Redstate

If you argue that borrowing isn't necessarily bad, I can agree with that.

But how the government is wastefully spending it is bad.  There is no excuse for it.

Bush is doing nothing but encouraging wasteful spending by not vetoing any spending bill set before him.

and here is the question:

These are assumptions the the author makes to lead to his conclusion EXCEPT:

A. Bush's actions are based on his understanding money the way a financier understands money.

B. China will contintue to be a passive investor.

C. No passive investor will ask for debt repayment as a politcal move.

D. Bush is a fiscal conservative.

E. Loans made to the US from China are made before Chinese domestic programs have been fully vested.

you are the FIRST person I have ever heard say that having the Chinese be a primary funder of our operational budget is a GOOD thing for the United States and a bad thing for the Chinese.

I also don't understand your logic about battleships versus T-Bills.  Ignoring the fact that the money for these two items doesn't really come from the same place, you do realize that the Chinese government is MORE than capable of doing both if they so chose?  The United States isn't the only nation in the world capable of selling bonds.

Currently our public debt is not a major problem.  But as debt continues to rise, and there is little reason to believe it won't, our debt service continutes to rise OR we begin to monetize our debt.  Neither of these options are terribly appealing.

I suspect that every President we have had, at least for the last 100 or so years, is fully aware of the power of fiscal policy.  Good to hear that the current President understands what it does also.

I completely agree with you regarding small government and reality.  Ronald Reagan understood this as well.  That's why Ronnie never saw a spending increase he didn't like. He talked a good game about welfare moms and such but he didn't do much about them.  

He left that in the hands of his successor, George HW Bush.  Course George pere was faced with the uneviable task of paring back spending or facing other more significant economic problems.  He got 1 term in the White House for all of his efforts.

The truth is that the American people vote with their wallets. They don't much care about deficits or debt.  That's why we elect people that DO.  Because if we simply kowtow to the voters on these matters we have the current fiscal policy of high deficits and profligate spending.  And that is simply not a viable long term solution.

Whether you want to accept this or not, sooner or later, our government must pay back the debt.  But paying debt back with more debt we are doing nothing but creating a bigger problem.  And in 12 years, when the SSA comes looking for its money from the Federal government, we are going to be in a world of hurt.  

...is Priceless. Methinks that's the new symbol of our Party as we rebuild New Orleans in the absence of the Baton Rouge Democrats. Non?

It is more likely conservatives are unable to control republican congressmen...State flooding is not a federal problem...the federal government already purchased louisiana once...Bush's speech indicates a very expansive view of the role of the federal government and the federal military...if the US citizens wants it - that is fine - but we should have the opportunity to vote for it - rather than have what was supposed to be a conservative president turn into a liberal idealogue at the first sign of water inside a city that was built below sea level...

Your vision of NOLA 2.0 sounds great to me.  Hope it all works out that way.

Ditto your vision of the purely salutary effects of our national debt load.  It kind of sounds like funny money to me, but I'm not an economist, so I can't tell you if your theory holds water or not.  I will say that it is a novel doctrine for conservative Republicans to espouse.

Regarding big government/small government: if government spending as a function of GDP is a reasonable measure, I don't see it in the historical tables for the US budget, published by the White House.  Check table 1.2, beginning on page 23, AFAI can tell Republicans have no basis for claiming fiscal prudence, now or ever.  Please explain if I'm missing something there.

Your plan sounds great, you have the White House and majorities in both Houses of Congress, so it should be clear sailing.  You'll almost certainly get at least a good running start on doing it your way.  Good luck, and try not to mess up.  We'll be watching to see how you do.

Cheers -

...which of course makes the very point -- Bush is pissing it away, along with his famous "political capital."

Another way to think of it: if it is a force to be squirted on the world to change it, it is the Chinese who are squirting it, and when they stop, we sure will be changed. For the better?

You are 100% correct. I think that Katrina may prove to be a watershed event,(yes,pun), in that it gives a historic opportunity to contrast an enterprise approach to a socio-economic set of circumstances as opposed to the proven failed, entitlement approach of the Left.

1. There's a little thing called interest. Even if you children don't have to pay off the principle we borrow, they will be making interest payments on the money every year. Real money. Money collect as tax dollars that gets sent - as you put it - to China. You honestly think this is a good plan?
   
2. Even if you can convince people that borrowing tons of money for goverment spending on things you want to spend it on is a good thing, that doesn't mean it is a Conservative thing. Conservatism has to stand for something. It sure as heck doesn't stand for Big Government.

I also don't understand your logic about battleships versus T-Bills.  Ignoring the fact that the money for these two items doesn't really come from the same place, you do realize that the Chinese government is MORE than capable of doing both if they so chose?  The United States isn't the only nation in the world capable of selling bonds.

The same was said of the Soviets, but they weren't able to buy both guns and butter at the same time. Besides, China's long-term outlook isn't the sort of thing that makes them a very good investment. Why does everyone buy US bonds and not Chinese? It's because they understand that the US economy is growing at a stable rate and the ROI will be better over the long term.

There's an excellent piece in Foreign Affairs that runs the numbers and examines the US debt in context. The basics of the US economy are sound, and the idea that we'll suddenly collapse because of all our debt is ridiculous - the current level of debt, while not good, is hardly catastrophic and certainly not unprecedented in our history.

"It must be very strange to be President Bush. A man of extraordinary vision and brilliance approaching to genius, he can't get anyone to notice. He is like a great painter or musician who is ahead of his time, and who unveils one masterpiece after another to a reception that, when not bored, is hostile.

Hyperbolic? Well, maybe." Powerline 7/22/05

Maybe.

When national debt exceeds a certain percentage of national GDP, other nations and economists - who may not see money in the way that YOU see it, but nevertheless make investment decisions - start to see the economy as shaky.  Usually this is right around 5% of GDP, as far as I can tell.

This leads to a drop in foreign investment; which would be disastrous to our economy.  I don't have to spell the spiral this creates out for you.

Cheers

... has proven time and again that national indebtedness and inflationary policy will always bring about a collapse of the system requiring an entire financial restart from scratch, with much suffering inflicted upon the population in the process.

The only time it hasn't happened is... the cycle we're currently involved in.

It's great while the good times roll, but foreign governments and banks are diversifying out of the Dollar and are sending up signal flares that they will be continuing this process.

The only reason foreign nations continue to buy our debt is right now we're all in the same boat together. If the Dollar collapses it will bring down a lot of other people with it. So they are trying their best to keep it afloat as long as possible while adjusting their own financial position to be able to weather a Dollar storm.

Furthermore, it is never the case that the debtor pulls the strings. In the end it is always the creditor that calls the shots. We were the largest creditor nation prior to the 1970's. Now we are the largest debtor. This is a significant problem and any policy that furthers our indebtedness is not good for America in any way shape or form.

History doesn't care how clever we think we are. If we continue this path we've been going down since the Federal Reserve was created in 1913... and there is no indication we won't, then we are destined to wind up rubbing shoulders with the Romans and Chinese and many many more inflationary fiat systems before us.

The same was said of the Soviets, but they weren't able to buy both guns and butter at the same time. Besides, China's long-term outlook isn't the sort of thing that makes them a very good investment. Why does everyone buy US bonds and not Chinese? It's because they understand that the US economy is growing at a stable rate and the ROI will be better over the long term.

A. This isn't a guns and butter debate.  Nick was suggesting that the reason the Chinese aren't buying battleships is because they are investing in US T-Bills.  This is a dubious claim.  But the claim has nothing to do with butter(aka social spending) in China.  Nick's comment would be more along the lines of saying "The Chinese aren't spending guns OR butter but rather on foreign investment instruments".

B. US bonds are the most secure debt instrument in the world.  They are what all other fixed income debt instruments compares themselves against.  China's bond options come with significantly higher risk than US bonds and, as such, provide a higher yield.  But, as with your first point, this is irrelevant to the discussion.  The discussion isn't WHY China is investing in US T-bills. The discussion is about the benefits to the United States of China investing in our bonds.

The basics of the US economy are sound, and the idea that we'll suddenly collapse because of all our debt is ridiculous - the current level of debt, while not good, is hardly catastrophic and certainly not unprecedented in our history

Which would be why I said that our debt is not currently a major problem.  Our debt isn't going to cause a sudden collapse.  What it COULD DO is start to create a major drag on our economy.  Public debt service could, at some point, force taxes to go up which would cause a drag on growth, since these taxes would not be used to pay for additional growth or services.  The other option would be to monetize the debt, or make more money to pay off the debt. The obvious problem with that is that it could very easily lead to significant inflation, never a good thing.

Yes, because we were so much more powerful and influential in the '70s than we are now.

... that you opted to write this post during a significant rally in Gold and Silver... which is historically a bang on indicator of financial instability and loss of confidence in paper currencies (especially the Dollar as it's the reserve currency of the world).

It must be very strange to be John Hinderaker.

Cheers -

...don't happen instantly.

How long did it take for the poor fiscal policy of Rome to finally catch up with the empire? Two centuries? It took 40 years from the peak of the Chinese inflationary era to finally kick in. 4 years for the Great Depression to finally settle in after the speculation (and as a result... indebtedness) mania had peaked in 1929.

I think an argument could honestly be made that our ability to say "dance" and the rest of the world starts dancing is not as strong now as it was in the 1970's, yes.

Thanks. My initial reaction is "finally someone who get's it." Oddly enough I was raised on a diet of very similar argument from my father. He didn't view the debt as a big deal and he was alive when it was a much bigger part of the pie than it is today. Like you he held the view that national debt is a sort of never-never situation where neither the borrower or the lender ever really wants the debt to go away. And the kids paying off the debt? Even if they ever wanted to, they are going to do so with cheaper money anyway.

He died before China became the 'headline du jour' --- in his time it was Russia. He did live to see the end of the Soviet Union and was of the opinion that, while Reagan and the spend them into oblivion approach had a lot to do with it, the real end game was 'blue jeans, Coca Cola and rock and roll.' Although he was not a fan of two the three he believed that their system simply could not stand against consumers, real consumers. We could afford guns and butter, they simply could not. And although he and several other fellow officers were criticized at the time for claiming Castro was trouble as he was coming to power, he was adamantly opposed to the embargo; he always felt the way to destroy Castro was with tourism and investment; more 'blue jeans, Coca Cola and rock and roll.'

But there is even more to the argument for China as lender. I'm not sure that it necessarily draws down too much from their ability to build a military machine because it is their choice whether to buy our paper or not. But it does create a situation where it is not in their best interest to cause trouble. If they hold enough American paper attacking us would be cutting off their own nose to spite their face. When the Japanese were buying everything in sight from the Empire State Building to Pebble Beach people were bemoaning the disaster. But at the end of the day they couldn't take the asset home to Japan with them even if they wanted to. Similarly China has no long term interest in seeing the destruction of America, hotheads and blowhards in the PRA not withstanding.

And I like the argument about money as a force sent out into the world to make change. Bush's program of democratization in the Middle East is having slow but discernable results. We've seen the results in Lebanon and last week the Saudi government ordered the Jeddah Trade and Industry Chamber to allow women full participation in their chamber elections. It isn't women in the parliament, but try to imagine that happening even 5 years ago. And it can't be viewed as simply a 'sop' to temporarily placate women; once water starts dripping through the dam it is impossible to stop.

All in all, a nice assessment. I'm sure it will draw criitcism from right and left but if nothing else it should cause us to think about it.

It is all so painfully slow, but the history of man is written in thousands of small steps and then the inevitable leap.

-------------------

The Chinese aren't throwing their money away.  Do you really, honestly believe that by collecting interest on an enormous amount of money China is stunting its national development?  As far as I can see, the only way your argument would make sense is if the US were ever willing to default on its loans.

Which I humbly suggest might be a bad thing in the long run.

Where on Earth do you get the idea that our civilization is in decline?  I can imagine some definitions of "civilization" for which that sentence would make sense (not that I would agree), but none that also make sense with your next sentence, "Surviving won't have that much utility if we all end up as savages clubbing one another."  Are you actually suggesting that we will decline technologically?  The only way that'll ever happen is in a worldwide nuclear war, and I utterly fail to see how our domestic policy will prevent such a thing.

As for your point about the new New Orleans, as a liberal I think it sounds wonderful.  I think that an awful lot of Democrats would support efforts to help people own their own home.  But I don't understand why you think these ever-so-much-better-than-us Americans of the future would suddenly stop voting with their wallets.  They'll still want to pay low taxes and receive all the benefits that government can provide, exactly like us.  Do you think there will ever be a point in history where nobody can make an argument like yours about the end justifying the means?

the whole Soviet guns and butter argument doesn't seem to apply.  During the Soviet era I don't seem to remember buying a whole lot of consumer goods which said "made in the Soviet Union" which means we weren't shipping the Soviets boatload of dollars with which they could buy guns or butter. It's different with the Chinese.  Didn't some financial mag refer to the whole thing as the "Mother of all factoring deals?"

Here's my question/concern for the economists.  I can see why China may be loaning us cash at the current time; China doesn't have anything better or more remunerative to do with it while it builds up its infrastructure etc.  But I am worried about making our entire economy dependent on cheap Chinese provided dollars in the same way I am worried about the fact that our entire economy is dependent on cheap foreign provided oil.  The concern is that you are then handing the provider of this essential item the power to deny you that item.

If we allow our economy to be dependent on massive infusions of cash from China in the form of loans, what happens when China progresses to the point where it has better things to do with those funds than loan them to us cheaply?  What happens when China turns off the spigot in favor of domestic consumption, investment in Asia or India, etc.?

I am not sure Nick has convinced me he's made a conservative argument for huge debt.  Maybe it's more of a neoconservative argument.  His argument reminds me of why my clients hate most financial planners.  Most of my clients are old time fiscal conservatives (and Republicans).  Up by the bootstaps kind of guys who own their own businesses and are now worth millions. And you know what, to a man they all own their own homes free and clear.  And when some young aspiring financial planner comes along and tells them they ought to mortgage their real estate to the hilt and invest the difference, they send that planner packing - because you don't let the Bank own you, which they do when they own your house.  

I am just not comfortable with China owning my country.  

is a smaller piece of the GDP than at almost any time in modern history. If they (whoever 'they' are) were going to get nervous the time to have done that was under Reagan; they didn't do it then why would they do it now? Besides, our debt as percentage of GDP is practically stellar compared to other nations in Western Europe for example.

No! Say it isn't so :-)

hope so! If not he needs a stiff drink and some serious rest :-)

this is true, ramping up huge amounts of debt, subject to interest, is not a sustainable policy of governance; just because in the past we have not been negatively affected by our poor decisions does not mean that we, or our children, will not be affected so in the future.

Our spending truly is epic these days; if you don't take my word for it, ask the boys over at CATO:

http://www.cato.org/pubs/pas/pa543.pdf

Cheers

You mean when the deficit hits more than five percent, I presume. However, the debt can also be a problem. At a level around 60% of GDP, interest on the debt becomes a problem because if there is a recession, fiscal policy options become really expensive. As you can see from this: http://zfacts.com/p/318.html a recession would really put the government in a tight spot. Borrowing a lot of money for a stimulus package would become very expensive, should interest rates increase.

those pigs should be flying, or at least wearing gobs of lipstick.  

Anyway, I hope NOLA ends up the way you describe it, I think everyone wants that kind of change and in many different places.  Bush has the ball let's see where he can run with it.

Frankly his speech the other night is more what I would have liked to have heard after 9/11.  In addition to going and stomping out terrorist rats around the world we should have begun investing more heavily in new alternative energy programs and conservation.  But I suppose one out of two disaster recoveries isn't bad, I just hope the NOLA reconstruction doesn't look anything like the democratization of Iraq...

You are 100% correct in that I used the word Debt instead of Deficit unintentionally - my mistake.

There is little doubt that interest rates will continue to increase for some time....

I will never agree that borrowing money from the future is sound fiscal policy.

Cheers

Public debt, in relation to GDP, is most certainly NOT lower than at almost any time in modern history.

http://www.gpoaccess.gov/usbudget/fy06/hist.html

Public debt to GDP ratio will higher in 2005 than in all but 4 years of the past 50.  

Current projections have out debt ratio at it's highest since 1954, when we were still paying back WWII debt, within 2 years.  

Our debt ratios are actually comparable to most other Western nations.

http://www.cedarcomm.com/~stevelm1/usdebt.htm

Although I don't imagine you will agree with the tone of the author, you an verify his data (it's taken from the White House documents) if you feel he's made a technical error.

Our debt to GDP ration has skyrocketed. Crazily enough it only slowed down and started to reverse since we broke from the Gold Standard for good during Clinton's term. The reasons for that are complex and I think anyone trying to identify it with Clinton alone is making a big mistake. But the assertion that our Debt to GDP ratio is at historic lows is extremely way off.

... that Nick is right in the sense that debt by nations, especially a nation as dominant as our, is simply not measurable using the same metrics as debt by companies, individuals or even "lesser" nations.

No one has any experience with economies as large as this, even in the heyday of the British Empire, so I'm not sure that even the best of economists has the wherewithall to all project what actually happens. An old chemistry prof of mine had an expression 'if it happens in a drop it happens in a gallon' (and vice.) But that may not apply when the batches is as big as the ones we are talking about.

You can't view economics in a historical context because the interplay of economic relationships is evolving based upon the increasing level of civilization of various parts of the world, the increase in globalization, the advent of multi-national corporations without political ties and the free flow of capital. Debt only has endpoint consequences when it is secured. A point that Nick made very clearly. Personally, I want parts of the Chinese politico-socio-economic stucture to such a high investment in the US that military engagement is never a viable option.

demonstable

I think that an awful lot of Democrats would support efforts to help people own their own home

I submit that Democrats say they want this, but in their heart-of-hearts they know that all that does is create more Republicans. Dependency is the unwritten plank of the Democratic Party platform.

about China.  

China has a major problem that they are unwilling to deal with.  It is a problem that plagued numerous Asian tigers.  

Their currency is pegged to the dollar.  While that is helping them right now by ensuring that their goods remain relatively inexpensivce, sooner or later, it will cause a very untenable situation in their economy as no one will want Yuans because they are artifically overvalued.  They will then be forced to float their currency which will cause a whole lot of problems for them.

Let me get this straight,  you want to take my money and use it to fund your grandiose schemes about how to make the world a better place?

You want a chance, and the right to use my money, to "demonstrate to people that your ideas work?"

And you want to call this conservatism?

You are proposing bigger government as the best way to smaller goverment. My mind reels.

Things are getting way too Orwellian for me...

I submit that Democrats say they want this, but in their heart-of-hearts they know that all that does is create more Republicans

While I realize that many people here view Democrats as panderers and craven the reality that they have the same goals as Republicans.  They simply disagree with how to get to them.

Manhattan is the richest place in the country, if not the world, and yet it is chock full of Democrats.  

The Chinese aren't throwing their money away.  Do you really, honestly believe that by collecting interest on an enormous amount of money China is stunting its national development?  As far as I can see, the only way your argument would make sense is if the US were ever willing to default on its loans.

Which I humbly suggest might be a bad thing in the long run.

Right, the card we have is that we could default on our loans. This should keep the Chinese loaning money to us, since if they stop, our economy will collapse and we will default. However, that's not the larger point. I think you have to follow the stuff, not the money. It's not good that the Chinese are taking all of our production. Who owns whose debt is more or less moot.

...don't change.

They haven't changed in a couple thousand years. The fundamentals of debt to income ratios, interest rates and their effect on the economy, borrowing against the future, inflationary policy, etc. are cyclical and predictable.

The means we go about putting these principles into action change, the medium of exchange changes, but the fundamental nature does not change.

Reading the Roman documentation for monetary policy almost 2000 years ago... you almost can't tell the difference between what they were doing then compared to what we are doing now. The leaders then were fighting the same demons we are fighting now, and with a few exceptions, they almost always opted to follow the same self destructive paths that gave them a short term benefit where the bigger price wouldn't have to be paid until it was no longer their problem.

I meant deficit, I thought deficit, I typed 'debt.' You get to choose whether to accept it as simply fingers engaged before brain.

In the end, it comes down to simple economics.  Debt as a % of GDP that exceeds GDP growth is not sustainable.  Projections over the next 10 years clearly show this unsustainability.

It would be interesting to see if there are any conservative ECONOMISTS who agree with this entry.  I'm sure there are plenty of pundits, bloggers, etc.

you are willing to bet the future of our nation, of hundreds of millions of people, that what applies in the Micro does not apply in the Macro?  With little evidence that this is true?

As another poster above succinctly wrote, there were many Romans who argued quite convincingly that despite their ruinious economic policies, their nation would last in perpetuity; is this really the example that we wish to follow?

Consider the alternative; cutting spending, for God's sake!  Isn't that why I vote Republican?  I'm 26 years old, and can easily see myself still being alive when this debt gamble collapses; forget the children!

Cheers

China decoupled from the Dollar a while ago, bud. :)

http://news.bbc.co.uk/2/hi/business/4138766.stm

Warren Buffet in real life? If they were cyclical and predictable, it would be very easy to make a lot of money.

It happens pretty often. I think that most people, even economists, associate the two so closely that it is easy to have some mental dyslexia on it.

As for deficit to GDP you are correct that it isn't at a terribly large rate currently.  HOWEVER, there is a bit of shell game going in this regards.  Our deficit to GDP ratio is basing the deficit on our GROSS revenues. IOW, they are treating the SS income as revenue.  While true from an accounting standpoint it is, in truth, nothing more than an accounting trick.  If we treat the SS debt the way we SHOULD, as an above line revenue, then our deficit to GDP ratio goes from a manageable 4% to over 5%.  We're still not in a danger zone in that regards but we start to get into more trouble.

Regardless I think we sometimes focus too much on deficit to GDP and not enough on debt to GDP.

... is not the same thing as understanding the fundamentals that have suceeded throughout history on a national scale of economics, and the ones that have brought some of the greatest nations to their knees.

And as a matter of fact, yes I have applied these principles as a part of figuring out which companies are good to invest in and which aren't and it has worked out extremely well for me. Much of what I learned was by taking the time to understand what makes a business sustainable and profitable. The same fundamentals held true for the US until we change our policies and it's what shifted our government into indebtedness and it's what has caused our citizenry to finally have a negative 0.6 savings rate now after having a 10% savings rate just 10 years ago.

That is not sustainable and you can see that foreign nations are recognizing this by not investing in us at the same rate as before and looking for ways to diversify their current Dollar holdings into other vehicles.

The Pope is Catholic

It's still pegged against the dollar.

From your article...

China's currency had been pegged at 8.28 against the dollar for a decade, but the adjustment allowed it to float against a number of currencies.

The Chinese government simply changed the peg.  

so I'm not sure that even the best of economists has the wherewithal to all project what actually happens.

The implication being that the President has a firmer grasp on the situation than the best economists?  I tend to go with the economists but look for the near consensus position -- through out the strongest dissent from each flank and take the middle.

It's probably wrong but it seems like a better bet than banking solely on the President's economic genius, regardless of who sits in the office.

Nick's argument frankly is less about economics and more about politics.  Spending money is good for Republican electoral futures and frankly that is more important than the long-range economic stuff since who really knows or understands this anyway.

you are the FIRST person I have ever heard say that having the Chinese be a primary funder of our operational budget is a GOOD thing for the United States and a bad thing for the Chinese

Yes, I suppose that Reverend Ike was a little before your time. It was Reverend Ike who said, "When you owe the bank a thousand dollars, you have a problem. When you owe the bank a million dollars, the bank has a problem." Reverend Ike is a very wise man.

you will note that I did the same thing.  :)

Cheers

that we aren't talking about banks.  We are talking about government.  It would be wise to not confuse the two.  

The US cannot realistically default on their loans to ANYONE.

The truth is that the American people vote with their wallets.

I disagree.  The American people vote with OTHER people's wallets, and Congress helps that farce every step of the way.

When the Dems say that we need to 'tax the rich' to pay for whatever new program they want, people agree that 'the rich' are Bill Gates, Donald Trump, and others.  But the 'rich' are also the folks making $200,000 a year living in New York, Washington, or L.A. where that isn't as much money comparatively. Or the small businesses that file under the 104 0as well, that give so many millions of people their jobs.  But these folks pay the same tax rate as the uber-wealthy.  They're all 'rich'

When the GOP pushes tax cut after tax cut (a good thing) and then spending program after spending program (a demonstrably bad thing) they are equally culpable.  It says "You can have all sorts of candy and dessert, and someone else will pay for it.  Don't ask who, eat your d*mn candy you ungrateful brats."

If people directly related their tax burden to the government programs out there, people would change their behavior, both in consumption of programs and their voting habits.  But since we hide the tax burden by allowing businesses to withhold money each pay period, people tend to forget the total cost of the government.

I would prefer eliminating the withholding and make people send a check to the government each month for their taxes.  You can guarantee that people would start to freak out.

But that's another post.

It is no longer fixed to the Dollar alone, which means it is now able to fluctuate against the Dollar pretty significantly. This was a big deal... I followed it pretty closely.

http://www.chinadaily.com.cn/english/doc/2005-07/21/content_462216.htm

They are going to continue to adjust the exchange rate depending on what's going on. It is no longer fixed to the Dollar at any rate. The part you quoted was simply the initial change in the value.

More:

http://money.cnn.com/2005/07/21/news/international/china_yuan/

http://fistfulofeuros.net/archives/001769.php

http://www.washingtonpost.com/wp-dyn/content/article/2005/07/21/AR200507210
0351.html

Fiscal jellyfish will say it is different this time. Free market zealots will be in denial. Shills will continue to wave the pom poms for more debt. I believe Cheney said "debt doesn't matter" or something to that effect? When the Chinese and other creditors are not as reliant on the great mindless consumer market of the USA (are those pigs looking for the Walt-Mart trough?), then

the music stops and the game is over. Many in the US will never really understand a financial crisis until it hits home. My family or descendants will be out of the country by then, God willing.

"My family or descendants will be out of the country by then, God willing."

You can always go now....

put the US in default

When I say that people vote with their wallets I am merely stating that people like politicians who give them the most benefit for the least cost.  

This is why entitlements are such third rail topics.   Unless a politicians can come up with a way to make voters think they are paying less and getting the same, voters don't want entitlements touched.  Republicans TRIED to convince people of that earlier this year and most people were unconvinced.

While I agree that people would be more critical of spending if they had to write a check, it is simply not feasible in our society.

on an open exchange?  If not then it is pegged.  The MECHANISM for setting the rate may change but it is pegged nonetheless.

A:) it's quite simple - you don't go to war with a country when you have a lot of money riding on that country. For instance, China loves to rattle sabers over Taiwan - but doing something about it would ensure that those debts would be declared null and void. China is using capital that could otherwise go towards their military  to buy US bonds - which in general is a good thing in terms of ensuring that no side benefits from confrontation.

B:) TheForeign Affairs article deals with this in some depth. Our relationship with Asian companies is one of mutual advantage - they invest in the US, which provides them with their largest export market. If they do something to cause the US economy to crash, they suddenly lose their biggest market - which is why they have every interest in keeping the US economy strong - and we have every interest in keeping that arrangement afloat. It would take a major reorganization of Asia's entire economic base for that arrangement to change.

Again, the scenario you describe would require foreign investors deciding to cash in their chips enough to produce a drag on the economy - which would in turn weaken their own export market and negate any benefit in the long run.

Think of it this way - a business will often go out of its way to please its best customers, especially if they know that will lead to increased contracts from them in the future. Asia is doing exactly that right now.

That doesn't mean we should keep piling on the debt, but it also doesn't mean that we should be terrifically worried about it either. The 1980s was filled with horror stories about how Japan would eclipse the US economy and take over - and the Japanese economy is just now coming out of a long and miserable recession, while the US economy continues to grow.

Great essay, and thought-provoking.  I tried real hard to be as positive as you are, and I think you've largely succeeded, as far as the NOLA and Chinese debt, and so on.  However, I remain very cautious on the small government point, and I wonder if the course you are prescribing has us declaring victory by changing the defition of what it means to win.

And instead of sitting here quietly waiting for the next Democratic administration to come in and click the ratchet one more notch to the left, we can reverse some of the harm they've caused, and demonstrate that our ideas are better. This really does all play together. And it really is "conservative" in the strongest sense of the word. It's just not the same old short-term thinking, like we're used to from our politicians. It's not "small ball." It's playing to win, as opposed to playing not to lose.

The problem is that this all depends on how things are done.  Given that after the Reagan revolution conservatism was always defined as a struggle in part to reduce the size and scope of government, particularly the federal government, to suddenly embrace the exercise of government power seems to me to be redefining "victory".  I suppose that is precisely what you are suggesting that we do.  Sacrifice one pillar of conservative principles in order to advance others; take a long-term view; etc.

In order for this to make sense, what we gain must be greater than what we give up.  If we're going to abandon the "small government" concept (sure, we can pay lip service to it, but know that we're actually going to go exercise power by spending money and creating new departments and such), then I must ask what we will gain to replace that pillar of conservatism.

Your partial answer:

I say the next priority is to reverse the decline of our civilization. Surviving won't have that much utility if we all end up as savages clubbing one another. We all just got a very clear demonstration of what that looks like. We've seen it before, too. In fact we've seen it almost everywhere that Democrats have had their way in imposing their values on citizens through government dependency programs. There is a message in this. It is that the "ratcheting" has to stop. Like it or not, we either spend money to have our values reflected in this society.

Now, forgive me if I misunderstand or mischaracterize your pont here, but this to me sounds like the ascendancy of social conservatism at the expense of fiscal conservatism.  Because we conservatives generally believe that our civilization is on the decline, we should take a page out of the Liberal/Democrat playbook and spend money, use power, in order to reverse that trend.  Even if that means sacrificing principles of lower taxes, smaller government, and so on -- at least in the short-term.  In the long run, you expect that the new ownership society will want smaller government and lower taxes.

In short, it seems to me that you want to buy a new electorate.

I must ask, if this is indeed what you are proposing, how we conservatives stop ourselves from getting into the fractious values debate that have riven the Democrats for these many years.  We will still agree on strong defense; but lacking the common ground of fiscal conservatism, we will end up with profound differences over social values questions.  When you go from agreeing on two of three core ideals to agreeing only on one of two, I think that shift will be profound in what it means to be a conservative and what it means for the Republican Party.  I'm not convinced that the shift will be to the good.

I'd appreciate the community's thoughts on this.

-TS

Thanks for the encouragement; you understood my reasoning. I will need to sell property here before leaving and the family part will take time. I'll send you a confirmation post when I settle.

You are arguing a point I'm not making.

I NEVER said that getting China inextricably tied to  our economy was bad.  It's a great thing and the reason why our politicians pay lip service to pushing for reform in China while at the same time opening our legs for them more and more.

My initial point was that it is flawed thinking to suggest that because they invest in our bonds they can't invest in battleships.

Again, the scenario you describe would require foreign investors deciding to cash in their chips enough to produce a drag on the economy - which would in turn weaken their own export market and negate any benefit in the long run

If public debt becomes so high as to lower our international bond rating you can be sure that lenders will come a knockin for their pound of flesh.   And they will do it without concern for larger overall concerns.  

Why didn't (primarily) France and Russia not want to go to war with Iraq? It was the billions of dollars in debt that Saddam's Iraq owed them, and the commerce and trade that they had with the former dictator.

The difference is that the bank can probably recover most, if not all, of that thousand. Whether you owe a thousand or a million, if you can't afford to pay it back, you are still broke.

Respectfully, I don't think that this approach will really work the way you expect it to.

You said that they would have trouble when they float their currency, and no longer peg it against the Dollar. That's exactly what they have done.

This is only the start of that process... it will float more and more over time (0.3% a week I believe?) and are commited to letting market forces drive the value of the Yuan. This means that we are going to be paying more for our imports, which will increase the price of our goods, etc. etc.

That it's not traded on an exchange doesn't mean it's not floating now. Which was all you seemed to specify in your original post.

This is the first step towards the ultimate goal of having it freely stand entirely on it's own. The day of the Dollar dominating and driving it are over. They no longer have to worry about people not wanting it like you suggested.

ramping up huge amounts of debt, subject to interest, is not a sustainable policy of governance

Sure it is. You're applying a slogan that is appropriate for individuals to a huge institution. That makes no sense. Institutions are not mortal. They can continue to grow forever. Virtually every corporation of size has debt in its capital structure, and that debt has grown as the company has grown. Here's why:

If a company can borrow at 5% interest, and can invest the cash in something that produces a 10% return, they can pay the 5% interest and have another 5% left over. They are going to keep borrowing and doing more of that as fast as they can. The strategy is sustainable, so long as there are opportunities out there that pay more than the going interest rate. There has never been a time when there weren't such opportunities.

The same thing applies to governments. So long as the economy continues to grow, they can pay more and more interest, allowing them to take on more and more debt, which they (can) invest in things that make the economy grow even more. Lather, rinse, repeat. Until the Sun burns out.

Thank you for the sanity and common sense.

the wrong thing. If you'd followed the issue in the 80s you'd know the Soviets financed themselves by oil and natural gas exports to Western Europe.

...perhaps we just have very difference perspectives on how much the Chinese currency needs to float before it has a signficant impact on trade between the US and China.

I took your comment about allowing it to float at face value as meaning any sort of float... so... there ya go.

We could default on China loans as a reaction to them pestering Taiwan and it would not affect our ability to raise capital from anyone but the Chinese. And what are the Chinese going to do? Send a repo man?

You think that using our treasury bonds as a political tool in which we selectively choose who we will and won't pay back, would have no impact on anyone but the Chinese?

Ok.  Whatever you say.  

... have destroyed their businesses and countries by projecting into the future in the manner you just did.

"So long as the economy continues to grow..."

This is the pivotal point upon which the inflationary supporters always wind up getting killed by. Sustainability can not depend upon growth. It has to be able to withstand a flatline or even a withdrawl for a time.

The killing blow always happens when that perfect pause in the economy comes when the debtor is too highly leveraged and the margin calls or credit collectors come calling because they have their own people they need to repay.

The Yuan is in a very desirable situation right now.  

But that won't always be the case.  When the dollar turns around and the Yuan weakens, that is when they will have problems.

It doesn't much matter how they peg the rate.  By having their central bank control the value, they insulate it from market forces.  The longer they do this the more likely it is to get wildly out of whack.

My initial point was that it is flawed thinking to suggest that because they invest in our bonds they can't invest in battleships.

They may be able to, but it doesn't make sense for them to do so. A battleship doesn't earn them any money. It costs them money. And why build up a huge fleet of battleships when you can get rich instead?

China only has X amount of money to spend each year (without themselves going into unsustainable debt), which means they can either invest it or spend it on battleships. It's better for us (and everyone else) if they do the former rather than the latter.

If public debt becomes so high as to lower our international bond rating you can be sure that lenders will come a knockin for their pound of flesh.   And they will do it without concern for larger overall concerns.

Except the chances of that happening are unlikely. An investor looks at the fundamentals of an investment - and the fundamentals of the US economy are the strongest in the world. There isn't a market in the world that has the fundamentals we do, and our position in the world economy is crucial to every other market out there. A massive capital flight out of the US is unthinkable at the present. Where would that money go then? Asia - who are dependent on exports to our market for their economic strength? Europe, whose share of the world market is expected to decline 3-5% by 2020? Russia? South America?

We're the 800lbs gorilla of the world economy. And unless something very massive happens, we're likely to stay there for a good long time. And that's precisely why the current economic condition is perfectly sustainable over the long term. The worst thing we could do is try to engage in protectionist measures to try and fix a non-existent crisis - thus upsetting the balance and sending the world economy into decline.

I concur that people want more for less.  The problem is the relationship between what the majority of the country contributes to the operation of the country, and the benefits we give out in return.

But I'd disagree that it isn't feasible to make people send in a check every pay period to the government instead of having their employer do it.  It migh tbe less efficient, sure, but it certainly is feasible.

It also has the positive effect of making people realize exactly how much of their income goes to taxes and allows them to evaluate every two or four weeks whether they think that's a fair trade off.  I bet we'd see a lot less pork, a lot less in entitlement creep, and a much higher demand for an efficient government.  

If we stop helping people forget the relationship between payday and sending money to the government, people will think about government much differently.

I think most countries understand politics. The fact is that countries in Africa, Asia, and South America nationalized industries and defaulted on loans with monotonous regularity throughout the 70s yet never suffered for a lack of foreign investors. We're at least as credit worthy.

a fallacious argument, as it completely ignores the business cycle; namely, that there will be booms and busts, the economy and market will grow and shrink.  There is a zero percent chance that the economy will continue to grow ad infinitum; and the longer the cycle is delayed, the harder the downfall is.

It isn't a slogan.  You say that:

"Institutions are not mortal."

And yet, they are, as undoubtedly every nation and business has had a beginning and will have an end.  Tell the vast majority of failed businesses out there that they were not mortal....

And, now another question has occured to me: if it is such a sure bet that the gov't can invest in something that consistently achieves a 10% return, on a massive scale, then why would anyone dream of loaning money to the Gov't at 5% interest?  They could make much more investing elsewhere.

Cheers

"A massive capital flight out of the US is unthinkable at the present."

That would not be good for anyone. However, investors are trickling their capital out of the US.

Foreign banks are showing interest in becoming net gold purchasers instead of sellers for the first time in a loooong time. Russian and Asian central banks have said they are going to be reducing their Dollar holdings slowly.

A single large entity suddenly fleeing the US Dollar would certainly cause a huge disruption for everyone around the world... which is why we have to pay even more attention to the slow deflation.

It doesn't matter if your tire blows out in a second or has a slow leak over weeks. Either way you are going to eventually be stuck on the side of the road watching traffic fly by. At least with the blowout you might take others out with you and you'll have more people who need help getting safely out of their cars. ;)

the real question is: How will Republicans convince America this is so? Sounds a little shaky to me. I mean, Republicans have always used spending against Democrats, and now they want to spend? And Democrats have always used lack of spending against Republicans and they're currently criticizing the spending. Sure, we need to spend to survive, but Americans will decide according to their prosperity. Perhaps many Americans want money spent domestically and not abroad. Just a thought.

If you want to compare our bonds to those of 3rd world nations that would certainly give us more flexibility.

Whether most countries understand politics is irrelevant.  Most INVESTORS view T-Bils as the most secure investment instrument in the world because it has the MOST LIKELY chance of getting paid.  This is why we can pay lower yields than, say, a Zimbabwean bond.  

I have to say that this is the most surreal thread I've read here at RedState.  If jjayson comes onto this thread and starts supporting the premises made here then I'm going to need a shot of whiskey.

For our purposes, institutions are immortal. If some of their debt comes due, they simply roll it over. They can do this perpetually.

Someone should have told Argentina!

I have to say that this is the most surreal thread I've read here at RedState.

Understatement of the year. :)

Bottom's up!

The Weimar Republic

Hungary

Mexico

The US Confederate Army

The Ottoman Empire

China (twice!)

Greece

Yugoslavia

Ukraine

Bolivia

Peru

Rome

whee!

you want to take my money and...

No. Did you even read the piece? You spend your money however you want. Maybe you won't, but at least somebody out there is going to buy some goods from China or Japan. At that point the money is China's, or Japan's. Not yours. We're going to borrow their money, and spend that.

Why will they let us do that? Because they can't stop. If they ever stop, we will have to take your money. And then you won't have any money to buy their stuff. And then they will have a big unemployment problem, and domestic unrest and stuff. And they don't want that.

See, after you get your stuff and have it safely at home, we borrow the money you gave them for the stuff. Now you have your stuff, and we have the money. What the Chinese have is a piece of paper. This is a good deal; don't complain about it.

It sounds Orwellian because you have to think long-term... 20 or 30 years, to understand it. For most of my adult life, liberals ran this country. Democrats had a huge registration advantage almost everywhere. That's gotten closer in recent years, and now the GOP may even be a point or two ahead. But that's not because the public has embraced fiscal conservatism. It's because the Democrats scare people on defense. Someday they are going to fix that.

The Democrats have built a huge base constituency out of two basic groups: government employees, and people who are dependent on the government for transfer payments. Not a few of the government employees are part of the huge machine that makes the transfer payments, or provides in-kind services to such people (the social workers, etc.).

If by spending money now, we can turn some large fraction of the transfer-payment recipients into homeowners with jobs, then we can expect a future that has fewer recipients and needs fewer government workers. We don't get to claim our winnings until that happens, but we do get to claim them. And when we do, the Democrats won't have the voters... we'll have 'em, because they will be homeowners with jobs instead of people living in projects on a monthly check from Uncle Democrat.

When there is an electoral majority in favor of lower taxes and smaller government, we will get it. But we're not going to get it until then. So we either make it happen, or we have to keep crabbing about how "the people" keep electing these porkers.

I'm assuming you're including those folks who've given us "No Child Left Behind", the Medicare Prescription Drug Benefit, Energy Bill, Transportation Bill, etc.?  How do these particular investments figure into the strategy?

Our children are not going to have to pay it back. Institutions are not individuals. For our purposes, institutions are immortal. If some of their debt comes due, they simply roll it over. They can do this perpetually. IBM probably has debt on its books that's been there since the 1920's. It's been rolled over several times. No one cares. So long as IBM sees opportunities for investing cash that return more than the interest rate, they will never pay the debt back... they'll just keep rolling it over. And then the Sun burns out. This can be a difficult concept for non-finance-types to understand. But it is crucial to understanding what's going on here. So long as the U.S. economy keeps growing... so long as we have opportunities to invest cash in ways that earn a higher rate than we have to pay in interest... we should keep rolling over our debt, and adding more as we can, forever. All these people who moan about the chillrun do not understand this game. The chillrun aren't going to pay it back. They don't have to. They're going to roll it over, and add more of their own. As will their children. Until the Sun burns out.

Doesn't this presume that government spending of this type and on this scale produces a return in national wealth and, presumably tax returns, that is greater than the increase in debt service?  Is there evidence for this?  To put it another way, is there evidence that government can make better decisions about investment than free(ish) markets?  

that it will take longer than 8 seconds? Well, at least we know that our opponents won't catch on to the strategery before it's too late (look shiny metal object over here). Anyways (cue evil music), Was this all cooked up in Texas in 1999? This was W's whole platform of 'Compassionate Conservatism' that he ran on, and was on the way to implementing before that whole terrorism war distracted the American public.

How about we call it the "Re-Deal"?

on the list? At the time of the Roman Empire banking as we know it did not even exist. Neither did paper currency-- all money was in gold and silver coinage. Now to be sure, the Roman Empire did some very foolish things economically (like Diocletian's price controls) but massive public debt was not one of them.

Rome's successor state, the Byzantine Empire, is another matter. The Byzantines in fact are perhaps the first case in history of an empire mortgaging its public finances to external powers, and the empire suffered the consequences of that folly.

from A to B to C?  Step B sounds suspiciously like "a miracle happens."  How will this firehose of money you propose to direct at our problems have the effects you claim?

"Let's cut taxes to zero and borrow 100% of the cost of running our entire government."

I'm genuinely stunned that this is what passes for original thinking among the conservative intelligensia.

the Habsburg Empire of Félipe II.

Manhattan also has very low home ownership percentage.

Assuming that this is true, what's that got to do with the price of tea in Sheboygan?

I'm a Democrat, and not even remotely a moderate one.  I would love for everyone to be able to take care of themselves and think we should work to increase said ability when possible.  

Making this sort of allegation based on no particular evidence just makes us talk past each other.  I disagree with liberals and conservatives alike when they engage in this sort of behavior.

I remember that we were shipping boatloads of grain to the USSR in the 70's and 80's so they could bake the bread on which to put the butter being produced simultaneously with the guns.  

Home ownership was commented on.  With democrats saying they want to increase it, but knowing it will make more republicans.

You pointed to Manhattan as a counter-example, but somehow switched from home ownership to wealth.  

I got it back on track by pointing out that Manhattan has low home ownership.  Which, if the parent post was accurate, would explain Manhattan being democratic.

Still seems like a pretty silly argument but, since I really don't care to look up the housing stats of Manhattan I'll cede that it was a poor example.

I used to work as an analysis for a market research company and the New York MSA home ownership numbers always stuck out because they were so different from the rest of America.  I dont know how Manhattan differs from the rest of the NYC area, but I would bet it has an even lower %.

I didnt have access to political #s (we didnt do that kind of thing) so I cant say anything about how it relates to that.  Hypothesis though:  Renters, regardless of income level, are primarily democrats.  Why?  No clue.

You may be onto something, but I don't think there's any causality.

People that live in big cities are more likely to be renters than people that live in the suburburs or rural areas.  People that live in big cities are more likely to vote Democrat too.  Hence, there's likely some statistically significant correlation between the two.  But, that doesn't mean they're Democrats because they're renters.  It means they're Democrats because they live in big cities.

It's theoretically possible, I suppose, that the rent/own distinction is controlling, but it seems unlikely.  Three of the top five states for home ownership per capita (Delaware, Michigan, Minnesota) are blue states, and five of the top ten (add Pennsylvania and Maine).

on that, if you you care: (not the best article, just the first I found that was relevant)

http://www.villagevoice.com/news/0433,kamenetz,56002,1.html

Real Estate in Manhattan is abnormal for many reasons  which makes it useless in these sorts of discussions.

Short answer: Renters are usually Democrats, but renters in Manhattan are renters for different reasons than the rest of the country. It is possible to be wealthy and still be a mere renter in Manhattan. It is likely that some who rents in Manhattan can afford to own somewhere else (like the guy in the article).  

Sorry for contributing to the tangent.

Don't be too stunned. What your seeing is the consequence of a president with a 40% approval rating.

The logic goes something like this:

Something is clearly wrong with U.S economic policy.

But clearly George Bush is a great President.

Therefore George W. Bush must be a visionary genius of the highest order. Too smart for the average man on the street to even begin to comprehend. Therefore, all we can do - nay - all good patriotic Americans should do is to trust in our great leader.

--

Am I banned yet? :)

The problem with that scenario is that so much of the world's growth is based on the performance of the US economy that abandoning the dollar would be suicidal. If your scenario were to play out you'd eventually see a market correction in which the undervalued dollar saw a massive capital inflow as every investor on the planet realized the potential gains of an undervalued dollar.

So long as the fundamentals of the US economy remain strong, that kind of scenario won't happen. Those Russian and Asian banks may be seeking to diversify, but the supremacy of the dollar won't be stopping any time soon. The yuan is still pegged to the dollar, although on a floating scale. The yen is still problematic. The Euro is overvalued. There aren't a hell of a lot of alternatives, and no sane currency investor would bet against the dollar - silly little TV ads nonwithstanding. (BTW, anyone dumb enough to purchase those Euro currency call options deserves the inevitable fleecing that will result...)

The most difficult thing to find, anywhere in the world, is a good place to put your money.

If you can find one, then leverage is your best friend. But if credit is too easy, then you make bad decisions because the penalty for poor discipline is lower. That is happening to us now.

The Chinese are the only non-developed country in recorded history to act as a net source of credit. You'd think they would use their capital surplus to buy domestic productivity improvements. But they obviously have other ideas.

As an investor and business manager, I always seek to use capital as efficiently as possible. What does that mean? Traditionally it means producing the highest rate of return. But at the end of the day, what is capital? Nothing more than the power to command some number of people to use their daily time and energy in a certain way.

And if there is nothing good to use their energy on, they'll just spill it on the floor (if you caught the Biblical reference, go wash your hands ;-)).

It's always a mistake to conserve an unconstrained resource. The world has an enormous capital glut right now. Capital is dirt cheap, practically free, because there are so few good places to put it.

So maybe the Chinese are right to "waste" capital in an attempt to gain economic leverage over us. And maybe Nick is right about using it on a grand government agenda with an uncertain return. (My vote: use it to develop a sustainable national energy policy. This would be jujitsu against the Chinese, who are preparing for war to secure petroleum.)

Nick, I admire the novelty of your idea. It's great food for thought.

You're saying that the reason this could never happen is because the US economic fundamentals are so strong.  And the reason that the US economic fundamentals are so strong is because this sort of thing couldn't happen.  

Thoughtful post and a logical angle towards "money" that I'd not considered before...You present a literate, rational discussion. I suppose my thoughts on the President's proposals fall more into a "feeling" response as opposed to a sound intellectual arguement...(sometimes I wonder if I should post on this site without benefit of spell check & more on topic research...but I just cannot help myself...)

I'm old enough to remember the start of the war on poverty...and I've seen enough to know that war not only was lost...but the battle plan displaced the poor of all races into unseen city blocks of hopelessness & violence. A cycle of poverty that continually feeds back on itself...a third world country in America.

New Orleans & most of Mississippi must be rebuilt...The money poured into it's rebuilding are not being poured into another persons pocket...it will be poured into American pockets...a spending cycle... Think about the difference those $ 2000 debit cards made to the local communities who took in guests from New Orleans...  

I do not know what the future will hold. I know that George Bush's best laid plans when he first ran for President...were changed... He didn't seek 9/11 but sought out the root of the problem (including the money pouring into terrorist hands from Saddam). He didn't seek the devastation of Katrina...but he's seeking out the root of the problem (not the storm, but the hopelessness of the Superdome as shown on National TV)... Call it social engineering if you want, Call it over spending... Maybe that makes me sound like a "democrat", well if I sound like Zell Miller, I'd be proud to be called one.

Am I worried about the country my daughter will grow up into? Yes...but I've been worried for a very long time about the differences between the "haves" & "have nots" and the angry violent world just around the corner from my modest middle class existance.

I'm an Army wife and over the years the most productive, skilled & dedicated soldiers that husband has served with...have pulled themselves up from the poverty of their origins (black, white, hispanic, and lots of soldiers from foreign nations who've come here). Almost to a man (or woman), they've worked back in their communities trying to pull out a child or two at a time...and it's not enough... The inner city of New Orleans has been destroyed, the least we can do is try to help those folks & ourselves by investing not just in buildings but people.

Money as a weapon...well, if poverty is the enemy (and old tactics haven't worked)...it's time to try a new one. I trust President Bush. He doesn't seem to be the sort of man who starts things that he cannot finish (with a little bit of help...at some point his views on social security will be in place...although the democrats will probably take the credit for the reform).

inflation expectations.  With the price of oil expected to put upward pressure on consumer prices, certain investors may be looking toward gold as an inflation hedge.

I agree with the statement that spending can be used as a political weapon.   There is no doubt.   We have seen it since the beginning of the republic.   And since the Civil War, we have seen it in pork barrel spending.

However, this is not sound economics.   Every dollar we borrow means either higher taxes in the future to pay the interest, or reduction in future services.   In fact, today we could eliminate all federal government and we'd still have to pay 25% of our tax rate to service the existing interest.

Debt is not a conservative principle.

It has to be able to withstand a flatline or even a withdrawl for a time

Please stop with the platitudes. Of course we have to be able to take a recessionary hit. We just did take one. Did the world collapse? No. There will be another recession soon enough. And the world won't collapse then either.

This article is not Econ 101 stuff, and I admit that. To someone who does not understand corporate finance, this article probably sounds like pie in the sky. But we have companies in this country that are solid as a rock, have been around for a hundred years, and do exactly this every day. And they've been doing it for a hundred years.

It's not black magic, it's the way the world works. I know the von Mises Institute wouldn't approve, but they never got past feudalism, so I don't care what they think.

Take a look at IBM's balance sheet. These guys have $40 billion in cash. Think they can make it through a recession? Don't know why not; they've already made it through the Great Depression, two world wars, and two fundamental shifts in their basic technology that could have killed them. But look, they also have $15 billion in debt. Why? Why not just pay it off? Because they're earning more by keeping the $15 billion invested in the business than it costs them in interest.

"Avoiding interest" isn't the name of the game. "Staying out of debt" isn't the name of the game. The game is return on assets. That's true for a business, and it's true for a government. If you can earn more with the cash than the guy who loaned it to you, then you win.

That's all this is about. Yes, you can't be stupid about it. Yes, you have to expect bad times as well as good. But that does not mean that you set yourself up for the worst-case scenario and shoot from there. That's a way to lose.

Compare and contrast:

I disagree with this article, and here's why.

You're a Bush-worshipping scumsucker, and by the way, how do you like this pointy stick?

Your value added is, at this point, low. If it reaches zero, the answer above changes.

Given his income and where he lives, it must be passing pleasant to be John Hinderaker.

;-P

that if IBM crumbles it would simly cause some short term hardship it's employees.

If the United States crumbles our entire country will suffer a great deal of hardship.

Businesses can accept risk that the government cannot.  The first Dow Jones Industrial Average was listed in 1896.  It comprised 12 of the most significant businesses in America at the time.  Of those 12 businesses only General Electric still remains.  Some got acquired.  Others dissolved.  

See, this is why RedState can be so humorless. You guys leave very little room for a good-natured jab. Its all so..."delicate".

I just made a simple little observation, more social than political. Instead of focusing on the words that offend, why not REALLY put me in my place and take on the subject matter at large?

Where, oh where have you actually demonstrated that the President's latest bit of spending gone wild will produce a return?  Where have you demonstrated, or even argued that his plan(s) to spend 200 billion in Chinese money (my interest payments, though) will produce economic growth or an increase in tax receipts superior to what would happen in a free market?  You haven't, preferring rather to repeat your original comparison to IBM and dismiss your interlocutors as economically ignorant rubes.  How is this supposed to work?  How is giving away another $200 billion (and that's just the start, no doubt) going to make the denizens of New Orlean's housing projects into dependable Republicans, or be more beneficial to the US economy than not spending it this way?

By the way, I kindly urge you to go-back and re-read my offending post. Contrary to your reply, no-where do I actually insult a commentator, insult a group or insult a particular politician. It's the language of satire!

Also, I was replying to a post and not to the parent article. Is it the policy of RedState no not allow peripheral comment or reply?

So, with all due respect, neither of your "Compare and Contrast" points apply to my post.

All the Best,

A

How will this firehose of money you propose to direct at our problems have the effects you claim?

I am not the policy wonk. Heritage and AEI have guys who have been thinking about free-market alternatives to welfare for 20 years. I am not one of them. There are probably papers on those sites that you can Google up if that's your area of interest.

There is no lack of new ideas on how to approach these issues. What there has been is an unwillingness to try any of them. The Democrats don't like them because the victims might escape from the reservation. The Republicans have been afraid of the expense. So what we got was 60 years of "the poor" voting solid Democrat instead of 60 years of people getting out of poverty.

Bush has an idea: let's steal the Democrats' voters by making them homeowners with jobs. How much has it cost us to have given the D's a 20% leg up on every election over the years? Think long-term.

See, this is why RedState can be so humorless. You guys leave very little room for a good-natured jab. Its all so..."delicate".

Play nice long enough, and you get to give jabs. Start out with the sharp elbows, and the bouncers come around.

I just made a simple little observation, more social than political. Instead of focusing on the words that offend, why not REALLY put me in my place and take on the subject matter at large?

You didn't say anything worth substantively responding to.

(1) You were characterizing the diarist, and not favorably, either, and not politely, while we're at it.

(2) Insulting off-topic comments are disfavored.

(3) It was for informational purposes only. Do with it as you see fit.

Can't argue with you there.

Cheers -

That's not a very satisfying answer.

I'm assuming you're including those folks who've given us...

Absolutely. In fact that's the whole point. We're getting this stuff because people want it. OK, you don't. But lots of people do. The political party that forgets that ends up where the Republicans were for 40 years... out in the desert, screaming about 'spending' and 'the deficit' while Democrats rammed through things like AFDC, public housing projects, Medicare, Medicaid, the school "largest unionized restaurant chain in the country" lunch program, PBS, NPR, what started out as "federal aid to education," and eighteen kinds of social engineering.

That is what you get for advocating spending restraint and balanced budgets in the United States. You get mowed down by the Democrats, and they get to implement their solutions. Which curiously enough always seem to involve government handouts, government housing, government medical care, government food, Democratic Party radio and television, liberal propaganda in government schools from sea to shining sea, and the abolition of men's athletics because girls don't like them.

Those aren't the solutions we would have proposed. But we didn't propose any. All Republicans did for 40 years was try to cut whatever the Democrats came up with. What they got for that was 40 years of Democratic domination of the House, the Senate, and the state legislatures. If the Democrats hadn't joined the Peacenik Parade in 1972, we might not have won the White House for 40 years either.

We didn't start winning until Newt Gingrich came up with the seemingly simple idea of having different ideas. Not just trimmed down versions of Democrat ideas, but different ideas. "If elected, we'll do this."

You'll get smaller government when people want it. That's not what they want now. They've been trained by 60 years of liberals to expect government run solutions, because that's the only kind they ever saw. If there's no government program, then it's not a "solution."

We can talk about free markets until we're blue in the face, but if we can't show a success somewhere, we're going to be right back to having Democrats running the government. You want taxes with that?

The Heritage Foundation has several white papers relating to Katrina.  They all call for spending reductions in other areas to offset the costs of the rebuilding.

Debt as a % of GDP that exceeds GDP growth is not sustainable.

No, it's a function of the second moment. Subject to some slop in interest rate and inflation rate variability (that we can flatten out if we pick a long-enough time horizon) growth in debt cannot sustainably exceed growth in GDP.

"You didn't say anything worth substantively responding to. "

Ahh, now we can debate! My assertion (which I think is very substansive) is that the diarists post is indicative of a greater phenomenon. One that I'll illustrate below:

I will suggest that President Bush understands money better than any President we have ever [ever!] had. He understands it better than most economists. He understands it better than our illustrious pundits. Nick Danger

"It must be very strange to be President Bush. A man of extraordinary vision and brilliance approaching to genius, he can't get anyone to notice. He is like a great painter or musician who is ahead of his time, and who unveils one masterpiece after another to a reception that, when not bored, is hostile. Hyperbolic? Well, maybe. PowerLine

Notice a similarity ? I believe statements like those above frequently occur with respect to a unpopular or failed presidency.

They are essentialy defensive in nature.

If my assertion appears partisan to you it's only because you support the current president. My assertion would be just as true for a Democrat.

Back in philosophy school we used to call it "saving the appearances"; think of Ptolemy's contorted epicycles "saving the appearances" in the service of the idea of a geocentric universe. This practice has lately surfaced in another memorable phrase: "fixing the intelligence around the policy". Straight-shooters on the other hand say that if it walks like a duck and quacks like a duck then it's a duck.

I think we do ourselves, our long-term goals, our values and our party a grave disservice by engaging in such panglossian fantasies and apologetics as are on display in this diary. We will not consolidate our electoral gains nor long remain the majority party if we don't learn to dance with the values that brought us here.

Read or skim this report by The Cato Institute to understand how deeply fiscal conservativism has been betrayed since our electoral triumph.

The Price of United Government.

How about someone from a more reliable profession like fortune telling or psychic surgery?

Doesn't this presume that government spending of this type and on this scale produces a return in national wealth and, presumably tax returns, that is greater than the increase in debt service?

I didn't 'presume' it, I stated it explicitly: "so long as we have opportunities to invest cash in ways that earn a higher rate than we have to pay in interest... we should keep rolling over our debt, and adding more as we can, forever." If you can't meet that test, then you don't take on any more debt.

is there evidence that government can make better decisions about investment than free(ish) markets?

For sure government should not be making the same kind of investments. I suppose we could argue that in LibertarianLand it would not be the government that invested in an Interstate Highway System or a public school system. I'm trying to stay in the realm of the politically possible here. The capital-L Libertarians get 3% of the vote. That's not a near-term solution to anything. We are going to have government investment in certain kinds of things; that's not a battle we can even fight right now.

Do we know how to keep debt growth in line with GDP? Yes, we've done it for decades at a time. One place we got snookered was in "saving Social Security" at the tail end of the Bush41 Administration. The public allowed the politicians to raise SS taxes substantially, in the naive belief that this money was going into one of Al Gore's lock boxes. All it did was give Congress more money to spend, with the consequence that debt-as-a-%-of GDP almost doubled. But it has been pretty much flat again since.

that are offensive in nature that we can use? I think you may be very articulate in that manner.

Am I banned yet?

Are you kidding? If we banned all the people who can't think and don't know what they're talking about, this would be one quiet place.

If we banned all the people who can't think and don't know what they're talking about, this would be one quiet place.

See? Why can't I write like that? It's not fair I say! :)

Would you mind terribly if I slip into full snark more for a second? Here goes: You wrote: "I will suggest that President Bush understands money better than any President we have ever had. He understands it better than most economists."

Thats' quite a scholar. Do you think he understands biology better than most biologists? Also, what other fields-of-study does President Bush excel at?

</snark&gt

Ok. I'm done! That was'nt too bad, was it?

--

See? A little humor is harmless

does have an MBA. If he had a masters in biology (and then worked outside of academia), he would probably know more than most biologists.

There are some things that are best done by a government, such as the military defense of the nation.  Re-building a city, however, is not one of those things.  The great cities of America have been built, and re-built when that made sense, largely through the action of the free market.

Those of us who favor free markets over social engineering believe the invisible hand is superior to even the best central planning.  The invisible hand allows individuals to take risks that government cannot take.  This encourages the innovation and experimentation that produces big payoffs.  The invisible hand also allows those who take risks to fail, which leads to learning and improved decision making.  By allowing failure, including the failure that results for taking no risks and putting forth no effort, the invisible hand encourages behavior that leads to success.

Can a government-led effort to re-build New Orleans pave the way for a future passing of the torch back to the invisible hand?

Let us consider the model being put forward:  A New Orleans 2.0 with people of modest means who are land owners.  But the land they own is several feet below sea level and sinking.  It continues to be "land" only as long as the levees and floodwalls.  To sustain "ownership" those people of modest means need jobs.  Those job will depend in part upon a port that relies on the Army Corps of Engineers to keep the mighty Mississippi flowing above ground between walls that rather than sending most of its waters down the Atchafalaya.  Who will pay for the levees and the floodwalls and the Corps of Engineers?  Should we expect The New Conservative Man to insist picking up the tab so he can kick his dependence on government?  How many five-year plans will it take to reform all those people who thought they were voting for small government and personal responsibility, only to be told that they don't yet want it enough to get it?

"If he had a masters in biology (and then worked outside of academia), he would probably know more than most biologists."

Wow. A great example of my assertion! Unless, of course you were just being snarky. So a serious question for you poster: Do you really believe what you just wrote?

I had no doubt that, given enough money, we could make New Orleans virtually impervious to any hurricane of feasibe force.

even know what an MBA is? His is from Harvard to boot.

... because it devalued it's currency into nothingness.

By the end there was no silver left in the currency (0.02% is better than we have now though!) and the nation was running a massive deficit, the citizens were horrendously in debt, and the only way they were able to continue to defend themselves was to inflate and borrow the money/supplies.

Banking was alive and well during Roman times, including fractional reserve lending, interest rates dictating lending/borrowing abilities, etc. Yes some advancements have happened since then, but Rome's ultimate downfall was due to the ho-hum reason of poor fiscal policy.

The Roman's inflated and devalued their currency even less than we have and it ultimately killed them.

I can see how that is true of someone with an MBA or even a law degree.  But how does someone learn more in the "real world" than in academia when talking about biology, or physics, or chemistry?

Nice deflection.

I'll repeat what you wrote:

"If he had a masters in biology (and then worked outside of academia), he would probably know more than most biologists."

You wrote it. Do you believe it?

But why move it to Kansas?

I understand. If you think what we just went through was a recession... then sure.

Turn on the hose!

In fact, that's exactly what Greenspan did following the Nasdaq crash and 9/11... is turn on the hose and it pretty much killed the "recession" dead. Of course our Dollars were worth about 5-10% less by the end of it, but by golly we were spending them at least.

We haven't been forced to endure a true corrective recession in so long there is an entire generation of consumers, families, and investors that have never seen one... which is creating the dangerous and highly incorrect mentality that things will always be the way they have been for their 30 years on this rock.

just know more. This is a very true statement in that those working in their specialty, particularly sciences, in academia probably know very little else compared to their specialty.

hy·per·bo·le (h -pûr b -l ) A figure of speech in which exaggeration is used for emphasis or effect, as in I could sleep for a year or This book weighs a ton.

instead of, in addition to

Every dollar we borrow means either higher taxes in the future to pay the interest, or reduction in future services.

That is simply not true. Suppose I don't have any money, but I know a lot about coins. I have been to estate sales where I have seen coins worth thousands of dollars sold for peanuts because neither the buyer nor the seller had a clue what was in that set.

So I come to you and I borrow $1000. I agree to pay you 8% interest. Now according to what you wrote above, I can only be harmed by this deal. I will either have to dig deeper into my pocket to pay the interest, or cut down on Big Macs.

But that isn't what happens. My first buy is for $400, and two weeks later when I am done selling the coins on eBay I have $2700. With my windfall I purchase another collection for $1,500. This time I get $3,200. This goes on for a year, as per our deal. Toward the end I have three people working for me, going to estate sales to identify those that I should visit. I'm buying and selling coins in 5- and 6-figure chunks.

At the end of the year I pay you back your $1,000 plus $80 in interest. I made $230,000 last year with your $1,000, and you made eighty bucks. How was I harmed?

Most examples aren't that dramatic, but it is easy to make 15 or 20 percent on money in a small business. Happens every day. It just isn't true that borrowing by itself is bad. Companies borrow every day to invest in machinery, tools, and whatnot, and this is how they grow their business. All these people who insist that borrowing can only turn out bad haven't thought much about where "upward mobility" comes from, or how people get ahead in this world.

All of this applies to governments as well. Things like roads, sewers, etc. are obvious; they are additions to the capital stock. For a government, education is an investment; more educated people get better jobs and pay higher taxes. For this nation, the port of New Orleans is a big deal. With that port shut down, the secondary effects on industry, employment, and taxes reach all the way to the Canadian border. Point being, it really is in everyone's interest that that city be back there sooner rather than later, and the gains likely are in excess of $200 billion. If we borrow the $200 billion it takes to do it, and we save $200 billion in transporation costs throughout the economy over the next 2 years, then we had a 2-year payback on a $200 billion deal. That's not "government spending," that's a "big win."

You should read an article written by John McPhee that appeared in the New Yorker in 1987 and that was recently reposted.  Do a search on "Atchafalaya" and "McPhee" to find it.  The article is part of a series titled The Control of Nature (which I think then came out as a book).  I read these articles back when they first appeared, and they changed my thinking on disaster prevention and disaster management.

Reading McPhee impressed upon me the power of the forces of nature and the near inevitability of certain disasters.  There are certain disasters we can predict and should plan for.  The primary goal of that planning should be the protection of life and important assets.  A secondary goal, however, should be to structure recovery efforts towards reducing the negative consequences of disaster events that are likely to repeat.  I am concerned that the end result of the recovery program for New Orleans will be to attract people and investment capital into an area that will either remain vulnerable to a repeat disaster or that will require large and ongoing subsidies from the federal government to keep the sea out and the Mississippi in.

And I would not suggest that protecting New Orleans is a trivial task.  

But I believe that it could most certainly be done.

Your claim/assertion has an measureable explanation for "frequently", yes? As well as its relationship to so-called "unpopular or failed" presidencies?

I couldn't finish this article, genius though it may be, because after reading that phrase I had to cleanse my keyboard and sinuses of high-pressure propelled soda.

But show me the return on investment.    Let's go and examine the famous bridges in Alaska that will be built with our tax money.

From Bloomberg news: "Alaska's Gravina Island is home to 50 people and more than 350 Sitka black-tailed deer. Under the U.S. highway bill passed last month, this group will get a $223 million bridge taller than the Brooklyn Bridge in New York."     At 1000 car trips per day from Gravina to Ketchikan, it ends up costing $43 for each trip.    It would be cheaper to the U.S. taxpayer if we simply wrote a check and paid for the existing ferry trips that service the island.   I can not possibly think of any ROI on this bridge that comes close to the fact that we will borrow $223 Million dollars.    It is welfare.   We're subsidizing Alaska and construction jobs in Alaska as pork.   This is pork and waste.

And it doesn't stop with one bridge.   Nope.   Rep. Don Young has another bridge made of pork.  There's a bridge to Port MacKenzie in the transportation bill, too.    The Alaska Journal of Commerce article on the bridge would indicate that the people of Port MacKenzie don't want a bridge.   This a rural area with no infrastructure.   It will all need to be developed.   Does it make sense to build a huge bridge and hope that developement will follow so that someday, decades from now, the taxes pay will offset the cost?   Where's the ROI?

If it looks like a pig and squeals like a pig...

Those of us who favor free markets over social engineering believe...

Yeah, I know about all that stuff. I believe it myself. Here's something I had to learn the hard way:

What I learned growing up in the United States is that anyone who thinks saying that, or explaining it, or saying it louder, or repeating it a bunch of times, or putting bows on it and saying it again, will win elections in this country is smoking rope.

What happens to people who do that is that they get to stand to the side as liberal Democrats win the elections and then implement ineffective, inefficient, government-run programs that make things worse than when they started.

A large collection of such programs, which together cost a fortune but do virtually no good and in plenty of cases actual harm, is the actual output of 40 years of Republicans advocating free-market solutions.

Blame this on the education system. Blame it on stupidity. Blame it on the media. I don't care. The actual result of Republicans advocating such positions for 40 years was Democratic Party hegemony and leviathan government.

This may seem like an odd result to expect from advocating free-market solutions, but it is the one that did in fact occur in the real world. The real world often does this to humans, just to screw with us.

In any case, no matter how much I believe that free-market solutions are superior, I no longer try to sell that as a political platform. Instead what I try to do is figure out how to slip money into a market so as to make it boil faster, but without me directing where the bubbles go.

This is tricky stuff. There hasn't been a lot of it tried. But I have learned the hard way that this is as close as I'm going to get to what I want. My alternative is to be a purist, and then watch helplessly as the Democrats create another one of their monuments to bureaucracy.

Did you see what just happened with this hurricane? People expected the government — the federal government — to be on the ground with boots on 40 seconds after the clouds lifted. They wanted President Bush himself standing there handing out MRE's in the Superdome. This wasn't just the donks braying. Peggy Noonan wrote stuff like this.

That is where "The People" are. You are not going to get them from there to Adam Smith with slogans or pamphlets or speeches. They will vote for Democrats if you try. And then you'll get just what you didn't want: centrally-directed, government-run hoo-hah that fouls things up even worse.

Thank you, Nick.  Thank you for reminding us all that the U.S. economy is not a personal checking account that the bank is going to bug our kids about when we die overdrawn.

There's a lot of erudite contrarianism in this thread, but I haven't seen anything that actually refuted YOUR argument.

There is no doubt that democracy is the worst possible system except for all the others. We had these Founding Fathers sitting around, allegedly brilliant guys, and this elected Congress thing is the scheme they came up with for deciding this kind of thing.

Little did they know. But now we're stuck with it. In theory it ought to work. But then we put actual humans in the boxes in the org chart, and look what happens.

I have no idea how to fashion an alternative system that is (a) better at deciding how to spend money, and (b) acceptable to all the people who want to fight over the money. If you do, we're all ears. But I think this kind of slop is the price we pay for getting to elect the guys who appropriate the money. If we're willing to turn the job over to an educated elite, we could have a system that runs as well as the old Soviet Union. where they tried that.

The same thing applies to governments

Why?

Thanks -

Nick, I'm broadly sympathetic with your overall point. But if you can find businesses that are making 15-20% return on equity, and it's happening every day, then please let me hang out with you!

I want to invest in them!

;-)))

Thats' quite a scholar

No, it isn't. It's Investment Banking 101. This is stuff that investment bankers deal with every day. No one is going to get out of the Harvard Business School without understnading this kind of thing. You don't have to be a professor there to 'get it.' It's not that hard.

I own shares in GOOG (this is not an endorsement to purchase the stock)

I'm not unsympathetic to his argument but he uses some really questionable logic to come to his conclusions.  

Because the population expects the government to make certain kinds of investments. Which ones will vary from country to country. Here governments typically do roads and sewers, but not electricty or telephone. Why ask why? That's the way it is. Some are in the Constitution. Investing in stuff that we can use to go pound somebody into the ground if they screw with us is mandated. So is a Postal Service. Over time we've added others, most of them probably mistakes. But there they are.

Some of these investments have been brilliant, with enormous returns. The Interstate Highway System is one. The space program has been another, although most people don't understand how much everyday technology came out of that. We could argue about most of them, and some have been downright stupid. But that's typical for humans: some of our stuff is brilliant, most of it is mediocre, and some of it stinks. 'Twas ever thus.

To the extent that some of this stuff lowers costs throughout the economy, wages and profits will rise and with them, tax revenues. To the extent such investments make people more productive, the same thing happens. To the extent they tie people up in administrivia and red tape, they cost money.

There is in principle no reason why a government that is responsible for making certain kinds of investment cannot use debt financing to do it, just as any corporation might. The issue is whether the cost reduction or the productivity increase exceeds the cost of servicing the debt. If it does, you go ahead.

These decisions are not always easy. One can imagine a meeting at Intel where they're deciding whether to spend $7 billion on a new fab in Malaysia. One guy says the new Pentium XXXVI is gonna take off like a rocket and we'll need the capacity. The next guy says the PC business is gonna tank next year and we won't need the new plant until the zulu-beam technology is ready in 2012. The third guy says he doesn't know, but he thinks it oughta be in Singapore.

Deciding how to finance the thing is even weirder. Between the accounting rules and the government regs, I suspect it is now humanly impossible to know for sure whether debt or equity is cheaper. You hire gurus to figure that out. Hire ten, and you'll get ten differnet answers. In the end, they guess.

The same thing happens in Congress. Except in Congress, one guy will say, "Your bridge to nowhere is stupid. But I'll vote for it anyway if you vote for my Park for Puppies." And so we get two stupid things instead of one. I do not know how to fix this. They tried the line-item veto, but it's unconstitutional. So there we are.

Oh come on, they're everywhere. IBM makes 29%. Yahoo makes 25%. Google makes 39% (prolly won't last, but... maybe it drops to 30, heh heh). Don't like techs? Exxon-Mobil is making 30%. H.J. Heinz makes 33%. Pepsico makes 33%. Wal-Mart makes 24%.

MSN Money stock screener of S&P 500 companies with ROE 5 year average has 101 companies greater than 20%, and 200 companies greater than 15%.

They all call for spending reductions in other areas to offset the costs of the rebuilding.

Yes, that is the usual approach. Although why we want to conserve borrowing capacity for use by Democrats should they get in is beyond me. In fact the thing I like best about the prescription drug benefit is that it is so expensive that it has pushed HillaryCare-type schemes off the table for at least a generation. And without being all that intrusive. Plus it sets up medical savings accounts. If we play it right, by the time the donks could realistically propose another universal health care bill, most of the population will have MSAs and won't care what the donks have. And they think Bush is stupid.

Because the population expects the government to make certain kinds of investments.

You're speaking my language now, Nick.

Some of these investments have been brilliant, with enormous returns.

Yeah, baby!!

There is in principle no reason why a government that is responsible for making certain kinds of investment cannot use debt financing to do it, just as any corporation might. The issue is whether the cost reduction or the productivity increase exceeds the cost of servicing the debt. If it does, you go ahead

In the case of government, for "cost reduction or productivity increase", read "increase in tax revenue through expansion of the economy".

Are you sure you're a red-stater?

Cheers -

Are you sure you're a red-stater?

If you read the article, you'll see that my long-term goal is to put the Democrats out of business and end liberalism as a cultural force in the United States. So yeah: I'm sure :)

Please define "liberalism".

Thanks -

We haven't been forced to endure a true corrective recession in so long there is an entire generation of consumers, families, and investors that have never seen one...

Isn't that amazing? And there are still people who get upset when they call Alan Greenspan "the Maestro."

I use the term to mean "the direction and policy set that arise from the unconstrained vision."

Flooding the market with liquidity is always the easy route in the face of a strain on the market, and there is nothing special about it. Volker at least demonstrated true "It's for our own good" reasonability when he was at the helm. As much as anyone heading up the outrageously unconstitutional and fraudulent Federal Reserve can.

Greenspan's policy is sacrificing the long term in exchange for the short term. There is nothing special about it and our ancestors have been doing it for thousands of years.

Greenspan circa 1966 was on the ball and on the "money" in the most accurate sense possible. Personally I think he still believes what he wrote in the 60's and is simply taking the opportunity to accelerate the process as quickly as possible.

I'll take Isaac Newton's system that worked and created the most prosperous citizenship anyone had ever seen and that lasted in relative stability for a couple hundred years vs the self destructive ideas coming from minds that are nothing more than poor students of history.

What are you proposing spending this conservative money on? I don't quite understand that bit of this. Use money as a weapon I get, but at what targets? If you're promoting an ownership and work-based meritocracy with beaucoup Federal cash -- instead of the meritless entitlements that do our nation harm -- I've come dangerously close to provoking a surrender which grants me a Great Victory.

the outrageously unconstitutional and fraudulent Federal Reserve

Hold on a sec, folks, I need to make some popcorn to eat while I watch this thread play out.

I figured that would get your goat.

I don't do Federal Reserve conspiracy stuff. I don't like feudalism, and you can't sell me any gold. So let's just end this right here.

... I think you are extrapolating too much about my attitudes, but true to my stated goals around here I won't push when someone says they are done.

I don't want to sell you any gold. Though I do have a bridge in Alaska I'd like to sell you.

Oh wait... you already have that one! My mistake. ;)

I have arranged for you to spend some time in our Virtual Universe™ simulator. When you arrive, it will be September, 2006 and you will be the Speaker of the House. I want you to go in there and tell the folks that you and the entire Republican caucus are united, and if returned to office you promise to stand firm in allowing the free market to repair the devastation caused by Hurricane Katrina.

We'll bring you back right after the election, and you can tell us how it went.

... but I guess Nick doesn't want to play.

I figured it might push past the limits but it was worth opening that pandora's box since the entire basis of the article hinges upon Federal Reserve policy... so it was getting stifling to not shove it right out in the open.

What would the money be spent on?

It's way too early to talk about that. The damage assessment people aren't even done yet. How much of that city will have to razed because the buildings are not salvageable? How many of the taller buildings will have to be demolished because the ground under them got so soaked by the flood that the buildings aren't safe anymore? We don't know any of that stuff.

Can we fill the bowl? Here's Foster City, CA. The whole thing was built on an artificial island made of landfill. Maybe we do that, and start over with a city that's above sea level. There will be all kinds of ideas.

But in principle are you saying that conservatives should use the vast resources of the federal government as it currently exists to level the playing field? To increase ownership, increase personal possibility along with responsibility, and increase the value of work among all classes?

Are you saying that in opposition to the left's entitlement programs the right should propose equally costly programs that seek to enable the disadvantaged to both own property and maneuver their way through the American dreamscape?

If so, please propose and promote both professional/corporate mentorship programs starting in middle school and federal ESOL instruction with competent teachers!

...and already priced to reflect the high ROE. You said you knew how to find small companies (presumably early-stage and needing growth capital). There just aren't that many businesses that good.

This is offtopic, and I was just making a joke anyway :-).

ConservativeD, I already own a big pile of GOOG.

Nick -

Thanks for the article, it was very interesting.  Couple of thoughts:

First, I find myself on the constrained vision side of the fence.  That, among other reasons, is why I do not describe myself as a liberal.  I'm a blue-stater, which is not the same thing.

As far as I can tell, the issues of constrained vs. unconstrained vision and big vs. small government are, in practice, orthogonal.  IMO there's nothing inconsistent about seeing limits to fallible human nature, while also seeing government as a useful and reasonable instrument for addressing matters of public interest.

I also find that present-day conservative's preference for the "constrained vision" to be at best selective.  For example, the expansion of the power and privilege of the executive under Bush is, to my eye, directly opposed to the constrained vision.  Similarly, a foreign and military policy that has as its objective the political transformation of the entire Arab world is, similarly, rooted in anything but a view of our capabilities as finite, limited, and fallible.  I could probably think of other examples, but those jump to mind.  My two cents.

Thanks again -

and I don't think Nick's kidding.

Similarly, a foreign and military policy that has as its objective the political transformation of the entire Arab world is, similarly, rooted in anything but a view of our capabilities as finite, limited, and fallible.

Actually, I think our capabilities are finite, limited, and fallible. I support "the political transformation of the entire Arab world." I square this circle because it seems to me that we have no other choice; either we do this now, or when the first nuke goes off at the Foggy Bottom Metro Station, we have an enraged citizenry demanding that we turn the Middle East into glowing glass. And they will get what they want.

I'd kinda like to avoid that.

Is spending billions on pork a regrettable necessity of governing a society of handout-seekers, or is it a positive good that can solidify conservatism?  I agree with the former, but not the latter.  You seem to be arguing the latter, but don't tell us how it will work, or how it differs or can differ from the failed Democratic party approaches of the past.  What does Republican big government look like, and how is it to be preferred to Democratic big government?  Telling me that it's better because "our guys" are in charge is not enough.

to remember the late 1970's and early 1980's.  Does that qualify?

To say that buying prescription drugs for seniors is a waste of money is probably defensible in some abstract sense, but adopt that as your political platform and you'll be on the public's Pile before you know what hit you.

I have my views, but I do not delude myself into thinking that I am anything but a right wingnut. I get one vote, just like all the Other Guys, and the people in the middle. The fastest way for me to get nothing I want is to get stupid about picking my battles.

Are you familiar with The General Theory of Second Best?

I bought my first car when prime was 22%.  I may not be a spring chicken, but you talk like I have one foot in the grave and the other on a banana peel.

Just because I don't think we are headed into one right now, does not mean that I don't remember what a deep recession feels like.  And I can assure you, I am not the only surviving member of my generation.

The object isn't to go broke. The object is to make the Chinese have a big stake in our continued existence. And happiness.

Just proof that loyalty to Bush, by simply making up anything, is more important for many than sticking to conservative principles. There are an awful lot of holes in that treatise, bud.

See? Why can't I write like that? It's not fair I say! :)

Because you're not talented.  Nick is the rare genius of snark.  It comes naturally to him, like breathing.  And to make it more lethal, he also is remarkable with the turn of a phrase and seems to be able to type and spell as well.  You, on the other hand, are like the rest of us.  We can take lame stabs at sarcasm with pointy sticks, but they never do anything but irritate people.

Why?  I don't know.  I guess it goes with the Life Is Not Fair principle.  You'll have to ask Thomas about it.

But don't bother to snark.  You'll never touch him.

Medical Saving Accounts.

Bush slipped it into the Medicare Drug Act in spite of Sloshy Teddy's bloviating nonsense.  For years, the Ds had opposed any type of reform where the consumer had a vested interest in their health care expenses.

It cost us a mortal fortune to get it, but we believe it will fundamentally change health care in America.

I have never posted this here before, for fear of being debated until my fingers fall off, but I supported the Medicare Drug Act for this reason.  We were gonna get drugs one way or another.  And it was gonna be Expensive (with a capital E), but at least with GW pulling some strings, we got the first major Republican effort to change the way health care in America is structured.  And it's a good thing. IMO

The Education bill. We got the accountability, but I would have doubled the price tag if it meant getting vouchers.

Spending billions on pork appears to be a regrettable side effect of having an elected legislature. People have been trying to get rid of pork spending for 200 years, and we still have it. We should keep screaming about it, but let's not all go off the deep end when it happens anyway. We'll be rid of pork when computers get smart enough to replace the humans who write our laws. Be careful what you wish for.

[you] don't tell us how it will work, or how it differs or can differ from the failed Democratic party approaches of the past.

That's because I am not Mister Detail Policy Wonk. There are people who do that for a living. They have written some wonderful policy papers on the subject. I do not read policy papers; they bore me. What I try to do is figure out how to get some of that stuff implemented, which nobody seems to have thought about much. It's like if the AEI wonks write it, people will come. Well, no they won't, and we know that become some of those ideas have been collecting dust for twenty years. That's not because every idea they have is bad, it's because only Republicans would ever implement any of them, and the only Republican who has ever suggested doing that is George W. Bush.

Everyone else who has looked at them has said, "Ahh, that's pork. It's spending. It's big government. It's Democrat stuff." With the consequence that what we got instead was the Democrat's ideas from the Brookings Institution and Marxist U., and a public that thinks that Republicans are cold-hearted Scrooges who want to throw the widows and orphans out of the boat.

To hear some of the people on this thread, you'd think that our highest short-term priority right now should be cutting government spending. Let's have a crusade for that, and never mind that three states just got whacked by the most destructive hurricane in a hundred years. What the public wants to hear about now is cutting government spending.

Stop it, yer killin' me with this stuff. Here I am trying to get judges who won't make up laws on the bench, end this 'culture of dependency' stuff that the Democrats have been selling for 60 years, put the crazy feminists in a box, and all I get from some people is, "OK, just don't spend any money to do that." We need some people who can play offense around here. If you try to depend on deflecting the Other Guys' passes for all your scoring, you're gonna lose.

but those rates of return are not perpetual.  If they were, very soon those companies would have higher revenues than the US GDP (even if we grow at 4%).  

Vouchers are the ONLY thing that will satisfy me in the public education arena.

The most amazing failure in the Ed. Act was that a school has to test as a failing school (which is defined as:  beyond lousy,  extraordinarily abysmal) for years (I think 20 or some such obscene number) before the kids get vouchers.  

Now, say I am a poor parent in one of those districts.  They have essentially just flushed my child's future down the proverbial toilet waiting for the proper time period to expire so that we can finally say:  This school is not just a miserable failure.  It is a genetically inferior school which will never amount to a tick on a wart hog's rear.  Therefore, we will let the children escape.

Well, great.  Now where do I go to get back my child's educable years?

Will vouchers do anything the way they are currently proposed?

90% of school funding comes from municipal taxes.  How do Federal vouchers impact that?

I'm all for vouchers, but not vouchers as a means to destroy public schools.   Vouchers should only be used on public schools.  If your local public school stinks you should be allowed to use your voucher to go to a different public school.

holes

Name one.

Q.This raises questions. Such as, for example, where is all this money supposed to come from?

       A.China. Well, China and Japan.

Ok.  That's working for us. As long as US treasuries remain highly secure we will always be able to find creditors.

Q. What about the deficit?

   A. We are taking on debt. Ergo, a cash deficit. So?

Deficit and debt are not the same thing.  This is a signficant flaw in your argument.  It can be reasonably argued that our current deficit is manageable.  However our continually rising debt, which is the real problem, IS a concern.  We have the highest debt to GDP ratio in 50 years.

Q. What about the national debt?

    A.It's about where it ought to be.

And you base this on what?  Just saying so doesn't make it so.

Q. Why are we saddling our children with still more debt they will have to pay off?

   A. We aren't.

Well that answers that.  

Q. Whatever happened to small government?

   A. The public doesn't want it. We have to teach them to want it.

So the way you get people to want smaller government is by massively increasing it?

You then go on about how debt really doesn't matter.  This is pure folly.  Debt most certainly DOES matter.  You ignore matters of debt service and the drag on the economy that debt causes.

Your entire essay reads as a rationalization for how we can have our cake and eat it too.  Irrationable and irresponsible fiscal policy has ramficiations just like irrationabl and irresponsible monetary policy.

....from the Chinese perspective, it's only an investment. They draw interest from it so ultimately they will come out ahead. I suppose we could screw them over by defaulting, but that would cause a bit of an economic problem. Also, it's highly doubtful that this investment is at the expense of military programs or ever will be. In fact, in China the military itself engages in capitalistic ventures. Believe me, they're doing fine.

And from our perspective, I suppose it all depends on where the capital is spent. If it all goes down a hole in Iraq, then we are still obligated to pay interest on our bonds while getting nothing in the way of a better educated public, or renewed infrastructure, or other things that pay off in the long run. I suppose you could say that it's a good use of the capital to be able to control Iraqi oil, but we're a tad a ways from that, aren't we? At any rate, the GOP would have to admit that the war is about oil and not terrorism, and I don't think they're going to do that.

Debt only makes sense if you have something left over after the capital and interest to show for it...ESPECIALLY if you are a country. If you do not do something with the capital, you are left with three choices:

a) default;

b) continue to pay off the ever-increasing bonds

at the expense of domestic spending, which will ultimately lead to instability, and therefore higher interest rates;

c) continue to run up your deficit - paying ever-higher interest rates as the investment itself becomes riskier.

My thought is, if NO2 is built, shouldnt the levees be paid for by the people that choose to live in the bowl?  There are plenty of gulf port cities, it will be costly to adjust, be we can do it.  But, if people want to rebuild a city below sea level, Im all for it, as long as they pay for their extra protection themselves.

Actually, there is a practical limit to levee protection.  The Netherlands, with their expensive and well built/designed levee system, expects 1 catastrophic failure every 10000 years.  Much better than NOLA's once a century but not totally protected either.

I think that when catastrophe hit any area it is the responsibility of the nation to respond.  The vast majority didn't pick New Orleans as their home, they were born there.  The people that did probably were unaware of the potential dangers.

Back to who should pay for, honestly I think that we all bear some burden.  Just like we would if a massive earthquake ravaged the West Coast or flooding wiped out a major city along a river.

As for rebuilding New Orleans I'm sure, given a ground up design, they could do any number of things.  Most of lower Manhattan resides on manmade ground that was once river.  Why not do something like that in NOLA?

...I'll bite.

Nick's original post is about using imported debt financing to make a broad and bold range of public investments.

I started the digression by talking about rates of return on equity and we ended up talking about public equities.

Now debt financing is by far the cheapest kind you can get, and new business ventures have essentially no access to it.

But if the Chinese are willing to lend to us indefinitely, then why not take a big roll of the dice? Besides, all we're doing with their money now is inflating the value of our real estate.

Coupla questions:

Playing out your argument, we should then abolish all taxes altogether, and borrow every dime we spend on anything, and never pay it back?

Question #2--a number of people on the thread have mentioned the possibility of China "calling" its debt to us, if China itself got in trouble. How would China do that exactly? What leverage could it use against us?

They draw interest from it so ultimately they will come out ahead

We don't care if they come out ahead if we come out farther ahead. Sure, they get interest. But we have use of the cash. If we know how to do something with that cash that brings us a higher return than the interest rate, we win.

Nothing in my article suggests that we should borrow money for the heck of it, sit on it for ten years, and then pay it back with interest. The object is to use debt to fund things that have a higher return than the interest rate.

To say that China will have a military anyway misses the point. A hostile government that has too much cash can cause all kinds of trouble. Iran uses theirs to pay Palistinians to blow themselves up on Israeli buses. The Saudis use theirs to set up mosques all over the world to preach Wahabbism. Every dollar we can get them to place with us is another dollar they can't use to cause trouble.

I suppose it all depends on where the capital is spent.

Which in our country is pretty much a settled issue. We elect these people called CongressCritters and Senators, and they decide on our behalf how to spend whatever money is in the till, and how much borrowing to take on. Altering that system is beyond the scope of my article. I am only addressing the issue of how much borrowing to take on, not how to spend it (I have my preferences, but that and five bucks gets me a cup of coffee).

Debt only makes sense if you have something left over after the capital and interest to show for it.

Absolutely. Nowhere have I suggested otherwise.

Think of it this way: imagine a highway where every so often, another lane is added. If you were in the left lane, now you have another lane you could choose to move into.

People are treating this as if our alternatives are limited to pulling over to the side and stopping because any minute the wheels might fall off, or continuing to shift left lanes until you run out of them and then do it again so for sure you hit the divider and crash.

Those are not our only two choices. It is true that there is danger in moving down the highway at all. And there is danger in hugging the fast lane all the time because if something happens and you have to swerve, you're screwed. But you know, millions of people drive down highways every day without getting killed. This is not a radical idea to think we can do this. So long as the highway gets wider faster than we shift lanes, we can do that forever.

Nick will find a lot of libertarian arguments re: whether or not (as he argues in different places) "putting feminists in a box" is not itself a kind of "social engineering," and whether we are in fact successfully "pounding" people who have "messed with us" (the numbers from Iraq look pretty ugly, and how exactly did the Iraqis, per se, 'mess with us' before we invaded?), and whether or not dumping billions into Iraq when we could dump that billions into alternative energy sources and bankrupt the oil thugs that way is sound policy.

But that is not really the point.

How money is spent is a different question, ultimately, than the fiscal paradigm Nick is outlining.

not sure it would be stable though.

I dont think it our responsibility to help rebuild CA after the big one hits or river towns on a flood plain when they do what is expected.

As for choice, how does being born somewhere prevent you from making a rational choice about where to live.  I was born in Louisville, KY.  I have since lived in Atlanta, GA, Madison, WI, and a small town in Switzerland.  I then moved back to Louisville.  Yes, part of the reason was because my parents were there.  But, it was a choice I made.  Im not sure what the "obvious" disaster that would destroy Louisville is (tornadoes would be the best bet, I guess) but I dont expect you to help me rebuild.  Or move.  Rescue during the disaster, that would be nice.  But we can build the giant tornado defense wall ourselves.  

if China and other countries come out ahead, as long as we come out farther ahead.

That's the rub.   We're simply spending money.   We're not investing it like a business to maximize our ROI.   We're spending money to ensure that our constituents are happy.   So that we get re-elected.   This isn't conservative.    Conservative constituents should be p.o.'ed that we're spending money like crazy.

I'm sorry Nick.   But I'm gonna stick to listening to Alan Greenspan for economic advice.   Greenspan on the deficit:

under a range of reasonably plausible assumptions about spending and taxes, we could be in a situation in the decades ahead in which rapid increases in the unified budget deficit set in motion a dynamic in which large deficits result in ever-growing interest payments that augment deficits in future years. The resulting rise in the federal debt could drain funds away from private capital formation and thus over time slow the growth of living standards.

Runaway deficits will reduce our future standard of living.   I've got kids to worry about.   We need to cut spending and government waste and pork.

Here's my first proposal.   Cut the Deptartment of Education.   Let's get the federal government out of this service.   It's beauracracy.   My 2nd proposal is to repeal the latest transportation bill that Congress passed and cut all the local "pet" projects.   Anyone else?   What do you say we should cut?

I said there is an entire generation of consumers, families, and investors who have never experienced a deep recession.

A simple bit of math deduces that anyone 30 and under has never really experienced a recession, especially not with their own money (anyone alive would have been too young to fully comprehend it).

Are you telling me there isn't a generation of people that don't fit that category?

If I said nobody alive could remember a true recession, then sure... I would be making a stupid point. But I don't think it was that difficult to extrapolate that information, and I think it is dangerous to not take into account the investment activity and mindset of people 20-30 who have never had to endure a secular bear market when looking into the future.

... but were you trying to make ends meet yourself during that time? :)

Actually I'm not really old enough to remember the 70's except in those minor images you have of being a couple of years old. For me the economy hasn't ever done anything except go up up up! throughout my life with a couple of scary but in the long term minor corrections along the way.

Thankfully I was never one to think that "if this is how things have always been for me... this is how things will always be!"

Even people I'm close to who say they don't think that way, still act that way even though they don't realize it.

.....seeing as education and infrastructure are two things that do a better job of maximizing ROI than anything else, I'm not sure I'd cut those. While I think a DOE is indeed somewhat superfluous, they provide many funds to local districts based on standards. I don't particularly like NCLB as is, but the principal still applies. The problem with saying that the local governments should just "make up for it somehow" won't work.

Now, you didn't specifically say we should get rid of infrastructure projects, but you did say the Highway Bill. There is much in that bill that is worthwhile, and then there are many more things like the Bridge to Nowhere. Well executed infrastructure projects end up being very helpful to business, which ultimately increases gov't revenue in taxes.

We're spending money to ensure that our constituents are happy. So that we get re-elected. This isn't conservative

Precisely. What does that tell us? It tells me that conservatives do not have a voting majority. No matter how loudly we scream, the people who do want the spending can and will out-vote us. If elected representatives follow the wishes of the people who elect them, and ignore us, we should not be surprised. That is in fact how it is supposed to work.

Until we round up all these idiots, put them in re-education camps and train the Rovian mind-ray on them, we are stuck with the fact that in most districts, any politician who gets "too conservative" will be defeated. And then the Democrat gets elected, who is even worse than this guy would have been if we'd left him alone.

This is reality. We do not get to change it. Howl all you want.

Greenspan is talking about the unfunded liability of the Social Security system and the Medicare system. Those will bankrupt the United States and be defaulted on. Bush tried to fix it, but nobody wants to hear it. So, they'll default. What we do between now and then about deficits hardly matters; those liabilities are so large they will swamp anything we do. We could pay off the national debt between now and then, and the government will still be bankrupt when those hit.

Greenspan is talking about the unfunded liability of the Social Security system and the Medicare system. Those will bankrupt the United States and be defaulted on. Bush tried to fix it, but nobody wants to hear it. So, they'll default. What we do between now and then about deficits hardly matters; those liabilities are so large they will swamp anything we do. We could pay off the national debt between now and then, and the government will still be bankrupt when those hit.

Where in the world are you getting your information from?  

Medicare and SS are serious problems but hardly the problems you seem to think they are.

I love the picture.  Everytime I see it I get a chuckle out of it.  Don't know why,

is worth a thousand words.

Yes agreed, the picture is fabulous. I even downloaded it.

Playing out your argument, we should then abolish all taxes altogether, and borrow every dime we spend on anything, and never pay it back?

Which part of "The issue is whether the cost reduction or the productivity increase exceeds the cost of servicing the debt. If it does, you go ahead" did you miss? This means, by the way, that if some item of spending does not have a return higher than the rate of interest, then you do not finance it with debt. I thought that would be obvious, but apparently not.

a number of people on the thread have mentioned the possibility of China "calling" its debt to us

These are fixed-term obligations. The holder cannot demand payment until the term is up. It amazes me that we have so many Nobel laureate economists in here commenting on this stuff who have never heard terms like "30-year Treasury bill."

Danger.  Bottom line is that the money will be spent regardless of who spends it, and Bush spending the bucks to promote empowerment and ownership is absolutely conservative.

I think (hope) the blasphemy charge was worth it.

My response could be a diary, but here goes:

1.  What do you mean?  Of course they will do something.  I would get more say so in which school my child would attend.  Mind you, there are many proposals, probably some better than others, but going back to Nick's basic premise:  You guys have done it your way for years.  It stinks.  Now we should try something else.  If it stinks, we'll quit and give you another turn.
   
2.  I didn't say it had to be federal vouchers.  The Ed. Act required states to offer vouchers for failing schools.  Other possibilities abound:  Federal matching (4:1, 2:1, whatever), require states to offer at least the state funded amount as a voucher, tax deductibility of private ed, something.
   
3.  Destroy Schools?!?!  Justify this.  Milwaukee is the only real live experiment, and it has definitely not destroyed the school.  The school has improved under any measurement you want to use.  

By the way, you must be from the city.  Our school districts cover approximately a 45-50 mile radius.  There is no transportation to other districts.  Many of us parents can't drop our lives and drive 30 miles every morning and afternoon to get a kid into another public school.  So the idea that we could get a voucher to any other school is just an empty promise.  You might as well give us free tuition to a great school in Guam.

I guess I do disregard the 20 somethings as a major decision-making, investing class.  There are those serious folks on this site who are in this age range, who certainly seem reasonably mature.  But my other experiences don't lead me to believe that financial maturity in this particular decade is rampant.  

Sorry if that offends you.  Some of that group is probably starting to buy a house, etc.  But the average member of this age group is just not yet focused on financial security the way they will be in a couple of decades.  This group is a prime target of Jay-Walking types of exercises.

Well, now I have exposed one of my prejudices for all the world to see.   :]  But it sure was a decade of fun times and happy memories.

I think (hope) the blasphemy charge was worth it.

I expected that. What I didn't expect was an oppportunity to do this.

... aren't financially mature. That's actually my entire point.

Though I'm curious why you narrowed it down to "investment class" and completely threw out my inclusion of families and consumers into that list. But... eh.

We have a group of people who have no comprehension of what it means to need to save, to exercise some financial restraint and responsibility, etc. We have a generation that starts out heavily in debt and will likely never get out.

What do you think I was saying when I said:

We haven't been forced to endure a true corrective recession in so long there is an entire generation of consumers, families, and investors that have never seen one... which is creating the dangerous and highly incorrect mentality that things will always be the way they have been for their 30 years on this rock.

What I'm saying is that this perception is causing harm, and will continue to cause harm, to our economy and that Greenspan's "theory of liquidity" to avoid any necessary recession is the driving force behind it. When the recession does hit, how are they going to continue to make payments on their credit cards, student loans, gas cards, mortgages, cell phone bills, satellite bills, Central Market food, car payments, etc? They won't... they will be forced to stop spending as much, which will create a further drag on the economy that never had to be there in the first place.

Those are the lucky ones. The unlucky ones will be forced to file bankruptcy... and under the new bankruptcy reform laws to boot.

Sorry if that offends you.

Why would I be offended by you parroting my point?

Some of that group is probably starting to buy a house, etc.

Having gone through the motions, but ultimately deciding a house wasn't the right thing for me right now... I can assure you that with our riduclous mortgage plans we have now there are a helluva lot more 20 somethings purchasing homes. The real estate agents were more than forthcoming about the huge increase in younger homeowners due to the lower entry point for mortgages. I was asking a lot of questions because I was pretty wary about the whole thing and wanted to understand as best I could what was going on around me.

Just one example:

http://www.realestatejournal.com/buysell/markettrends/20030729-leung.html

Nick, your article contains kind of what I have been feeling around to try to express about how I see Bush handling money.  Yes, like a weapon or a tool.  I only hope he can get a few things done before we go back to a more ordinary type of Pres.   I don't think a lot of people get it.  

too funny

And it's a reasonable read...

http://www.dailykos.com/story/2005/9/20/94241/6949

To bad we can't talk to each other as adults, there's much to be learned on all sides.

regards,

Steve

in the thread over on Kos are reasonable, then I'd hate to see what you call a rant.

The Red Chinese are already undergoing a resource crunch, if I'm not mistaken. They're expected to have some ... interesting demographic concerns within the next forty or fifty years or so, continuing for quite some time. My major concern is not so much in the idea that large government debt can often lay around for a basically infinitely long period of time as the matter of China's continued motivation.

Supposing it came to it, wouldn't it be more attractive to own the US outright, rather than just being its single largest creditor? I don't doubt that, long-term, that would probably be a losing strategy for the Red Chinese as well the world at large, but I've noticed that it often only takes one dedicated nut to make some of those decisions.

I have little doubt that they're interested in our continued existence. I'm not convinced that they're particularly concerned about whether or not it's as a country independent of themselves. I'm quite dubious that they are so interested as all that in our happiness, per se.

I certainly hope you're right, though.

I can't let this go by. Why must we make fools of ourselves cooking up rationalizations that our titanic mediocrity of a President is incapable of uttering himself? Why must we adulterate our principles and our good name as conservatives to make excuses for the inexcusable? At what point does the Administration cross the line?

"[W]here is all this money supposed to come from?" you ask. And you answer, "China and Japan." This isn't fully true: we have to give it back to them in time, plus some. The money ultimately comes not from an illusory foreign power that is somehow weakened by its largesse, but from Americans. Your apparent response is that this is not necessarily a problem: "An institution should [take on debt] any time it thinks it can earn a return on the cash that is higher than the interest it must pay on the debt." Ergo, with the sum X loaned us, we can create X+n and thereby easily afford to repay them their X+(n-1). The flaws in this contention were once fairly obvious to persons calling themselves conservatives: First, wealth creation is not merely a function of money received; it does not spontaneously grow and accrete on the macro level as it does in your checking account. Second, government is not the prime agent of wealth creation: money accumulating to it is money that is, for the most part, not going toward innovation or entrepreneurialism. The assumptions implicit in your argument are those of classic big-government leftism; they would also, if true, see the Congo among the world's wealthiest nations.

On the subject of the foreign holding of debt, you note, "Better that than they should have the cash, which they would probably spend on things that we would think are scary." This is outright absurd. Nations extend credit to other nations -- we used to do it ourselves not so long ago -- because doing so is perceived as a safe, and often profitable, investment of currency. They do not do it in lieu of priority projects that would otherwise be accomplished. Extension of credit -- let us call it what it is -- furthermore does not imply that the wealth-creation process in the creditor nation runs an iota more slowly. Finally, if and when the creditor wants to "spend on things that we would think are scary," all they need do is sell their portion of the debt if necessary, and they can get their cash back in a hurry.

On the point, can you give a single example of a nation that wished to spend on a particular thing, and was constrained from doing so because its money went toward US Treasury bonds instead? Why not?

Moving on to the arguments that we will always be able to service the debt, and that our debt will roll over forever: these are presented as mere articles of faith, with the sole historical example in support being your assumption(!) about IBM's finances, and your restated misapprehension that government will keep the American economy growing and provide us with "opportunities to invest cash in ways that earn a higher rate than we have to pay in interest" in perpetuity. There is no real history here, and no real evidence of any concept of economy and wealth beyond that of the socialist dogmatist. If the State borrows forever, we will prosper forever! Somewhere, an Argentine remembers his home and his savings, and laughs bitterly.

I note with interest that you have decided that the "fastest way to become the minority political party in the United States is to become the party of government frugality and fiscal discipline," thereby dismissing Reagan's winning appeal in 1980, and Newt Gingrich's winning appeal in 1994. Rectitude used to matter, and the American people are not so dulled as to have forgotten. You then cite Bob Dole as an example of "government frugality and fiscal discipline," cementing my concept of your grasp of all of the above.

We further see that the difference between massive Republican spending and massive Democratic spending is that the latter would go toward "dependency programs" and "social engineering." You wisely omit mention of Medicare Part D; and then you go on to call for the most massive social engineering of all: the wholesale reversal of "the decline of our civilization." Through government spending. You're conservative? Perhaps the movement has passed me by.

And the foreseen end result of this is a class of people raised up by big government who will somehow want small government. Pure nonsense. Even if bureaucratic public largesse under Republicans can accomplish what decades of bureaucratic public largesse under Democrats never did -- and it will not -- they will not wish their perceived path to affluence destroyed behind them. They will demand its entrenchment and its extension. That is the unvarying lesson of the welfare state: Congress may abolish the Interstate Commerce Commission, but it will never relieve us of the burdens of Social Security and Medicare.

Your argument is wholly premised upon a false conception of the intellect and strategic direction of George W. Bush; a massive misunderstanding of basic economics and finance; and a near-total ignorance of relevant history. That's distressing enough -- worse is the desire to rationalize what ought to be condemned, and the embrace of power for "our side" for its own sake. If there is an archetype of the intellectual and moral malaise in Republican circles today, it is surely in dogged assertions that things in Iraq are going well, in unyielding belief in the essential conservatism of the President, and in arguments like this.

That imagage is seared, seared in my mind now.

Not RS quality.

Really? You think so? I don't. I'm pretty happy with it. In all the commentary this thing has drawn, I've seen exactly one comment (on dKos, no less) from a guy who actually understood it and asked a question that made me think, "Uh-oh, did I forget something?" But no, I graphed it out and I'm fine. Alas, most of the stuff over there is noise from sloganeers. I don't worry about them. I am surprised that you're one of them.

Why must we make fools of ourselves cooking up rationalizations that our titanic mediocrity of a President is incapable of uttering himself?

Jeezle Pete, will you get off the high horse? How's the weather up there? Isn't the air kinda thin?

Why must we adulterate our principles

Oh yeah, I forgot. You're the guy with the principles; everybody else is a crook. I'd better not tell you my theory about people who think that everybody else is a crook.

wealth creation is not merely a function of money received; it does not spontaneously grow and accrete on the macro level.

Wow, listen to that. Actual buzzwords, as seen on TV. You are amusing, I'll say that. So you're gonna teach me economics. Lucky me.

your restated misapprehension that government will keep the American economy growing and provide us with "opportunities to invest cash in ways that earn a higher rate than we have to pay in interest" in perpetuity. There is no real history here, and no real evidence of any concept of economy and wealth beyond that of the socialist dogmatist.

Man, you blew that straw man's head cleeeeean offffff. Nowhere do I state that "the government" will keep the American economy growing. It has a role in creating the conditions for such, by investing in things like roads, education, a civil justice system, etc., but nowhere have I suggested that the government itself should buy factories and make widgets. So to call any part of what I said "socialism" is at best cheap demagoguery.

If the State borrows forever, we will prosper forever! Somewhere, an Argentine remembers his home and his savings, and laughs bitterly.

Yeah, they were saying that over on Kos. It's more cheap demagoguery. They don't like the piece, so they haul out symbols like Argentina, the Weimar Republic, etc., and wave those in front of the rubes. If one drops the silly slogans and thinks instead, it should be obvious that the everyday practice of rolling over debt is not the same as the concept of borrowing beyond one's means, and that the act of conflating the two exposes either ignorance or dishonesty. Oh well, I expect that from Kossacks.

Reagan's winning appeal in 1980

You're going to tell me what Reagan's winning appeal was in 1980. How old are you, Josh? I don't think you have the slightest idea what Reagan's winning appeal was in 1980. I voted for Reagan. For Governor of California. I saw the whole thing happen from the beginning; I watched the 'Goldwater Speech' live. High school kids were talking about it the next day; it was that good. As amazingly effective a President as Ronald Reagan turned out to be, the fact is that the Republicans could have run a lamp post against Jimmy Carter, and won.

Were we ever sick of him.

It is true that Reagan's conservative views were no surprise. The man was nothing if not articulate. But let me tell you a secret. The deficit as a percent of GDP is currently half of what it was under Reagan, and Bush’s budget as a percent of GDP is also significantly less than Reagan's. So for you to haul out Ronald Reagan and wave him at me as an example of "government frugality and fiscal discipline" tells me that you are ranting without a clue. The truth is that Reagan ran the highest deficits we've seen since World War II. As Orrin Judd put it, "What did the free-spending Ronald Reagan give us other than the end of the Cold War and twenty plus years of economic growth?"

then you go on to call for the most massive social engineering of all: the wholesale reversal of "the decline of our civilization."

Well, I could be wrong... maybe we don't need to do that. My impression was that a lot of these Democrat programs that provide economic incentives that destroy civilization were still in place. If they're gone now, that's wonderful. But it's news to me. Having been involved with a faith-based charity that ran one of those welfare-to-work programs after "welfare reform," it was my observation that they were still spending all their money on making sure that mothers did not need any fathers around. That's what they did wrong the first time, and that's why we see 90%-plus illegitimate birth rates in some of these places.

Through government spending. You're conservative? Perhaps the movement has passed me by

See, that's what happens when you think short term. Stuff goes right by and you don't even see it. It seems to me that if we're going to reverse the damage that the Democrats have done to these people, and our culture, with their perverse economic incentives, we have to face the fact that any potential fathers out there, who might marry any of these mothers, went to the same lousy schools and have no better job prospects than the mothers do. If we just keep training the mothers to get jobs and do nothing about the men, we are not going to produce a happy result. We are just going to produce more single parenthood and more young adult males who don't see a purpose for themselves in their society. And then they, you know, act out.

Yep, we're gonna have to spend some more money. But it's the only way out now. The Democrats have it so screwed up that if we "cut spending" and wait for this to solve itself, we're just going to get more slums with more crime and more violence and more drugs. Call it law n' order if that makes you feel better. Call it "restoring the family to its rightful place in society." I don't care what you call it. I call leaving it the way it is stupid. We end up spending just as much on law enforcement and prisons, and on top of that we're being good little feminists by promoting single parenthood by women. You call that conservative? I call it short-term thinking and meathead sloganeering.

And the foreseen end result of this is a class of people raised up by big government who will somehow want small government. Pure nonsense.

Well, I'm not a liberal like some, so I don't buy into these amazing Schrödinger's Cat programs that simultaneously provide for people while turning them into self-reliant adults. So we're not going to do any of that, and your assumption that "government raising them up" is the only way to proceed is simply lack of imagination on your part.

I have discovered an amazing thing. "The poor" are actually humans. They respond to incentives as if they were, well, people. If we put something better in front of them, they will move toward it all by themselves!. We don't have to hold their hand, or anything. And to think, the Democrats have been keeping these humans as pets for sixty years. What a travesty that was.

Your argument is wholly premised upon a false conception of the intellect and strategic direction of George W. Bush

Well, that opinion and five bucks will get you a cup of coffee. But not from me; I'd charge you ten just for being ornery.

a massive misunderstanding of basic economics and finance

Aww, you're just saying that to be nice. If you had a clue what you were talking about, or a less inflated opinion of yourself as the all-purpose know-it-all, you would have just passed that one by. My favorite criticism of this piece is that I don't understand this stuff. I get the sense that not many bloggers have ever had P&L responsibility for anything bigger than a breadbox. George W. Bush has. I have. And there are a few other bloggers out there. But not many, and you are obviously not one of them. On that one, you missed a great opoortunity to shut up.

a near-total ignorance of relevant history

This from the guy who thinks Reagan cut spending. I'll just get out of your way here while you embarrass yourself.

the desire to rationalize what ought to be condemned

I'm not rying to rationalize anything. I think it's great, and needs no excuses. The problem is that most people don't understand it, and Bush is doing his usual fine job of explaining himself. Since I'm one of the few people around here who does understand this stuff, I'm trying to explain it so people can stop freaking out. If you choose to believe the Kossacks instead of me, that's your privilege. But they're wrong, and you're wrong. So there.

If there is an archetype of the intellectual and moral malaise in Republican circles today, it is surely in dogged assertions that things in Iraq are going well, in unyielding belief in the essential conservatism of the President, and in arguments like this.

Yeah I know, we hear that from the Kossacks all the time. I for one was really tired of hearing it from you, so to hear it again is really annoying. We'ren't you off to start Mount Olympus or something? What happened with that? The other gods not show up, or what?

By c'mon.

I agree with much of this in principle, but there's no need to lower spears here, especially when your phalanx isn't formed up yet.

Why must we make fools of ourselves cooking up rationalizations that our titanic mediocrity of a President is incapable of uttering himself?

Be sure to bring along some cheese for the mouse in your pocket.

While it sounds quite good, it literally makes no sense to call Bush a titanic mediocrity; furthermore, having seen the aftermath of the Carter and Ford years, I'd respectfully suggest that you've forgotten what "mediocrity" really means. Bush is hardly perfect, and is not remotely a good conservative; but for good or for ill, he's hardly mediocre, either.

Why must we adulterate our principles and our good name as conservatives to make excuses for the inexcusable?

I think if you re-read Nick's piece, and the comments he's been careful to put down, you'll note that he's not adulterating his principles. What he is instead saying is Someone will spend this money, and if it's not us, it will be the Democrats. Now, that may not be a principled argument, but when it's followed by Our principles will keep losing at the ballot box, and this is the best way to get the ones that count through, you may disagree with his argument, but it's dishonest at best to say he's "adulerating" his principles. Rather, it seems to me, he's prioritizing.

As far as "our good name," I'm not aware that Nick speaks for anyone but Nick. (Hence, "I Heretic" (emphasis added).)

At what point does the Administration cross the line?

When Justices Roberts and Gonzales vote to uphold Casey.

Moving on to the arguments that we will always be able to service the debt, and that our debt will roll over forever: these are presented as mere articles of faith, with the sole historical example in support being your assumption(!) about IBM's finances, and your restated misapprehension that government will keep the American economy growing and provide us with "opportunities to invest cash in ways that earn a higher rate than we have to pay in interest" in perpetuity.

You're right. The better example is Victorian England.

I note with interest that you have decided that the "fastest way to become the minority political party in the United States is to become the party of government frugality and fiscal discipline," thereby dismissing Reagan's winning appeal in 1980, and Newt Gingrich's winning appeal in 1994. Rectitude used to matter, and the American people are not so dulled as to have forgotten.

This would be the trumping argument but for the fact that neither Reagan nor Gingrich ran solely on financial prudence. There may have been a globe-spanning conflict or something in 1980, and weren't there some social issues in his platform? Oh, and in 1994, I seem to remember a litany of great moves by the Democrats that angered more than the fiscally conservative in this country; guns? Abortion? Hillarycare? Some other things?

I have to say that, though I agree with the impulse, I tire of hearing this one-dimensional invocation of 1980 and 1994 for everyone's pet issues, especially as the exit polling of those years hardly supports that view.

Oh, and: If you think that a lack of fiscal rectitude so badly shocks the American conscience, could you kindly explain Democrat political dominance from 1933-1994? Toss in Algore's appeal in 2000, too, if you would.

That is the unvarying lesson of the welfare state: Congress may abolish the Interstate Commerce Commission, but it will never relieve us of the burdens of Social Security and Medicare.

This, however, is correct. Had you spared us everything else to get here, and the paragraph in which it is entrenched, I'd have no issue with this.

If there is an archetype of the intellectual and moral malaise in Republican circles today, it is surely in dogged assertions that things in Iraq are going well, in unyielding belief in the essential conservatism of the President, and in arguments like this.

Properly:

(1) I rather suspect things are going well; that's not to say things are going as we'd like. There's a difference, and it'll take a decade or two to see if the two are indeed different.

(2) I suspect he is a conservative, or at least more of one than his father; but he's just not a very good one. Again, there's a difference.

(3) You might, from glancing through Nick's story, title to end, glean the impression that he's deliberately tossing a firecracker on the pile, rather than saying, My life for thee, O my President! But, as they say, the distance your vehicle can travel on this sort of fuel may not be the same as someone else's vehicle's distance capacity.

to see friends argue. Makes me uncomfortable. I've come up with the solution, from a liberal viewpoint, and I'm happy to share: you're both right!

Nick's right: government ought to spend significant money on infrastructure, education, poverty reduction, etc. It ought to do so from an incentive (rather than entitlement) POV -- and this idea isn't copyright The Republican Party, but since you folks are in charge now, you get to start.

Trevino's right: let's pay for as much as we can as we go. There's loads of pork to be cut. I'd also suggest (heresy! but spare me the confused Laffer curve tripe) that tax cuts can wait, but that's y'all's call. I like spending as much as the next liberal, but better if we (or our kids) can afford it.

Sounds like you've got some things to work out.  I'll concentrate here on the actual arguments you set forth.  Such as they are.

Nowhere do I state that "the government" will keep the American economy growing.

It's only the sine qua non of your entire argument, of course.  But you didn't say it directly.  Right.

....it should be obvious that the everyday practice of rolling over debt is not the same as the concept of borrowing beyond one's means....

Less barking about misunderstanding things, yes?  The above was never asserted; rather, your false assumption is that "rolling over debt" can and will occur into infinity.

I don't think you have the slightest idea what Reagan's winning appeal was in 1980. I voted for Reagan. For Governor of California.

So much for age and wisdom.  Suffice it to say that -- according to most reputable historians, anyway -- Reagan's 1980 victory was hardly the sure thing you paint it as.  And what did he run on?  What, tell me, was one of the major themes of his First Inaugural Address?

The deficit as a percent of GDP....

In absolute terms, of course, and even measured in constant dollars, the deficit is larger than ever.  While I appreciate the logic behind taking refuge in this specific statistic, it doesn't ultimately make much sense: GDP doesn't pay off government debt.  You might use GDP as a rough analog for tax receipts, but that makes sense mostly in an absence of other data -- which we don't suffer from here.  Let's talk about the deficit -- and the overall debt -- in terms that directly pertain to it, yes?

So for you to haul out Ronald Reagan and wave him at me as an example of "government frugality and fiscal discipline"....

I strongly urge you to consider the difference between Reagan's campaign appeal in 1980, and Reagan's actual record of governance.  Then figure out which I was citing.  It should be obvious.

It seems to me that if we're going to reverse the damage....

....we'll have to spend a lot more money.  Government, having done a terrible job at attaining objective X, will do an adequate job at attaining objective Y.  You may see logic in this; you may even not have the inherent, healthy aversion to government that is the conservative hallmark.  I claim neither condition.

....your assumption that "government raising them up" is the only way to proceed is simply lack of imagination on your part.

Indeed, shame on me for taking your writing at face value, yes?

But not many, and you are obviously not one of them [who has had P&L responsibility].

Oh?  Something new every day.  But on the broader point, while references to your resume are doubtless satisfying -- and if you want to play that game, only one of us actually worked in the Administration in question -- they are no substitute for, say, arguing your point.

I'm not rying to rationalize anything.

You have done a tremendous job without even trying, then.

Be sure to bring along some cheese for the mouse in your pocket.

Okay, fine:  Why must Nick make a fool of himself cooking up rationalizations that our titanic mediocrity of a President is incapable of uttering himself?  We can argue whether the President is a mediocrity as you prefer, although it's a sideshow here.  Suffice it to say I think it describes him aptly enough.

....he's not adulterating his principles. What he is instead saying is Someone will spend this money, and if it's not us, it will be the Democrats.

I assume that you recognize that these two sentences contradict one another rather well.

I'm not aware that Nick speaks for anyone but Nick.

In this specific argument?  I have no idea.  As a representative of the phenomenon of tortuous excuse-making, from Hewitt to Powerline to David Warren, for the Administration?  He's a nicely representative sample.

At what point does the Administration cross the line?....When Justices Roberts and Gonzales vote to uphold Casey.

This is, of course, not properly an "Administration" action at all.

The better example is Victorian England.

And what eventually happened to British finances?

....neither Reagan nor Gingrich ran solely on financial prudence.

Ergo, we can ignore wholesale that facet of their winning appeal?  We can declare that facet irrelevant?  I think not.

I'm not going to bother with this.

You're entitled to your opinion, and to rant at will. So is this guy. Needless to say, I like his opinion better.

The long and short of it is, if GWB is squirting money at anything it must be the taxpayers' money he is squirting, because it is sure not his own.  I don't agree that there is some mythical free lunch third choice.

And all this crud about Americans not wanting smaller more efficient less expensive government.  I was under the impression that championing that cause is what got Republicans their mandate.  

A huge federal program spending huge federal dollars (borrowed or not)in an attempt to turn transfer payment recipients into homeowners with jobs is the exact sort of grandiose social experiment that the liberals are always proposing.  

on what basis do we believe that this spending will bring such benefits?  I'm not a freaking libertarian, in fact I frankly can't stand them, and I'm not an ignoramus; I fully understand that it doesn't make sense to pay off debt if you're making more money with the borrowed money than your paying to keep it.  I'm well aware of the way in which Congress resembles a feudal aristocracy, that pork, aka legalized corruption, is the baksheesh that oils the wheels of government, and that there is no constituency for real spending cuts, especially not now.  This is basic, basic stuff.  I get that, and I'm more than a bit put off by your constant insinuation that we who are suspicious of your argument are simply too stupid to get it.  

I just want to know how this is supposed to work.  I am reflexively sceptical of claims that a new government giveaway will somehow be tailored to inculcate conservative virtues.  Free is free money.  It has a corrosive effect on republican virtues, regardless of the intent of the distributors.  Do you think "the best and the brightest" of the Kennedy and Johnson administrations planned on turning America's cities into hollowed-out war zones?  Do you think they planned on or hoped for an increase in racial division, or a worsening of black social capital?  As much as I hate those programs, I don't believe that for a minute.  They were men mostly full of good intentions but bursting with hubris, and the smug, Ivy League confidence that every problem was susceptible to their brand of intelligent management.  As with so many of the best-laid plans since the Tower of Babel, they failed, and we're still paying for the failure in full prisons and empty cities.  As someone of a truly conservative, as a opposed to a right-liberal, temperament, I think another such failure of good intentions is more likely than not.

Thank you.

of fiscal conservatism, I see.

Thing is, I don't disagree with your argument itself.  I agree that the electorate doesn't want fiscal conservatism/small government politicians if you're going to get real about it.

Question is, are we merely "positioning" here or are we actually changing?

Equate this with the short period of military-worship that arose during the 2004 campaign among Democrats.  Everyone knew that the Dems were not pro-military by any stretch of the imagination.  But they ran a 'war hero' and wrapped him up in a flag.  I assume they were thinking along the lines of:

That is where "The People" are. You are not going to get them from militaristic jingoism to peace movements with slogans or pamphlets or speeches. They will vote for Republicans if you try. And then you'll get just what you didn't want: military-industrial complex sending our young men and women to wars to profit their oil baron friends.

Now, we know that the Dems were merely positioning; it was the kind of marketing BS that Hillary is using now to pass herself off as a centrist of some sort.  As soon as the campaign was over, we went back to the kind of peacenik stuff (e.g., Mother Sheehan) we expected.

When you counsel this path of "conservative big government", is this mere positioning to prevent the greater evil of Democrats taking control and building monuments to bureaucracy, or is this a fundamental shift in how the Republican Party, and by extension American conservatives, see their core principles and beliefs?

-TS

on what basis do we believe that this spending will bring such benefits?

On what basis do we believe that an elected legislature is the right way to decide anything? I didn't make up the part about who decides how to spend the money. The Founding Fathers did that. All I know is that everybody gets one vote. If it all comes out wrong, then the Constitution is all wrong. That's beyond my pay grade.

I realize that some people will then say, "Well, they're stupid and so they shouldn't spend anything." To which the only reasonable answer is, "See if you can get people to make you King." I'm not going to tell you that I'm thrilled with the Congress' performance in these matters, but I got my one vote. That's all the Constitution says I get. If I don't like the way the Other Guys vote, too bad. They get a vote, too.

Nick is the reason I check out this site every day. The first thing I check every day is whether or not Nick has posted any recent comments. If so, I read them and track back through his earlier comments. He has a great wit and I love his sense of humor.

What is so wrong with asking us to think? To maybe look at what we (conservatives) stand for and believe.  I'll admit, this article threw a wrench in my thinking and beliefs.  So what?  It apparently got a LOT of people thinking and responding.  As I see it, that has to be one of the main purposes of a site like this.

You can argue all you want about whether Nick is right or not, but you can't argue with the results this post has produced.  It seems like everyone has weighed in.  The discussion has been interesting.

I think Nick's post is very worthy of RedState. Keep posting Nick, you're making me think harder than I've had to since college. And that was a long time ago.

Okay, fine:  Why must Nick make a fool of himself cooking up rationalizations that our titanic mediocrity of a President is incapable of uttering himself?  We can argue whether the President is a mediocrity as you prefer, although it's a sideshow here.  Suffice it to say I think it describes him aptly enough.

Well, if Nick were rationalizing, I'd think this was a great question. Query: Might I agree with the President's actions independently of rationalizing them? If so, must I remain silent for fear of apologizing for those actions? If so, you've just sealed the non-Constitutional argument on campaign finance reform.

As you say, suffice it to say I disagree.

I assume that you recognize that these two sentences contradict one another rather well.

Read without the sentences that follow, absolutely.

In this specific argument?  I have no idea.  As a representative of the phenomenon of tortuous excuse-making, from Hewitt to Powerline to David Warren, for the Administration?  He's a nicely representative sample.

Dangit, those are cool people. I wish he'd invite me to the meetings where these things get planned out. Nick? Can I come? I can fly out there, wherever "there" is.

This is, of course, not properly an "Administration" action at all.

Look more closely, and you'll see that it is.

And what eventually happened to British finances?

Over one hundred years later, saddled with an unwieldy imperial apparatus, they ran into problems. One hundred years is a heckuva long time.

Ergo, we can ignore wholesale that facet of their winning appeal?  We can declare that facet irrelevant?  I think not.

Of course not, but that doesn't mean we can make those years metonymic of the hobbyhorse of the day, either.

....a great whopping deal to this site. More than I in recent months, and certainly more than I in the future for obvious reasons. Just because I think this post was terrible does not mean I don't think him a valuable member of the community.

I'm fundamentally on Trevino's side on this one, and find some of Nick's statements to border on the utterly ridiculous, e.g.,

He who has the cash makes the rules. If we have the cash, we get to say how it's spent. Remember, money is power.

To which the response is, yes, ordinarily.  Unless, that is, the cash-in-question is borrowed. In that case, it is he who lends the cash who makes the rules -- As any debtor, institutional or otherwise will tell you.

Nick is, however, fundamentally correct that the trouble with deficits is not necessarily one of paying back the money.  His discussions of roll-overs is accurate.  The problem with Nick's analysis is what he doesn't mention.  Yes, nations and companies can (in theory) eternally roll over debt, assuming that they can find willing lenders -- i.e., assuming creditor nations continue to grow (and are willing to extend credit) at a pace at least equal to our thirst, and the U.S. remains a good credit risk (i.e., the debt does not get too high).  What Nick omits, however, are the associated costs of debt on the economy, in the form of higher interest rates, higher interest payments, higher inflation, and higher private-public competition for credit.  High government debt levels act to slowly erode the fundamentals of an economy.  As one economist put it, high debt is particularly dangerous because it is corrosive, not explosive.  It lets folks get away with the kind of crapulent thinking evident in Nick's piece, and with a straigh face even.

So, yes, our children will pay for our debts, although not necessarily in the way one traditionally thinks.

(Nick also ignores the imminent retirement of the baby boomers, which will almost certainly create massive new deficits and exacerbate the foregoing).

....in the previous several years.  Teaching me a new words, that is.  In this case, "metonymic."

In return, I give you "rationalization."

A few brief points:

1.  It wasn't the "imperial apparatus" that brought Britain down; it was war abroad and socialism at home.  And it happened barely forty years after the Victorian era, not "over one hundred years later."  In any case, neither figure is infinity.
   
2.  The Judiciary and the Executive branches of the Federal government are not the same.
   
3.  No need to attend the secret meetings of the Administration Apologists Club.  Just pick a Presidential action you'd be dead-set against had Clinton done it, set forth a justification, call it "conservative," and you're in.

1. Well, arguably, it was war abroad, socialism at home, and a badly structured Empire. But that's a debate for another time.

Properly, in your favor, I should have said the Early Victorian era, which I believe is on record for incredible public debt and deficit. But this particular war is also for another time.

2. I would never even think of disagreeing with that statement. But the benchmark against which I set this Administration is not in fiscal perfomance, but rather in the thing that matters most to me. Bad picks at Article III mean failure. A relatively small budget deficit does not.
   
3. I must concede that I grew resigned to ridiculous largesse out of both parties around 1998, when our spine-intense Republicans ran up the pork, the Donks followed close behind, and all shrugged. I basically gave up when I realized that Bush was probably the Republican with the broadest appeal in 2000, and only a fool would have thought him a fiscal conservative. He never pretended to be one, and I suspect that helped the moderates vote for him.

Does that count? Do I get the secret decoder ring because I expect no better?

As I seem to be warring with folks with whom I broadly agree, but I think he mentioned that parenthetical in comments here.

As it relates to Bush's new assault on poverty.

(Nick also ignores the imminent retirement of the baby boomers, which will almost certainly create massive new deficits and exacerbate the foregoing).

We NEED to grow the middle class if we are going to survive this reality fiscally.  One of the key things killing European economies (besides life-draining socialist tendencies) is low birth rate and an aging populace.  We need to get more people more productive -- fast.

"Unless, that is, the cash-in-question is borrowed. In that case, it is he who lends the cash who makes the rules -- As any debtor, institutional or otherwise will tell you."

Nope, as long as you make the payments.

You presume a world in which the debtor lacks a future need for continued credit, which is precisely the world posited by Nick.  (Otherwise, his whole discussion of rollovers makes no sense.)

It is always better to be creditor than borrower; owner than renter; principal than agent.

"It is always better to be creditor than borrower; owner than renter; principal than agent."

"We need to get more people more productive -- fast."

It is always better to be creditor than borrower; owner than renter; principal than agent.

That is not true when you know something the other guy doesn't. If I know where there's a buried treasure and you don't, I can borrow the money from you to rent a backhoe, retrieve the treasure, and come out way, way ahead.

Does anyone in the world know better than the United States how to create wealth via innovation, and to do so at massive scale? Someday perhaps, another country will get as good at it as we are. But right now, there is no country that is even in our league. That means that as a country, we can make better use of cash, at less risk, than anyone else on the face of the Earth. We know something they don't.

are quite ambivalent about the subject.

It's not that we don't like the rhetoric of smaller government, balanced budget, etc. It's that we (as a group) aren't thrilled about the relative cost of such a thing. We want smaller government and a balanced budget and a strong military and public schools and various public works projects and socialised healthcare and ...

That's not to say I, personally, want all of those things. I want some, don't want some, am ambivalent on others. Never mind that many, many Americans are not exactly sterling examples of fiscal responsibility themselves, but, until we all understand that tax money is not free, we will continue to think of it as money belonging to the other guy. You know, that one guy, the rich jerk down the block who trades his Beamer in every three years.

suspiciously like a belief in magic.  Wealth creation depends on decisions and actions, though, not on magic.  It is not a birthright of being an American, and it can be destroyed by careless policies.  While I would be the last to claim that certain government expenditures have not been instrumental in creating our stupendous prosperity (G.I. Bill, the 19th century land giveaways, subsidized research), I remain justly dubious of the claim that government borrowing can serve as a wellspring of prosperity.  Borrowing is not a long-term strategy.  It can pay for buying a house or fighting a war, but it is ill-suited to running a welfare state for reasons that should be obvious.  That the people want it, and they assuredly do, does not make it a good idea. It just makes democracy look like a worse one.

"Never say always" -- granted.  On the merits of your argument here?  On the general principles involved?  Well, we'll continue to disagree.

"If you owe the bank a little money, the bank owns you; if you owe the bank a lot of money, you own the bank."

That sounds suspiciously like a belief in magic

That's because we don't understand how it works. At one time, fire was considered magic. Eclipses of the Moon were considered magic. Whatever it is that causes the US to be the fountain of innovation is probably beyond human understanding. It's a combination of thousands of factors that interact in ways we don't even imagine.

That doesn't mean it's magic, though. It's just one of those complex systems that we can't get our minds around. It absolutely could be wrecked by messing around with the policy set. The one thing we do know about this phenomenon is that whatever we're doing now works. One suspects that low tax rates, especially on capital gains, and ready access to risk capital are two of the factors. But beyond that, who knows. There are probably at least a hundred more factors we don't know that if we changed them, we could screw things up.

Note that two of the things that are part of the current policy set are huge spending on military R&D (which we all know spins off all kinds of goodies that end up in "innovations"), and huge spending on education (most of which I think we could spend more wisely, but as a policy, you can see where investing in education is probably a component of the "innovation" mix).

Thinking that government can directly create prosperity is liberal-think. The only thing the government can do is set the conditions in which market forces operate. Then it has to get out of the way. But having a highly-educated population is one of the conditions. Having a well-maintained transporation infrastructure is another. There are places where government spending makes sense and leads to identifiable benefits that appear as the result of market forces. But you have to have both.

I don't think anyone has suggested borrowing money to make transfer payments as part of a welfare system. That's sort of a red herring here.

made by Nick upthread and is very true.

Thinking that government can directly create prosperity is liberal-think. The only thing the government can do is set the conditions in which market forces operate. Then it has to get out of the way. But having a highly-educated population is one of the conditions. Having a well-maintained transporation infrastructure is another. There are places where government spending makes sense and leads to identifiable benefits that appear as the result of market forces. But you have to have both.

I think I've made clear that I believe a strong, but limited, government to be a necessary precondition to a prosperous economy.  I appreciate that you believe a government is not a substitute for a prosperous economy.  I think we can agree on the preceding.

I don't think anyone has suggested borrowing money to make transfer payments as part of a welfare system. That's sort of a red herring here.

Yet that is precisely what Bush has been doing.  If the budget had been in balance without taking into account the hurricane or the war, and we were talking about an extraordinary measure for an extraordinary circumstance, you'd have a point.  But those conditions do not, as you are well aware, apply.  Money is fungible, after all.  Transfer payments come out of the same pool as infrastructure investments and national defense, and it's a pool that is increasingly comprised of borrowed money.  And now you propose to borrow more money on top of the money we're already borrowing for transfer payments so that those transfer payments can be sustained and we can run a war and rebuild the Gulf Coast and cut taxes, all with no end in sight.

Once you note that money is fungible, you cannot then claim that it is the transfer payments which are being financed with debt.

The "money is fungible, so then what" test is what happens when you add up spending items of whatever sort, throughout all agencies, that are reasonably termed "investments" of a sort that most people would agree probably have a return that is higher than the interest rate. So long as our annual expenditures on that sort of thing are higher than the amount of new debt we take on in a year, we should be OK.

Somebody could probably write a Master's thesis on that subject and there would still be a lot of SWAGs in it. But we could do that.

Just eyeballing a table of outlays by agency, it looks to me like that's about what they're doing.

I heard this comment before and I forget the site I read it on, however it went something like this:  

All this debt makes the United States vulnerable to foreign political and economic leverage. When you are a debtor, others are able to exert pressure on you. In essence, debt makes you more vulnerable to coercion.

This kind of pressure was demonstrated in 1997 when former Japanese Prime Minister Ryutaro Hashimoto wondered publicly about what would happen to the American economy if Japan diversified and began to sell some of its then $300 billion in U.S. treasury securities Following Hashimoto's remarks, the Dow Jones Industrial Average suffered its largest single-day loss since the crash of 1987. Aids to Hashimoto quickly responded by saying the remarks were not intended as a threat.

It is sometimes possible to know a subject sufficiently well that a certain class of criticism is just too much trouble to answer. One would have to send the critic back to school before they even understood what was written the first time.

So I thought I would lie low until someone who did understand the article came along to hassle me on it. That happened today.

Of all the commentary I've seen about the so-called fiscal crisis of hurricane-recovery spending, only Nick Danger of the RedState blog has had the sense to argue the issue like a banker. Global financing markets will underwrite new U.S. spending without a drop of perspiration.

How about that? Larry Kudlow reads RedState.