Year Seven of the Bush fiscal stimulus package

13 Comments to “Year Seven of the Bush fiscal stimulus package”

1. p_lukasiak Says:
   Monday, January 14, 2008 at 11:19 am

   (The deficits are even bigger if you factor in the debts being racked up each year to the Social Security trust fund, but since those don't add any fiscal oomph I'm ignoring them here.)

   okay, explain this to me again. New debt that is acquired by China adds "fiscal oomph." New debt held by the Social Security trust does not add "oomph". In other words, you are saying that the short term fiscal "oomph" created by deficit spending is denpendent upon who holds the debt?

   I mean, you're serious about this?

2. Justin Fox Says:
   Monday, January 14, 2008 at 11:34 am

   The money being borrowed from the Social Security trust fund is coming straight out of the pockets of current U.S. taxpayers. Money being borrowed from the Chinese is coming out of the pockets of future U.S. taxpayers (or out of the pockets of the Chinese if we default, devalue our currency, etc.). So yes, the short-term fiscal oomph created by deficit spending is in part dependent on who holds the debt.

3. p_lukasiak Says:
   Monday, January 14, 2008 at 11:37 am

   oh, btw, here's a request for something that you may have written about in the past, but bears repeating -- the changing role of the Fed.

   The Fed's original purpose, of course, was SOLELY to act to keep inflation under control, and maintain the value of the dollar. It was simply a brake on the economy, and was never intended to be a gas pedal as well.

   Then Greenspan decided that it was his job to get into the business of dictating US budget policy -- clearly for ideological reasons (he let Reagan and Bush I get away with murder in terms of deficits -- Clinton shows up, and suddenly Greenspan demands fiscal responsibility. Bush II shows up, and Greenspan no longer cares about deficits.)

   Now, the Fed operates under the assumption that IT is the creator of economic growth -- a role that isn't just outside the purpose it was created for, but a role that it is entirely unsuited to play. And now the Fed is contemplating another rate cut to stave off a recession -- a recession that was created, in large part, by the creation of too much capital in the first place.

   please, tell them to stop this madness...

4. p. lukasiak Says:
   Monday, January 14, 2008 at 11:47 am

   The money being borrowed from the Social Security trust fund is coming straight out of the pockets of current U.S. taxpayers. Money being borrowed from the Chinese is coming out of the pockets of future U.S. taxpayers (or out of the pockets of the Chinese if we default, devalue our currency, etc.).

   um, unless you are encouraging/predicting a massive default on the debt held by the Social Security Trust Fund, the debt held by the trust is coming out of the pockets of FUTURE taxpayers. Basically, what you are saying that PRIVATE PENSION FUNDS, IRAs, and 401ks that also buy and hold US debt until it will be needed is coming out of the pockets of "current US taxpayers" as well -- that if there was no "social security tax", and that money was instead put into various private retirement funds that bought US treasuries, there would be no economic stimulus -- indeed, under your formulation, we should prohibit pension plans and individual savings for retirement from investing in US treasuries, because its bad for the economy.

   THis is sheer nonsense -- advanced by people who have more than enough assets that they don't need Social Security, and WANT TO SEE THE US DEFAULT ON THE DEBT HELD BY THE TRUST.

5. p_lukasiak Says:
   Monday, January 14, 2008 at 11:56 am

   btw, I do agree that tax cuts that create debt that is bought by china does increase capital available for private investment -- but the EXACT same thing holds true for Social Security. The problem, of course, is the increasing reluctance of nations like China to continue to buy up our debt -- most nations are looking to reduce their exposure to the dollar, and nations like China are now engaged in what is essentially "asset stripping" (buying up American assets) of their investment of the US economy.

   At this point, its only the Social Security Trust Fund that can be relied upon buy US debt in a way that doesn't damage the long or short term US economy.

6. Crust Says:
   Monday, January 14, 2008 at 12:41 pm

   Great point re year 7 of the Bush stimulus package.

   (On the Justin Fox vs. P_Luk debate on whether we should count Social Security, in case anyone cares, I think in a sense you're both right. But I don't have the time and energy to defend that right now. The key issue is relative to what baseline you're looking at.)

7. Crust Says:
   Monday, January 14, 2008 at 1:01 pm

   PS mangled syntax alert: re "in case anyone cares" above, I meant "in case anyone cares what I think". Obviously plenty of people do (and should) care about the underlying issue.

8. p_lukasiak Says:
   Monday, January 14, 2008 at 1:14 pm

   The key issue is relative to what baseline you're looking at.

   The only way that Justin's arguments make any sense is if we default on the debt held by social security. And the only people that I know of who even consider that a possibility are people who are little more than flesh and blood subsidiaries of the interests of America's wealthiest citizens.

   See, while everyone likes to talk about stuff like how much per capita debt there is, and what a burden it will be on the INCOME of middle class Americans, no one wnats to talk about how the debt relates to personal wealth. In other words, if the US were to go into bankruptcy tomorrow, and strip every American citizen the same percentage of their assets to pay off our debt, the rich would take a HUGE hit.

   Think of it this way. The 'bankrupty court' excludes certain assets (one house, one car, and $10,000/child under 18 per family), and then says "well, America owes 60% of its assets, the guy whose adjusted net worth is $50,000 loses $30,000 -- the guy who is worth $50,000,000 loses $30,000,000.

   Now, the middle class guy is actually kinda happy about this, because while he's losing $30,000, his "per capita" (which, IIRC, is now aound $50K/family) share of the national debt has dissolved. But the wealthy will scream bloody murder... for them, $50K/family is what they spend on a week on a vacation in the Alps -- $30,000,000 is REAL money.

   So, what the rich (and their puppets in the media) want to do is not so much "default" on the social security debt as much as to just make it disappear through legislation. After all, its only THE LAW that says that the full faith and credit of the United States stands behind the debt held by the social security trust -- so all you have to do is change the law, and get selective about which debt the US actually stands by, and the rich make out like bandits.

9. Justin Fox Says:
   Monday, January 14, 2008 at 1:46 pm

   My argument has nothing do with defaulting on the obligations to the Social Security trust fund. It's just a very simple (and possibly simple-minded) accounting of whose pockets the money is coming out of. For example:

   In 2006, according to the CBO, federal revenue apart from Social Security (and the Postal Service, but its contribution is so tiny that it amounts to a rounding error) totaled $2,221 billion. Outlays totaled $2,655.4 billion. That gives you a deficit of $434.5 billion (you know, rounding error), or 3.3% of GDP, which is the number we should probably look at when we're trying to gauge the fiscal prudence/imprudence of the current administration.

   If, however, you want to get a sense of how much fiscal stimulus is being delivered--in the most simplistic, ur-Keynesian sense, in which the future obligations you're incurring just don't matter--then the $185.2 billion surplus run by Social Security in 2006 has to be factored in, because it's money coming straight out of the pockets of taxpayers that year. Then (with that crucial $1.1 boost from the Postal Service thrown in) you get a total government deficit of $248.2 billion, or 1.9% of GDP. And yes, some of that $248.2 billion is being financed by U.S. taxpayers, too. But the taxpayers who are voluntarily buying Treasury securities are taxpayers who presumably don't need the cash right now and wouldn't have spent it on consumer goods if they hadn't bought government bonds with it. Which can't be said of most American workers and their payroll tax payments.

10. Justin Fox Says:
    Monday, January 14, 2008 at 1:47 pm

    By the way, can you tell that I'm supposed to write a column this afternoon and am doing whatever I can to avoid working on it?

11. p_lukasiak Says:
    Monday, January 14, 2008 at 2:29 pm

    then the $185.2 billion surplus run by Social Security in 2006 has to be factored in, because it's money coming straight out of the pockets of taxpayers that year.

    That's nonsense, Justin. Its not as if that surplus funds going into the Trust fund would not be collected if there were no "economic stimulus package." That money was schedule to be collected before the Bush tax cuts, and is being collected right on schedule. Its a constant. A given. It would still be collected, and the trust would continue to grow larger, regardless of whether we had surpluses or deficits in general revenue. And we would not cut social security taxes because we were running a surplus in general revenue, instead, we would use general revenue to transfer debt held by entities outside the SS trust, and transfer that debt to the Trust fund.

    Seriously, you've got to get yourself off of the Hertiage Foundation mailing list....

12. Justin Fox Says:
    Monday, January 14, 2008 at 3:05 pm

    Aaaaaaaaaaaaaargh. If Social Security is running a surplus, that is--in the myopic, no-time-but-the-present Keynesian sense in which fiscal stimulus packages are almost always discussed--the opposite of stimulus. By definition. There is no political content to that statement.

13. p_lukasiak Says:
    Monday, January 14, 2008 at 3:50 pm

    "Aaaaaaaaaaaaaargh. If Social Security is running a surplus, that is--in the myopic, no-time-but-the-present Keynesian sense in which fiscal stimulus packages are almost always discussed--the opposite of stimulus. By definition. There is no political content to that statement."

    Sorry, but if "the present" is this actual present --- one where we have massive amounts of debt not held by the trust (that could be transferred to the trust if there was a general revenue surplus), then the "opposite of stimulus" is "no impact", not "anti-growth".

    I will grant you that, in some theoretical present where our only outstanding debt is held by the Social Security trust, and general revenue is running a surplus, "the opposite of stimulus" could be "anti-growth".

    But since we don't live in that theoretical world....

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