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We should be paying down the national debt during the upper-side of the business cycle so that we have stimulus funds for slumps. The tax-cuts are reverse Keynesian economics. They are "doing it wrong".

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The tax-cuts are reverse Keynesian economics. They are "doing it wrong".

This is the big flaw i see against Keynes, that the political discipline and foresight it takes to pay forward is very hard. Instead it becomes another round of the too much debt cycle. Unfortunately I don't have any alternative. (many would put their pet economic hobby horse here)

Edit: I noticed a problem with my comment, I said pay forward but Keynes has a pay back what you borrowed earlier.

California is doing great in this regard[0]. In my opinion we're lucky to have Jerry Brown at the helm. If you have nice, boring elections, then you can get nice, boring people in leadership positions.

[0]: https://www.wsj.com/articles/jerry-browns-legacy-a-6-1-billi...

I'm not so sure we have the same definition of doing great.

http://www.latimes.com/opinion/op-ed/la-oe-jackson-californi...

Cached version for those under GDPR (the LA Times has seen it fit to block all GDPR countries from their website):

http://webcache.googleusercontent.com/search?q=cache:nQgta5-...

Most of that is because of demand for real-estate here, and because the weather brings homeless from states with crappy weather. It's not bad governing. It's not Brown's fault TX is humid.

>If you have nice, boring elections, then you can get nice, boring people in leadership positions

The key argument for approval voting - right here.

The first debt borrowed starts a countdown timer of X years--not to exceed the median age of mothers at the birth of their first child--until the jubilee date, when all outstanding debts are cancelled and forgotten.

If your state is debt-free, that's great; you have X years to borrow and spend your way out of trouble. If your state owes even $1, better pay it off quick to reset your Keynesian pump-priming capacity! And if your state can't pay off its debt, the younger generations aren't forced into austerity to pay for the excesses of the elders.

What is the incentive to pay it off at all, if it will be forgiven in X years?

So that lenders will keep loaning you money when you need it, and on better terms.

Lending terms will tighten up as the jubilee deadline approaches. If it's only 5 years away, lenders will not even bother calculating payoff periods further than 5 years into the future, minus the amount of time required to file and collect on any lawsuits for nonpayment.

If a state actually hits a jubilee with debt still on its books, it will quickly find that borrowing becomes a much weaker tool in its fiscal toolbox. It might also help to make all persons holding elected office with budgeting or spending authority at any time during the state's indebtedness to become ineligible to hold such offices for Y years after a jubilee.

when national debt goes down , private debt goes up. Private debt is the issue. The federal government has no issue paying debts because those debts are dollar denominated. The private sector on the other hand can't. Government debt is not the same as household debt, unless of course the household can print their own money. Image you are the Joe family and all your debt is denominated in Joe dollars, do you anticipate you will have a problem paying that debt?

Reducing government debt will result in bad times for the private sector. Ever wonder why Clinton's surplus resulted in large private sector debt and then a crash? This is why.

I see this argument all the time and I don't understand how people don't see the flaw. The government can't just print dollars to service their debt without devaluing the dollar. If they devalue the dollar they'll make a lot of people upset and get their butts voted out of office. There is obviously some lee-way, but there is a tight upper limit on printing their way out of debt.

Re: "when national debt goes down, private debt goes up." - Why would that be the case?

The national debt can wait, the private sector is more indebted than at any point in recorded history, and getting worse. In the US especially you can see the seeds of debt servitude being sown.

>The national debt can wait

Until it can't. It's an interesting gambit because while carrying high levels of debt is easier to do during periods of low interest, the second-order effect of taking on that debt is the pain it'll bring you to service it when interest rates rise.

Unless you have certainty on future economic conditions (which nobody does), it's prudent to cap your debt level such that can be paid down within a relatively short time frame. That way when tough times inevitably arrive, you have an escape plan. But even then, enacting that escape plan (paying off the debt) causes a shockingly sudden lack of available funds to go anything else (i.e. austerity).

This doesn't mean debt, well-applied, isn't a hugely valuable tool. Provided it's used for investment in suitable force multipliers (infrastructure) that help ensure your future ability to service the debt, and profit beyond. But infrastructure isn't well funded and there doesn't seem to be suitable proposals to make it happen, so if debt's not being increased towards that end....

> Until it can't.

It already couldn't, thus monetary easing (aka, inflation, aka increasing the money supply). Governments always default on their debts through inflation. In the US it was called "QE"

Without QE, the treasury auctions would have yielded higher rates of borrowing for the feds. Instead, QE pushed the yields down and money rushed into risk assets (stock market). We're in uncharted economic territory. How do we unwind? Right now, they're slowly letting the balance sheet shrink, but not significantly.

Inflation was sub-par during the QE era.

Well, there's inflation and then there's the governments version of 'inflation.' Have you see the prices of homes and the stock market?

"Inflation" should more correctly refer to the inflation of the money supply and not the corresponding rising of prices from dollar dilution.

The Federal Reserve didn't seem very comfortable using QE, but felt it was needed due to the depth of the crash. We were lucky we didn't have a repeat of the 25% unemployment of the 1930's. There's no law of nature that says all slumps are repairable. When things get bad enough, the masses rise up and demand socialism, because "average" socialism is usually better than crashed capitalism. Eating bland food and standing in line is better than death.

Short of a meteor/nuclear strike, I can't imagine mass starvation in the US, we simply produce too much food. Without QE, there would have been economic slowdown, banks would have been shuttered, but IMO life would have otherwise carried on as normal.

Not to mention failure to raise interest rates to bleed the artificially cheap money out of the economy after quantitative easing. But you can't find a political party these days that supports doing a Keynesian strategy. Everyone wants to have their cake and eat it too, as it were.

The US Fed is raising interest rates. Gradually, but arguably fairly aggressively considering inflation is so low.

Oh, they did do the whole spending part of the Keynesian "strategy", it's just that if they now raise rates too high there will be bankruptcies across the board, causing another crisis.

Keynesianism just doesn't work exactly because no politician ever finds themselves in a position where they can apply the savings side of it.

This is pretty dismissive. The Obama admin was very cognizant of keeping ACA deficit neutral, for example. Far cry from the current spend and don't tax policies.

You are confusing fiscal policy with monetary policy.

Ah. The comment you replied to was about tax cuts. I misunderstood your point.

Maybe democracy isn't the ideal we should be looking towards

My comments are all US-based:

Alternatively we (govt) should be taking advantage of historically low interest rates to spend money on infrastructure maintenance that we KNOW needs to be fixed. This provides stimulus (or wealth transfer, depending on your perspective) through creating jobs and fixes a looming problem before it stops looming. We'll have to pay the price one way or another, and right now the price is at a discount.

I read a report claiming that the tax-cuts are in effect demonstrating short-term stimulus spending. Based on my anecdotal observations from trying to read/hear viewpoints from across the political spectrum, lower-income conservatives ARE seeing a difference in their paychecks, and they like it. So the not-fiscally-conservative conservatives are proving the point the fiscally-conservative conservatives don't believe in, at the risk of proving the fiscally-conservative conservatives right about the longer-term costs because of the methods chosen.

I do feel bad for those that are truly fiscally-conservative: They've not really had anyone to vote for in a long time.

Unfortunately, infrastructure maintenance doesn't get people (re)elected. Infrastructure expansion does. And infrastructure expansion increases the future burden of infrastructure maintenance.

+1 on the lack of true fiscally conservative. The choice is between tax-and-spend and cut-tax-and-spend. Of those choices, the tax-and-spend is the fiscal conservative.

Is it if the tax cut spurs the economy faster than the debt growth, which appears to be happening right now?

That's unlikely. And that theory failed bigly in Kansas.

>right now the price is at a discount

The price is generally at a discount in bad times, when there's a lot of people and companies looking for work. And it's not like the central banks around the world are going to increase interest rates in a downturn.

How do other countries avoid this?

I understand that modern governments generally do have this same problem, but how do they do slightly better than the US?

The problem is that our growth ( the good times ) is fueled by debt. If the debt stops, then growth stops. Then politicians get blamed and we can't have that. So back to debt we go.

And it's not a partisan issues. Both democrats and republicans love debt, just like they love defense spending. It's politically expedient.

Obama increased the debt tremendously. And now Trump is doing the same. Our debt went from around $10 trillion to $21 trillion in 10 years.

https://fred.stlouisfed.org/series/GFDEBTN

Think interest rates are going to increase much anytime soon? Yeah me neither.

What happens if there is too much debt (as assets) on the Fed's balance sheet? Can they just write them off?

They can just sit there in perpetuality, there’s no swat team going to bust in the door because one leg of government lent to the other.

The biggest downside is that if there is a big slump, the gov't doesn't have spending money for a stimulus. We could then get stuck in a protracted rut or deflationary spiral. In the longer term, GDP growth can make the debt moot (if more is not added), but if we have a big slump sooner, we are screwed.

Calling the Federal Reserve an arm of the government is misleading at best.

Does that erode trust in currency and cause hyper inflation? I suspect no.

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