Debt is Dumb

Populism 101: stop subsidizing the Already Rich.

Some people are naturally stupid. Others need to go to college to unlearn the obvious. Take Congresswoman Alexandria Ocasio-Cortez, for example. She's pretty and witty; she could have been starring in romantic comedies or salvaging Saturday Night Live. Instead, she is a walking joke, and helping to turn America into one as well. These days she writes her most dangerous jokes in that boring bureaucratic prose once limited to education professors. It took a lot of education to sink that low.

And yes, we are talking education, not mere indoctrination. The economoronics that people like Ms. Cortez have mastered includes subtle logic, assorted arcana, and insider knowledge of profound paradoxes.

Consider John Maynard Keynes' Paradox of Thrift. Mere midwits assume that saving up some ready cash for a rainy day is a prudent action. Not so! If too many people start saving during times of economic downturn, money will leak out of the economy, causing catastrophic deflation. People will realize that they can get a good rate of return on their money by simply leaving it in a cookie jar. Money will leak out of circulation. Valiant dollar bills will be bedridden and get bedsores. Our only hope is inflation and deficit spending! Penalize those peasants for letting those Federal Reserve Notes collect dust. Bank it or spend it! Get those dollars circulating around and around in a Circular Flow. WHEEEEE!!

There are orts of truth in Keynesian Economics. Money stuffed into mattresses is money not invested. Government can force extra investment and activity, which can be cool if you like nature trails, nuclear weapons, and Lawrence Welk museums. But as above, so below. I can stimulate my personal economy through deficit spending; i.e., running up my credit cards. But over time the bills build up and I curse my younger self.

The same is happening nationally. The bills have come due. We are turning into another France: a has-been superpower with fancy coffee shops and a fashion sense the world wants to imitate, but tortured by ugly art and bad philosophy. And the younger generations curse the younger America. The dumpsters are burning; the statues are coming down...

Modern Monetary Theory to the rescue! Troubled by an unsupportable national debt and millions of Baby Boomers going on the Social Security dole? No problemo! Just print more money. WHEEEEE!!

Sounds pretty stupid, right? And we do have plenty of evidence, such as the history of Zimbabwe and Weimar Germany. But this is not mere natural stupidity. It is powered by arcane knowledge. In fact fiat money done right can work. If the Federal Reserve was to suddenly print palettes of $1000 bills featuring nude pictures of Hillary Clinton on them, these bills would be treated as money despite having negative intrinsic value -- as long as the federal government treats such bills as legal tender for the purpose of paying taxes and debts already incurred. For example, even if Amazon and the local Food Lion refused to accept such currency, I would still find it valuable for paying off my mortgage, and for paying my federal tax bill. I like keeping my house, and I don't want to move to Leavenworth, Kansas. And I am not alone in those sentiments.

But if the Fed were to print too many palettes of these $1000 bills, it would become too easy to pay off past debts. Federal Reserve Notes would be backed by nostalgia and the need to pay taxes. Massive inflation would ensue, and not the good kind.

All this should be obvious, and indeed it was obvious to conservatives back in the day. Once upon a time, conservatives believed in paying for government (aka raising taxes) or cutting government -- doing without that space program or Lawrence Welk museum -- if we couldn't afford it. But then the Right discovered its own bit of deceptively clever arcane knowledge: the Laffer Curve. Deficit too high? Just cut the top marginal tax rates and watch those rich folks earn even more taxable income.

The Republicans applied the Laffer Curve back in the 1980s. And yes, some of that Supply Side voodoo did work, but it didn't work nearly enough, and so the federal deficit exploded. But in Ronald Reagan's defense, at least he mortgaged the country in order to win the Cold War, and win he did. Bill Clinton got to cash in on the resulting Peace Dividend briefly, and the country achieved a momentary cash flow surplus. (In accrual terms, we still had a deficit, since the government was supposed to be saving up for the forthcoming retirement of the Baby Boomers.)

Alas, the Bushes squandered their share of the Peace Dividend on counterproductive wars in Iraq, and on an overlong occupation of Afghanistan. And when W. Bush attempted to apply some Supply Side magic, the economy crashed spectacularly.

Did the Republican Establishment learn from these failures? No! They doubled down. Some simply said "Deficits don't matter." Others went full on Santa Claus. "Unlike those horrible Democrats, our plan balances the budget ten years in the future because we have GROWTH! WHEEEEEEE!!"

The younger generations are not amused. Being sold into debt serfdom makes some people very angry. And what does all this GROWTH mean, anyway? Younger generations working harder while those who ran up the debt collect annuity checks? Evil robots taking over the economy? Importing ever more replacements to keep the pyramid scheme going? Selling off our national seed corn?

Marxism, Critical Race Theory, and other nonsense are just excuses for rioting. There is a vast pool of anger among the young that any ideology can tap. Even the nationalist Right is getting into the act. Check out Vox Day's songs about smothering Baby Boomers with pillows.

Deficits Matter

Imagine if you will, that we are not alone, but surrounded by advanced alien civilizations, as far beyond us as we are beyond the Aztecs who were pricking their privates and gouging out the hearts of sacrificial victims in order to keep the sun shining.

Imagine further that we are being visited, not by ambassadors of some super-civilized Galactic Federation, but by hyper-intelligent tentacled teenagers flying around in antimatter powered flying saucers equipped with orbital mind control masers. Being teenagers, they enjoy a bit of recreational griefing. Looking down from above, they see politicians arguing over whether it is better to have more equality at the expense of more Big Government or less government at the expense of more economic inequality. Focusing their mind control masers on politicians, pundits, and think tankers, these impish teenagers convince our politicians to go for both: Big Government and a big wealth gap! Now that's some quality lulz!

"Look at those confused humans swarming around like confused ants! Look! That's a Tea Party protest! Hah! Now Wall St. is being Occupied! Now the Left is going Woke! Look at that Orgulous Orange Man and his mean tweets! Hee hee hee hee hee hee hee hee!"

This would be a fun science fiction comedy except for one thing: it's happening and we are the butt of the joke.

What happens when the government buys up excess corn? Answer: corn farmers make more money. Duh! So what happens when the government borrows money? Answer: those with extra money to lend make more money. Chronic deficit spending is an enormous government subsidy for the Already Rich!

This is old news for paleoconservatives. They were pointing this out a half century ago, and possibly a whole lot longer (I haven't checked). Unfortunately, this message was usually bundled with detailed conspiracy theories involving Rockefellers, Rothschildes, and other assorted robber baron families. I first stumbled upon such thinking when given a copy of Gary Allen's None Dare Call it Conspiracy, which came out in 1971. According to this and similar conspiracy theories, there is a cabal of old money rich and assorted banksters who stir up wars and other calamities in order to get governments to go deep into debt, so the Insiders can collect the interest in perpetuity. Their ultimate goal is a world socialist government with a small cadre of oligarchs in control -- which, admittedly, is kind of the direction we are heading...

But here's the deal: debt is fun to get into and unpleasant to pay off. This holds for both personal finance and for politicians. Focusing the blame on power mad Insiders can be a counterproductive distraction, rather like blaming the bank for your credit card debt. Between colleges teaching Keynesian economics and Modern Monetary Theory, Republican gurus pitching Supply Side silliness, and teenage space aliens with orbital mind control masers, we would still have a chronic deficit spending habit even if some of these conspiracy theories were true and a time-traveling U.S.S. Enterprise was to transport away all of the rascally Insiders next Thursday.

We do still have this democracy thingy. Yes, we have a problem with oligarchs, special interests, and out of control non-profits swaying public opinion, but we still have self-study, word of mouth, and door to door campaigning. We just need to ignore some propaganda, don some tinfoil hats to protect ourselves from those mind control masers, and come to grips with some pretty basic economics.

Here ends Part 1 of Rule 9. Part 2 is The Limits to the Laffer Curve. Part 3 is Private Debt Can Be Dumb, Too.