What vegetables are good for you?
This is of course a question for empirical research. However, what you believe about veggies is in no small amount informed by your tastes and preferences. Some people like peas. Others like carrots. Some like neither. They’re both good for you, empirically – but people like to feed their faces with tasty stuff.
The same is true in economics-related public policy discussions. Think of the terms bandied about … increase personal disposable income….stimulate private direct investment… and (from the guys in the red jerseys) lower taxes.
Everyone has an angle on how their favorite economic “veggies” is the best for you in terms of improving the overall economy. Thing is, more than veggies and vitamins, what economic metric you select strongly pre-determines what the numbers will say is a good set of strategies to focus on. Say you measure how awesome your economy is by real growth in GDP. Now, there’s a whole bunch of little numbers that contribute to that and if there were a consensus All-World metric to use, that would be it.
But it's just not all that. (More below break.)
Thing is, companies can’t invest directly in GDP – you have to buy stuff – real estate, equipment, recruit and acquire talent to man all those computer-filled cubes you just placed into your new building.
And it’s the same for consumers - If you got money burning a hole in your pocket and your stomach is growling, you can’t drive through the GDP King and pick yourself up a Real Growth Meal (no, I don’t want to inflate that order, thanks). You need (other than perhaps make smart nutritional decisions) go to a store that sells items suitable for human ingestion… or a gas station, if you happen to be an automobile.
What about labor? If you’re looking for work, you can’t fill out a GDP application. You need to find one of those companies that just populated a big new building with cubes and computers. And, presumably, have mad cube-occupying skills in this instance.
And if you’re a government you can’t stimulate GDP directly. You can’t walk into the G store and pump up your portion of the basic GDP equation. You have to have projects. You have to task them to departments. You have to have good people running those teams (and hope Congress is in a mood to confirm their nominations or at least goes on a vacation someday).
Now, some forms of government spending are more direct than others but generally speaking “G” spending is long, slow investment that pays off much farther down the road…. Or is there to rescue people (sometimes entire states and nation-states of them) when disaster strikes.
This last point is important, because when you talk about government expenditures, mostly you are discussing very long-run investments in infrastructure that cannot be assessed effectively with short-run metrics. This is not to say having things like, oh, roads, education, water and sanitations, law enforcement don’t matter – not. At. All. In point of fact, if these services are absent more than prosperity is absent: your nation-state is absent, too.
Being, legally speaking, immortal beings that like to line up their finances many decades in advance, corporations are NOT hostile to the existence of infrastructure projects. Actually, they love them – love to buy pieces of these projects because they represent very long-term collateral backing the debt written to finance them. For the most part, that’s U.S. Treasury paper.
A huge misconception, mostly on the part of our very agitated right-wing brethren, is that the proper way to gauge the size of the public debt is to compare it to GDP.
No, no, no, no, no.
Basic accounting: You NEVER compare income statement line items to balance sheet line items. You compare your expenses to your revenues (all income) or your liabilities to your assets (balance sheet).
You do NOT compare assets to expenses. You do NOT compare debts to revenues… and this last is what is getting done, all day long, by sad and confused people in Washington these days.
So, when people say the debt ceiling is a farce, clue: Absolutely. It’s not only a farce, it’s fatuous. It doesn’t matter. It’s not even the real issue being kicked up and down Pennsylvania Avenue.
That would be budget deficits, which has the advantage of being a conceptually sound if not necessarily appropriate conversation to be having in the ways it’s being handled.
Because, let’s circle back to what we said a few paragraphs ago: Most government expenditures are very long-term projects: the government’s role in our fine society (and other fine societies, as defined by that small set of countries that, most far more than our own fine country, have figured out a happy balance between private and public economic behavior).
Ok, what makes tyhese societies "fine"? Who am I to decide? I'll just say they are “fine” in that other countries are rather happy with the prospect, however likely or not, of one day developing conditions wherein most of their citizens live mostly sufficiently fed, housed, clothed, educated, safe, happy employed lives and have significant say into the formulation of the laws and high confidence that what laws apply to themselves apply to everyone, even the nonhuman legal persons in their midst.
This is of course a normative description for a “fine” society. There are many like it but this one is mine.
Ah, back to budget deficits. So… this is why the real conversation in DC is about deficits. Which means it is about balancing expenditures and revenues. Repeat: balancing both expenditures and revenues.
Also, since we are talking government expenditures, we are really talking about balancing of long-term expenditures and revenues.
By the way, the 10-year time frame being held up by all DC parties in the conversation is ridiculously arbitrary, and ridiculously short. If there was ever a time to think at least 20-30 years downstream, this is it….given the kind of “infrastructure projects” that the major party leaders are discussing as pieces of the (call it what it is) deficit puzzle to be solved.
Private corporate pensions are about the longest-duration liabilities that companies have. That is why, starting in the 1980s corporations started to phase them out with the help of not one but two Reagan-era tax reforms that made first 401Ks possible then, a bit later, investment through tax-protected insurance and annuities (if you were in that bandwidth) very attractive. So, defined benefit pensions went away (they’ll be effectively gone in 10 years from U.S. companies) and now we have defined contribution plans (401K’s sometimes with matching) – oh, the peeps at Forbes want these plans to go away (citing that it’s just not right for companies, after three decades of having the excuse to cancel pensions, to be in the investment advisor business so this is going to get taken from you as well someday.)
These pension programs – never mind the very obvious tie-in to Medicare, Medicaid and Social Security – are commitments reaching 30, 40 and 50 years into the future and more. I just had one “DB” pension phase out. Supposedly, decades from now, I will get a modest monthly check when I retire but it’s far less than what it would have been. Ostensibly, I now have ‘freedom” and “choice” to invest “more” in my 401K… and the match is going up, yay that, but…I got plenty of risk in my financial life, thanks.
And all those metrics that the pundits float – need to increase personal disposable income… stimulate private direct investment. Hey, thanks for the care guys .. and making a little more loot would rock … but I’m more concerned with – ok, say like last year my health flatlines again (no, I’m good now but it WAS bad, as some of you recall) and unlike that year the flip-of-the-coin job uncertainty goes the other way at the same time? Oops.
Uncertainty. Risk. Worry. Hell. I got the center figured out. What about insurance. You know, that other thing than long-term infrastructure investment that nation-states do – rescuing people (sometimes very large numbers of them) when they need that help the most?
Or more generally, just honoring promises because, dammit, that’s what we were taught in schools brought in large measure to you compliments of well-spent tax dollars, collected of the course of centuries and invested, year after year, in little acorns that grew into what is still one of the finest centers of research and learning ever created – the American system of higher education. Yes, that one – the ones our fine right-wing brethren bash on at the same time so many of their own favie schools take tax funds too.
Whew, that was a run-on sentence there. Sorry. I was in a ranting way. Let’s regroup…
So here we come to the REASON that governments make these very, very long-term investments over time – to create not only the conditions for the “fine society” of mostly sufficiently fed, housed, closed, educated, safe and employed people with say in the conditions of their well-being, but have the resources (and values) in place to help those of the citizenry when people need it most.
And this is where we are – we have a vast public balance sheet – tens of trillions of dollars in public wealth, held in trust by elected and appointed officials who damn well better be worthy of it.
We saw what happens in countries that are cornered into artificial fire sales in Greece – suddenly deficit (an income statement issue) becomes public debt (a balance sheet issue) and OMG we got to sell the Parthenon.. and the lush facilities on Corfu…and if that same attitude comes here, you will see more things that you ever imagined on the auction block.
All because an expense/revenue discussion was hijacked and turned into a balance sheet/how to get Yosemite National Park for a song at the fire sale opportunity.
You – all of you – you’re highly focused on the major uncool that would be “adjusting” long-term covenants with the American people - that the plans they made in their lives, all their lives, that some portion of their retirement would be there, sink or swim in their golden years and free their extended families – no, their own children – from the burden of their care and have hope and opportunities to care for their own children to come… this is what this is about.
Me.. I am by temperament and training a quant person. I had a notion to showcase some correlations and play up how if you focus on this-or-that metric you end up with the kinds of very narrow discussions dominating the DC discourse today.
But really… all you need to know is that Accounting 000 lesson: don’t confuse expense with debt, don’t confuse revenue with assets, and never let people mix you up or they will eff you and your entire country up.
This is first and foremost a deficit discussion. The solution is balancing long-term revenues and expenses because of corporations are going concerns, the covenants that bind us together as a free and just people are eternal ones.
And anyone who thinks lower taxes for the rich is worth fighting and dying for, well, I got an idea or two about what people are willing to do to make sure far more sacred covenants are kept.
We are a fine society. We can be finer. There is a lot of uncertainty when you crunch the numbers and game out how much you can, say, raise the Medicare qualification age and save x dollars at the cost of y votes.
But that uncertainty means something else entirely:
It means you have room to do the right thing, in the right way, for all the right reasons.
America waits. The world waits.
Do the right thing.
(And if you want specifics, heh, I ran the numbers on all those. I got it covered. :))