I have a friend at work who I started a 30 minute MWF chat with when we went remote early in the pandemic. We have some great chats about the economy and our faith. Anyway he was discussing some criticism of the Fed in responding slowly to inflation he had read in the Economist and it got us talking about the current state of the economy. Two things we discussed that spurred interesting thought to me.
Joe Manchin’s demand to make the BBB bill budget neutral seems like a really good decision.
We both preferred this economy coming out of a disaster to the economy after the housing crisis. Basically red hot job market with inflation is better than a bunch of unemployed people and deflation.
Any interesting observations you have had? Any thoughts on ours?
I have an Economics degree.
I don’t think the government should be in the business of controlling the Economy, since it does so not to “help The People” but more to keep elected officials alive and with jobs.
(Or, in some cases, to speed up the process of replacing said elected officials, cuz politics.)
Manchin insisiting BBB be budget neutral keeps the Fed from having to crank up the printers again to finance a larger deficit. [It’ll do it yet, just not as soon as it otherwise would have had to do to keep interest rates down.]
On paper, the economy is better than pre-Great Recession. In reality, it’s closer to 2000 or 2007 before things fell apart, because of all the zombie companies out there that have been propped up.
The idea that inflation will fall closer to zero in a year is, IMO, farcical. The Fed threw trillions of dollars into the economy, and isn’t close to pulling it out in any meaningful way. It’s like when you’re burning leaves and you decide you want a bigger fire so you throw a mass of leaves on it and think yeah, I can keep this under control. It smoulders for a while, suddenly you see flame and think yes, Mission Accomplished and the next thing you know, the entire pile erupts in a fireball and you can’t stand 15 feet from it because it’s burning so hot, and it continues to burn even as you try to spread the pile out to kill the fire.
We’re at the “fireball has erupted” part right now.
If throwing trillions in is what increased inflation, then won’t the fact that we aren’t going to be throwing as many trillions in over the next year necessarily reduce the inflation rate (though not reverse the inflation that already occurred)?
The biggest problem our current government has regarding “economics” is the fact that they claim a multi-year spending budget matched with a multi-year revenue budget–where the two time frames don’t align–is considered “balanced” . . . or at least that it’s somehow a “good idea”.
The biggest problem with the government controlling the Economy is that we have a government “of the people, by the people”, where “the people” are a bunch of shitty innumeric selfish myopic lying assholes.
I hope we can all agree that the government should not be run like a business, even if some people wanted (want) it to be that way. [The discussion of the “logical” steps from that to what we’ve experienced is omitted.] However, the idea that the government can run budget deficits of 5-10% of GDP that increase the national debt at a faster rate than GDP grows is stupid as hell. It eventually retards growth as more and more tax revenue goes to service debt, which takes away revenue we need to fund desired services without … yep, larger deficits that create more debt.
I thought circa 2000 was the breaking point and that we could either reset to a sustainable bottom in a manner voluntarily and with a reasonable amount of control, or we could let it keep going on and it would happen involuntarily and violently. 2008 was a sign of the latter. The problem is significantly worse now.
Businesses make decisions using RoE and their goal is to be profitable; they (typically) try not to incur losses today unless it will lead to greater profits in the future. Government does all kinds of stuff and undertakes lots of projects that have a negative return, but it does so because it’s furthers society. It also (ideally) targets a long-term budget deficit of zero, not a surplus that can be tapped at some point.
I don’t have time or interest to split every hair on the differences between businesses operating with the goal of making a profit long-term and staying viable, and government operating with little interest in being even deficit-neutral with no concerns about staying viable (other than whether the masses get so pissed off they rise up and overthrow it). I’m going to stand by my statement, though: government should not be run like a business, even if some people wanted (want) it to be that way.
If you want to make a counter-argument to that, have at it.