple million for each american, and voila! No more problems with poverty, education, or health care.

We both know what a disaster that would be. So, let’s just admit that we CAN’T print up as much as we’d like, and move on.

So saying we have to reduce the debt is dumb for all sorts of reasons. Maybe we do, maybe we don’t, but it’s just a question of whether there’s enough money in circulation and since we’re growing all the time we ought to be printing money all the time.

Well, we are. The outstanding question is how far can we stretch that rubber band before it breaks. If you’re implying that the answer is “as much as we like”, then you’re dangerous. It’s a lie.

Because if the truth were to come out that ‘balancing the budget’ is just cover for letting neoclassical economists have a choke hold on how our democratic institutions operate, then the people themselves might want to spend some of it on things like health care or nice things for themselves instead of the wars and bailouts that are somehow always emergencies and exempt from these PayGo rules. Hmm.

Hmmm right back at you. The problem is not the economists, it’s the politicians. It’s the politicians from both parties that are willing to stretch the aforementioned rubber bands for wars but not wiling to stretch it for social programs. Let’s but the blame where it belongs.

We cannot afford eternal war AND a European style social welfare system; that would break the rubber band. But notice that in the recent dustup where Trump chose to END “eternal war” in Syria, it was the Democrats screaming “MORE WAR MORE WAR” just as loud than the Republicans.

It’s weird and dumb but no one will straight-up just say ‘we can print dollars’ but actually we can and we do all the time.

Well, we do, but we actually can’t. Let’s look at another chart:

Image for post
Image for post

What you see from this chart is that the rate of debt increase started to accelerate during the 08 recession, and although it’s abated somewhat, is stil moving upwards at a rapid rate. Part of this is due to the Trump personal tax cuts, but the White House Budget Office always warned while Obama started to decrease the annual deficit during his second term, if no policy were changed, it would start to increase again once he was out of office (good timing, that).

Then Trump made it worse.

Your contention is that this doesn’t matter, but it does. See above. But more germane, the debt represents real interest payments on real bonds that must be paid. Your contention is that we just print up the money to pay the interest and not worry about it. We learned from the 70’s, when Nixon did just that to pay off the Vietnam war debts, that doing so stokes unmanageable inflation.

Unmanageable inflation is a thief that steals from the poorest first, then the less poor, then the middle class, while the rich don’t care. It exacerbates income inequality and destroys living standards.

Don’t go there.

Now it wasn’t actually the surplus that caused the underlying economic boom of the 1990s, that boom was caused by a bubble similar to that of the 1920s (which not coincidentally also saw budget surpluses right before a big crash…). But we’ll leave that aside.

Let’s do that, but it’s worth pointing out that the boom preceded the surplus. The budget was balanced because of tax receipts from the boom. However, neither the 1929 nor the 2000 busts were in any way related to tax policy.

It’s wrong and anti-democratic, but not crazy and not borne of ill-intent.

How is it “anti-democratic?” That seems to be a non-sequitur. Are you seriously arguing that because you can’t spend whatever you like because there’s debt, that’s an infringement on the democratic process?

Since the 1970s, Democrats have believed that it is inappropriate for normal non-fancy people to wield real power; normal people can be ornamental elected officials and argue about social questions, but real decision-making about power should be done by businessmen, generals, economists, and so forth.

Well, on that one we agree. I was going to point out above that the 70’s were probably the most authoritarian decade we’ve had, at least since the 30’s (maybe).

Pelosi isn’t a deep thinker

We agree on that one too.

But Pelosi is also a deal-cutter, so she’s willing to basically let PayGo become a dead letter if not remove it from the House rules entirely. She conceded to Jayapal and Pocan. She offered them slots on important committees, and got rid of the 60% threshold rule on tax hikes. Jim McGovern promised to waive PayGo in the Rules Committee when bills go to the floor. So any symbolic power PayGo has is gone, and it will likely be removed next Congress.

She’s tactically brilliant. But that’s why none of this matters. Pelosi can appear to give on this issue, because she knows that nothing the Dems pass in this vein will get a vote in the Senate. She’ll bide her time like she did in 2006 and hope for a 2008-style trifecta in 2020.

Although more importantly, Pelosi most likely learned a very important lesson 2010: That you don’t pass major legislation in the dark and without bipartisan support and hope to keep the House in the next election. You give it right back to the other party.

That next fight is both repealing that 2010 law, and restructuring CBO so that it is no longer a weird power center floating in Congress with veto power but no accountability to elected leaders. But that’s for another day.

So, basically, remove all the grownups so the kids can have a food fight. :-)

The uncharitable, and frankly more likely reading, is Pelosi just wants PayGo in the House Rules for ideological reasons. Steny Hoyer and Pelosi are emotionally quite attached to ‘fiscal responsibility.’

Probably better to just refer to them as adults.

Written by

Data Driven Econophile. Muslim, USA born. Been “woke” 2x: 1st, when I realized the world isn’t fair; 2nd, when I realized the “woke” people are full of shit.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store