Rick Perry’s Prayer Follies

Whether you’re an atheist or not, you should be alarmed by the sight of elected officials making a big public show of praying during a crisis. It’s not that prayer itself does anything one way or the other – it’s that their beseeching the gods for help is a good hint, not just that they have no ideas, but that they’ve given up even trying and are staking their hopes on a miracle. Which is why this story, about the man who happens to be the most recent entrant in the Republican presidential field, is even more disturbing than the usual drumbeat of Christian privilege:

A few months ago, with Texas aflame from more than 8,000 wildfires brought on by extreme drought, a man who hopes to be the next president took pen in hand and went to work:
    “Now, therefore, I, Rick Perry, Governor of Texas, under the authority vested in me by the Constitution and Statutes of the State of Texas, do hereby proclaim the three-day period from Friday, April 22, 2011, to Sunday, April 24, 2011, as Days of Prayer for Rain in the State of Texas.”
    Then the governor prayed, publicly and often. Alas, a rainless spring was followed by a rainless summer. July was the
hottest month in recorded Texas history… In the four months since Perry’s request for divine intervention, his state has taken a dramatic turn for the worse. Nearly all of Texas is now in “extreme or exceptional” drought, as classified by federal meteorologists, the worst in Texas history.

In fact, as reported in a later article, the economic losses from Texas’ severe and ongoing drought have now topped $5 billion, setting a record. What conclusion should we draw from this story? Should it be that Perry was praying to the wrong god and the real one got angry and worsened the drought? (Maybe he should try praying to other gods – bowing toward Mecca, say, or sacrificing a bull to Zeus – just to see if one of them will help out.) Or maybe Rick Perry himself is just bad at praying. Maybe he’s committed some secret sin that God is punishing him for, and any state or country that he governs will be afflicted by drought and devastation. Or, of course, maybe it’s just that God doesn’t exist or doesn’t answer prayers.

An empirically-minded voter would at least consider all these possibilities. But as a Republican, Perry has the advantage of a huge faction of constituents who think that ostentatious public displays of piety are the same thing as character and virtue, and who can be counted on to remember the prayer and forget the result. The inconvenient fact that his praying didn’t help will be filed in a mental drawer and forgotten, just as they’re used to forgetting all the times prayer made no difference in their own lives. On the other hand, if he had issued a prayer proclamation and the skies had opened up the day afterward, it would be a miracle remembered for decades, and Perry would probably be using it in his campaign literature right now. From a politician’s standpoint, it’s a win-win situation (which explains why Georgia’s governor tried the same thing in 2007, with equally pathetic results).

The elephant lurking in the room is that these increasingly extreme swings of weather are likely due in part to global climate change. But rather than taking effective action, like shutting down coal-fired power plants or offering tax incentives for alternative energy, the anti-science evangelicals would prefer to squeeze their eyes tightly shut and pray for God to magically rescue them from the crisis of their own making. In fact, they’re dead set on continuing to foster antiscientific ignorance.

When hurricanes strike our coasts, the religious right won’t call for engineers to build seawalls or restore barrier reefs, they’ll bow their heads and try to pray the next storm away. When drought and wildfire strikes, they won’t call for more efficient water use, they’ll just beg God to send more rain so they can continue their wasteful ways. When the economy plunges, they won’t vote for government stimulus to put people back to work, they’ll just kneel and implore God to fix it (how they expect this to happen, they never quite say – this one is especially mysterious).

As a growing human population presses against the limits of what our planet can sustain, nothing is more important than steering our course wisely through the next few decades if we’re going to thread the needle of survival. This will be difficult enough if we rely on science, but the religious right, having amply demonstrated how relying on faith has worsened their own lives, now wants to have a faith-based civilization. This is like taking a road trip by blindfolding yourself before you get in the driver’s seat, spinning the steering wheel at random, and trusting that God will see to it that you end up where you want to go. Unfortunately, we’re stuck on the same planet as them, which makes it all the more urgent for those of us who don’t share this suicidally irrational faith to loudly and fearlessly defend science and reason.

About Adam Lee

Adam Lee is an atheist writer and speaker living in New York City. His new novel, Broken Ring, is available in paperback and e-book. Read his full bio, or follow him on Twitter.

  • http://failingtheinsidertest.blogspot.com/ Jeffrey

    >When the economy plunges, they won’t vote for government stimulus to put people back to work

    Government stimulus seems to be in a very different category than the others. There are plenty of reasons to think that it not only fails to solve the problem, it also makes the problem worse. The wealth used for the stimulus has to come from somewhere. Either the wealth directly comes from citizens through taxation, or it indirectly comes from citizens through printing money and causing inflation.

    If stimulus works so well, then what’s wrong with Japan? They’ve tried the stimulus approach very hard, and they are an excellent example of where we don’t want the USA headed.

    Sometimes doing nothing about a problem is better than a very bad solution. Choosing to do nothing does not always reflect a mistaken belief that God will provide.

  • Maynard

    Here in the Austin area we’re fully aware that the city’s gay-friendly culture is to blame for this heat and extreme drought. As for the rest of the state, sorry but we all know god’s precision sucks (earthquakes, tornadoes, hurricanes, tsunamis).

    I know I’m not alone in being happy that Perry is taking his act to a national stage. I am sorry for the rest of the nation though. The reasons he’s been so favored in Texas won’t play so well across most of the country and I’m looking forward to seeing him humbled by it…hoping that he’s humbled by it.

    (Maybe he should try praying to other gods – bowing toward Mecca, say, or sacrificing a bull to Zeus – just to see if one of them will help out.) Or maybe Rick Perry himself is just bad at praying. Maybe he’s committed some secret sin that God is punishing him for, and any state or country that he governs will be afflicted by drought and devastation. Or, of course, maybe it’s just that God doesn’t exist or doesn’t answer prayers.

    Perry’s recent Prayerapalooza in Houston was a white flag. He’s given up, he’s admitted that he can’t do his job as governor, he failed. He made a public appeal to the supernatural for help with man made issues and now he thinks he should be the president? He’ll be back home soon enough, I just hope he’s lost that George W. Bush-like smirk off his face when he returns.

  • http://www.daylightatheism.org Ebonmuse

    The wealth used for the stimulus has to come from somewhere. Either the wealth directly comes from citizens through taxation, or it indirectly comes from citizens through printing money and causing inflation.

    Correct. Either is acceptable. If we get it by raising taxes on the wealthy, we take money from people who are, for the most part, keeping it inert and useless by saving it, and give it to poorer people who need it and will spend it immediately, producing consumption and an immediate economic benefit. This counteracts the paradox of thrift that causes depressed economies to slump even further as fearful people hoard their money and take it out of circulation.

    On the other hand, if we get the money by printing it, that tends to cause inflation, which is fine. In small, consistent amounts, inflation is a good thing for an economy, and as you may have noticed, the rate of inflation has been consistently near zero for some time now (this is the infamous “liquidity trap”). Deflation is the far more serious and destructive threat, and we can help counteract it by putting more money into circulation.

    If stimulus works so well, then what’s wrong with Japan? They’ve tried the stimulus approach very hard, and they are an excellent example of where we don’t want the USA headed.

    Yes, and Japan’s example essentially is where the USA is headed. They also tried stimulus, it’s true, and they also made most of the same mistakes we’re currently making with the way we implemented it: theirs was too small, too slowly rolled out, and too inconsistent.

  • Stan

    >When hurricanes strike our coasts, the religious right won’t call for engineers to build seawalls or restore barrier reefs, they’ll bow their heads and try to pray the next storm away. When drought and wildfire strikes, they won’t call for more efficient water use, they’ll just beg God to send more rain so they can continue their wasteful ways. When the economy plunges, they won’t vote for government stimulus to put people back to work, they’ll just kneel and implore God to fix it (how they expect this to happen, they never quite say – this one is especially mysterious).<

    What ever happened to "God helps those who help themselves?" Oh, yes, that's right. When the task requires a college education, its beyond us mere mortals and requires the hand of the Almighty to remedy. Funny how that works.

  • Monty

    Really, the idea that an omniscient being would need prayer to act is absurd. He knows what the problem is, and he knows your thoughts so he knows how sincere your prayer would be. So why do you need to say it out loud/think about it really hard/whatever for it to “work”? Sounds an awful lot like magic to me.

  • AC

    I don’t know very much about economics, and I certainly don’t know anything about Japan’s economy. But it’s perhaps worth nothing that Ireland has chosen to go down the the opposite path and they’re in pretty dire straits. Is there an evidence-based approach anywhere, here?

    Additionally, isn’t it possible to fund stimulus by running up a deficit? In fact isn’t the Keynsian approach to fund stimulus by running up a deficit and then pay it off during times of growth? I know that’s not necessarily a live option, as many countries already have large deficits already, but it seems something of a false dichotomy is forming here (I could of course, be wrong).

  • http://verbosestoic.wordpress.com Verbose Stoic

    Ebonmuse,

    “If we get it by raising taxes on the wealthy, we take money from people who are, for the most part, keeping it inert and useless by saving it, and give it to poorer people who need it and will spend it immediately, producing consumption and an immediate economic benefit. ”

    Problem: The “wealthy” don’t actually save money in the way you’re positing. The people who are now hoarding their money are people who just save it, which depresses the economy. But wealthy people actually have the money — and spare money — to follow the actual financial advice and INVEST that money to get them more profit later. Which means they buy stocks in companies. Or support new ventures. Or basically stick that money into places where it gets used — and spent — to produce more money. Which is, then, putting into the things that ultimately create jobs for the people who do the things that make that money produce more money. About the only exception might be investing — say in gold, right now — but again that makes gold more valuable and encourages companies to expand their operations since there’s profit in it.

    What a country needs to do is make it so that it benefits the wealthy to invest their money in ventures in that country. Tax them too much and they’ll shift that spare money to other jurisdictions where it does benefit them to invest. And ultimately, speculative investment is better than government direct stimulus spending, since it tends to be in areas where it’s believed sustained profit will come. So if you want, say, your alternative energy projects funded, find a way to convince the wealthy that it’ll make them money, and they’ll invest money in it.

    Note that for me “wealthy” here is referring to the top range. Many in professional fields — including, say, engineering — might be called “wealthy” but won’t do this … but then taxing them’s not a good solution.

    “On the other hand, if we get the money by printing it, that tends to cause inflation, which is fine. In small, consistent amounts, inflation is a good thing for an economy, and as you may have noticed, the rate of inflation has been consistently near zero for some time now (this is the infamous “liquidity trap”). Deflation is the far more serious and destructive threat, and we can help counteract it by putting more money into circulation.”

    The problem here is two-fold:

    1) Inflation increases the costs of buying things, and so the poor people don’t have the money — even with increased income from stimulus money — to buy anything more than they already have.

    2) It devalues your currency, meaning that if you import anything from any other country that will cost more on top of inflation, again taking spending room away.

    As for countries that did use stimulus well, Canada is probably an example, but then it also reduced taxes and is looking at cutting spending as well.

  • Tim

    What ever happened to “God helps those who help themselves?” Oh, yes, that’s right. When the task requires a college education, its beyond us mere mortals and requires the hand of the Almighty to remedy. Funny how that works.

    What happened to it? Well, I’d hope most Christians would recognize that Shakespeare wrote it, but with the modern wave of evangelicals, it’s quite hard to say.

  • Joanna

    The elephant lurking in the room is that these increasingly extreme swings of weather are likely due in part to global climate change.

    Can you refer me to any good sources for this? I’ve heard this and also that the weather swings are part of some normal variations in weather patterns.

  • Jormungund

    rather than taking effective action, like shutting down coal-fired power plants

    I’m a big advocate of getting off coal power. But, that is completely politically unfeasible. If we decided to shut down all coal power plants, we would be virtually forced to largely replace them with nuclear power plants. People in general are badly confused about how safe nuclear power is and how safe its waste is. Thanks to irrational and completely unfounded fears about nuclear power, we can’t just build more nuclear power plants.
    Irony of ironies, environmentalist groups also oppose wind and solar power. Wind turbines kill birds, solar power plants would take up a tiny amount of currently undeveloped land. Those aren’t legitimate concerns, in my opinion. But in my state, California, many attempts to build large solar power collection facilities have been blocked by the state’s version of the EPA. There is always some desert hare or tortoise that some environmentalist group finds on the land the plant is intended to be built on and so such collection facilities are not allowed to be built due to conservation concerns. The Mojave Desert is the ideal spot in the US for solar power collection. Numerous attempts to build simply can’t the licenses needed thanks to environmentalist groups helpfully alerting the Cal/EPA about conservation concerns. Solar power is certainly technologically feasible. It also just isn’t going to happen.
    Thanks to all that, coal is here to stay. Start supporting nuclear energy or start opposing conservation groups if you want that to change.

    @#6

    Is there an evidence-based approach anywhere, here?

    In economics? A short answer is: no. Trained economists bicker endlessly in support of mutually exclusive theories and advice. Armchair economists on the internet are even less in tune with evidence and actual economics theories than that.
    You would think that there would be some evidence based unifying theory for economics. In practice you get economists at best being able to cherry pick a few examples in support of their pet theory. And of course their opponents can cherry pick a few examples where such and such theory failed to predict some outcome.

  • Nathan

    The wealth used for the stimulus has to come from somewhere. Either the wealth directly comes from citizens through taxation, or it indirectly comes from citizens through printing money and causing inflation.

    Correct …

    Incorrect. This conclusion rests on the assumption that economic transactions are a closed system and therefore zero-sum, that all the value generated is equal to all the payment made at market price.

    In particular, this type of inflation occurs when a nation is at full productivity. If the nation is not at full productivity — if persons and productive capacity are out of work and idle (and can therefore produce more) then additional cash in the economy can, in fact, have a stimulative effect, depending on where the money goes.

    Is that massively oversimplified almost to the point of error? Yes, because this is not a graduate-level economics textbook, it’s a blog post.

  • Andrew G.

    Looks like our host as well as the commenters need to read these:

    7 Deadly Innocent Frauds (PDF file)

    Fiscal Sustainability Teach-In and Counter Conference

    Bond issuance doesn’t lower inflation risk (inflation is caused by the level of government spending relative to the state of the economy, not by whether the government is “printing money” – a misnomer – rather than borrowing)

    (3 links – will this go through I wonder?)

  • http://failingtheinsidertest.blogspot.com/ Jeffrey

    If we get it by raising taxes on the wealthy, we take money from people who are, for the most part, keeping it inert and useless by saving it, and give it to poorer people who need it and will spend it immediately, producing consumption and an immediate economic benefit.

    You’re focusing too much on money and too little on wealth. If one trillion dollars of paper money sits in a room doing nothing, this does not represent wasted potential. However, if machines, property, and factories stay idle, now *this* is waste. Rich people saving money leads to idle pieces of paper. It does not represent idle wealth.

  • Charles Black

    It’s disgusting to watch a government official waste time praying to an imaginary sky daddy rather than get to work on the ground to let’s say move away from fossil fuels.

    Like it or not we’re on our own & we better get to used it sooner rather than later.

  • Andrew G.

    If one trillion dollars of paper money sits in a room doing nothing, this does not represent wasted potential. However, if machines, property, and factories stay idle, now *this* is waste.

    Yes (though you should have said: if machines, property, factories and people stay idle).

    But that trillion dollars sitting idle represents an increase of a trillion dollars in the “national debt” (which is nothing more nor less than the accumulated financial savings of the non-government sector). If the government of the day doesn’t understand this, or is in thrall to an electorate which has been continuously lied to about how the “national credit-card bill” has been run up irresponsibly, then the government’s reaction is going to be to (try and) reduce spending, which is exactly the wrong thing to do.

    The failure of government to maintain sufficient demand in the economy is what then causes the under-utilization of productive resources, resulting in unemployment and idle factories.

  • Alex SL

    Jeffrey, Verbose,

    but spending the trillion dollars is how you get the machines and people to do things. Ebonmuse is exactly right; money has to circulate through wages to be useful for anything. What it mostly does now, be it in the USA or Australia, is sit on companies books, or it is used by companies to buy each other, or it is used for gambling at the stock exchanges, none of which is any investment.

    There are actually evidence-based approaches to economics. Somebody like Paul Krugman has models of how economies will react to certain policies under certain conditions, and then he looks at what actually happens when governments tried those policies to see if the model is vindicated or has to be discarded. Others, of course, rely on their gut feelings, or draw false equivalences between what a family should do in a crisis and what a government should do, or simply go “lalalaIcanthearyou” when their models’ predictions of high inflation and increases in bond rates do not materialize.

  • http://www.daylightatheism.org Ebonmuse

    Problem: The “wealthy” don’t actually save money in the way you’re positing. The people who are now hoarding their money are people who just save it, which depresses the economy. But wealthy people actually have the money — and spare money — to follow the actual financial advice and INVEST that money to get them more profit later. Which means they buy stocks in companies. Or support new ventures. Or basically stick that money into places where it gets used — and spent — to produce more money.

    That would help the economy if it were true, but it’s not what’s actually happening. What we’re seeing in reality right now is a global flight to safety, which entails massive capital outflows from the stock market, a soaring price of gold, and interest rates on Treasury bills falling to their lowest level ever due to immense investor demand. Some banks are even starting to charge negative interest on deposits, because so many wealthy people are hoarding their cash, and the opportunities for the banks to invest it profitably so they can pay interest are so few.

    1) Inflation increases the costs of buying things, and so the poor people don’t have the money — even with increased income from stimulus money — to buy anything more than they already have.

    Except, again, that inflation rates are near-zero, have been for a long time, and likely will be for a long time to come, despite all the stimulative measures taken so far.

    2) It devalues your currency, meaning that if you import anything from any other country that will cost more on top of inflation, again taking spending room away.

    Yes, devaluation does happen, and again, it’s a good thing that should be encouraged. A weak currency encourages tourism, foreign investment, and other activities that cause capital to flow from stronger economies into weaker ones. Part of the reason why European countries like Greece and Ireland are suffering so badly is that, despite their weak economies, they can’t devalue relative to other nations because they don’t have their own currency.

  • 2-D Man

    What a country needs to do is make it so that it benefits the wealthy to invest their money in ventures in that country.

    You’ve given a pretty good overview of “supply-side” economics, VS. That idea is stupid because economies are driven by demand.

    People don’t produce things because they can get a tax break on it, or because they have extra cash kicking around. They produce things because somebody is willing to pay for those things, full stop.

  • paradoctor

    There’s a difference between solving a problem and feeling better about it. Prayer is analgesic, but not curative; that is, it’ll make you feel better about the problem, but it might not solve it. Reason is curative, but not analgesic; it’ll solve the problem, but it might not make you feel any better about it.

  • dmnolan

    Here’s an article that Gov. Perry’s supporters should read: http://www.texasobserver.org/oped/five-scriptures-you-wont-hear-at-rick-perrys-prayer-event Maybe it’s more important to consider him a skilled showman rather than a biblical scholar. Thomas Jefferson would surely retch at this blooming spectacle of ignorance and manipulation.

  • http://kagerato.net kagerato

    [2-D Man]: You’ve given a pretty good overview of “supply-side” economics, VS. That idea is stupid because economies are driven by demand.

    People don’t produce things because they can get a tax break on it, or because they have extra cash kicking around. They produce things because somebody is willing to pay for those things, full stop.

    Yes. Real economies, that is, actual goods and services, are demand driven. Businesses arise and fall based upon need (and to a limited extent, want, but that cools off on its own). The problem is when institutional structure and personal greed interferes with the ability of society to respond to actual need. We call that “supply side economics”.

    We have high unemployment, lower production, and so forth because there is simply not enough money available in the economy to utilize all the available labor, machines, and other resources. The idea that we can fix that problem by reducing the deficit is completely broken. The national deficit is one of three primary means of introducing new money into the economy (the others are lending, which creates money due to fractional reserve, and actual printing or coining of physical dollars and cents).

    If your goal is economic expansion, the very worst thing you can do is establish a federal surplus. Surplus at that level means the government is eliminating more money from the economy than it introduces; in effect, a net transfer of money out of the economy causing deflationary pressure. Sure enough, when you look at the past occurrences of such surplus, they have been accompanied by notable recessions. The most recent of those was under Clinton; the stock market bubble inevitably popped because there simply wasn’t any new money being introduced to the economy to generate any further investment.

    During a time in which we ought to be increasing the national deficit, our politicians tell us we should do exactly the opposite. This indicates either that their goal is not meaningful economic growth, or that they simply have no idea what they are doing.

    The best economic policies the federal government could be doing right now, but won’t, are these:

    (1) Raise taxes on the rich in order to create incentive to spend on salaries and equipment, instead of pocketing cash and/or reinvesting into the same existing businesses which will not expand without further demand.

    (2) Lower taxes on the poor and middle class in order to free up cash for spending on essential and non-essential goods and services alike.

    (3) Establish a jobs program for a fixed and modest hourly wage developing the country’s future energy, transportation, water, and education infrastructure.

    It’s perfectly fine and even expected if these policies cause the deficit to expand. That’s precisely what we need. The deficit is just the numbers of various accounts at computers at the Treasury and Federal Reserve. It’s record keeping; we can and do change those numbers all the time. We are not operationally constrained by tax “revenue”; taxes exist to create demand for the currency and to control inflation (which we aren’t experiencing).

    The only genuine issue here is that if we don’t solve our existing infrastructure, labor, and other problems, they may begin to compound on themselves. That’s how you lose the future. People who are out of work too long start to lose their effective job skills. Children who are not educated rarely manage as well as those who are. A 20th century infrastructure network built with the assumption of cheap and abundant oil won’t fare well in a 21st century world gradually invalidating that premise.

    We must deal with what matters, and stop allowing numbers in computer tables to dictate what is physically possible in the real world.

  • Paul

    that ostentatious public displays of piety are the same thing as character and virtue

    ^^^
    This.

  • Paul

    Unfortunately, we’re stuck on the same planet as them, which makes it all the more urgent for those of us who don’t share this suicidally irrational faith to loudly and fearlessly defend science and reason.

    ^^^
    This.

  • John Nernoff

    Why is more and more and yet more energy needed? As soon as we cut down all the trees for firewood, the population doubles and we look around for more trees which are not there to cut down. This situation occurred in Haiti which now has no forests. There may be plenty of oil yet to be sucked out of the earth and burned up, but the humanity driven carbon polluting global inferno is about to bite us real hard. What is ONE solution that just doesn’t get mentioned in many places including here? The overpopulation disaster.

    Why is this area of economics usually ignored? Are we some sort of sacred species which must rule the earth in greater and greater numbers untrammeled? Is birth control and family planning still a “sin” which offends the gods? Poor humanity seemingly is unable to punch its way out of a paper bag. Maybe when the crisis gets big enough we will debate the problem underwater in scuba gear.

  • Jormungund

    @#24 John:
    Your view is often mocked as being Malthusian. I agree that we could have a higher average standard of living on the planet if there were fewer people. I’d recommend reading some of Garrett Hardin’s writings on this matter. But, pointing out that overpopulation is bad is not a popular view. People just don’t like the idea that there is simply no such thing as too little resources, but rather too many people all competing for them.

  • Charles Black

    @24 & 25
    I think the problem is not so much as too many people, but simply poor planning concerning resources for future consumption.
    Most likely if resources were being allocated more efficiently then environmental problems such as anthropogenic global warming & deforestation wouldn’t be such big issues.

  • http://verbosestoic.wordpress.com Verbose Stoic

    Alex SL,

    but spending the trillion dollars is how you get the machines and people to do things. Ebonmuse is exactly right; money has to circulate through wages to be useful for anything. What it mostly does now, be it in the USA or Australia, is sit on companies books, or it is used by companies to buy each other, or it is used for gambling at the stock exchanges, none of which is any investment.

    Let me make it clear that I’m not against stimulus spending. It is a way to stave off recessions — or, at least, the worst damage of them — and I was afraid that the Conservative government here wouldn’t do it. What I’m against is this notion that it’s okay to take the money from the ‘wealthy” because otherwise it just sits there. Wealthy individuals want to invest their money in things that will return a profit, which generally are things that circulate money through wages. Companies want to invest their profits — to the extent they can — into new products, and those that don’t aren’t going to succeed. And buying stock is, in fact, investment by definition [grin] and in fact provides money for individuals and companies to use on expanding their footprint and the economy.

    Ebonmuse,

    What we’re seeing in reality right now is a global flight to safety, which entails massive capital outflows from the stock market, a soaring price of gold, and interest rates on Treasury bills falling to their lowest level ever due to immense investor demand.

    Yeah, but my point was that the wealthy don’t really want to play it that safe; they want the riskier investments that pay off more when they work. They’re afraid that they’ll lose too much if they try that. The solution to that fear is not to take their money away from them, but to set it up so that they’re encouraged to do it. That’s what stimulus money can help with.

    But even in their flight to safety, the money gets used. As I pointed out, increases in the price of gold can foster expansion of gold mining, and Treasury bills bring money into the government that they could use for stimulus spending and debt reduction.

    Except, again, that inflation rates are near-zero, have been for a long time, and likely will be for a long time to come, despite all the stimulative measures taken so far.

    So, a decent argument might be “Inflation won’t happen”. The argument I was addressing was “Inflation is a good thing.”

    Yes, devaluation does happen, and again, it’s a good thing that should be encouraged. A weak currency encourages tourism, foreign investment, and other activities that cause capital to flow from stronger economies into weaker ones.

    Yeah, it’s good for exporters, but not so good for importers. You don’t want your currency to be too high or too low … as Canada has seen both of in the past little while.

    2-D Man,

    You’ve given a pretty good overview of “supply-side” economics, VS. That idea is stupid because economies are driven by demand.

    And investment allows people to meet unmet demand or to invent new demand, which is how an economy grows. You can’t meet demand if you don’t have the money to start the business to meet the demand in the first place. So I fail to see how my view takes any one side at all, or ignores that economies are driven by demand. You have to have a product to sell before you can sell it, and the demand may indeed materialize in the future — like for, say, alternative energy sources.

    kagerato,

    The idea that we can fix that problem by reducing the deficit is completely broken.

    I’m not sure who’s arguing that. The need to reduce the deficit is a completely different need, that’s happening at a really bad time, made worse by the economy. For a government to run a deficit, they have to essentially “borrow” money from someone to pay for that. Now, if that was just them, say, borrowing from themselves, there wouldn’t be an issue. But they end up borrowing, for example, from other countries (the U.S. is in deby to China and Japan, at least). Those countries do it because they expect to at least get the minimum payments or the interest and so make money on it. But if the country owes too much to too many people, then they start to wonder if they’ll make money on it, and start refusing to loan them the money. And then the country goes bust. This is what happened with Greece, with the EU deciding to bail them out, but only if they made changes to fix the problem. If the U.S. government shows no indication that they will fix the problem, they’ll find it hard to borrow money and have to pay more in interest to get loans. Hence the downgrade.

    So, the U.S. would indeed love to put some stimulus money in … but there’s a risk to taking on more deficit right now, which is why people want to know where the money will come from. Canada, alternatively, can indeed spend it because debt wise they aren’t in as bad a shape (although they’d like to be better).

    (1) Raise taxes on the rich in order to create incentive to spend on salaries and equipment, instead of pocketing cash and/or reinvesting into the same existing businesses which will not expand without further demand.

    (2) Lower taxes on the poor and middle class in order to free up cash for spending on essential and non-essential goods and services alike.

    (3) Establish a jobs program for a fixed and modest hourly wage developing the country’s future energy, transportation, water, and education infrastructure.

    1) This would be introducing tax breaks on investment, which is already done. But this is not going to raise money for the government, which will not help with the debt problem. Raising taxes isn’t even required here; all you need to do is add tax breaks for certain investments and you’ll get those who can invest doing it to get that break. So what do you think raising taxes on the rich would do?

    2) I support this, of course, but it will only make the debt worse.

    3) Run by whom? Do you want the government to be competing with the private sector in some of these fields?

    The deficit is just the numbers of various accounts at computers at the Treasury and Federal Reserve.

    No, it translates to actual debt taken on that is owed to, say, other countries. It’s not good to just ignore it, since they might then decide to not loan you money anymore.

  • Andrew G.

    There is so much nonsense in the above comment that it’s barely worth even trying to debunk it all. But here are a few highlights:

    But if the country owes too much to too many people, then they start to wonder if they’ll make money on it, and start refusing to loan them the money. And then the country goes bust. This is what happened with Greece, with the EU deciding to bail them out, but only if they made changes to fix the problem.

    Greece can go broke because it does not issue its own currency and therefore has to obtain euros by borrowing or taxing before it can spend them or pay back loans.

    The US can not, under any circumstances, be forced to default on a loan, because loan repayment is just a matter of moving numbers from one account in the Fed to another account. The same is true for the UK and all other countries which (1) issue their own currency, (2) don’t peg that currency to another currency or any commodity, and (3) don’t have substantial borrowings in foreign currencies.

    If the U.S. government shows no indication that they will fix the problem, they’ll find it hard to borrow money and have to pay more in interest to get loans. Hence the downgrade.

    Demand for US bonds has continued to skyrocket in spite of the downgrade, completely refuting the idea that the government will have to pay more interest. The yield on 1-year bonds has dropped to below 0.1%, and 5-year bonds below 0.95%.

    But more importantly, the interest rate is ultimately under the government’s control, if it chooses to exercise that control; it can maintain it as close to 0% as it chooses to for as long as it chooses to.

    Even more importantly, the idea that the US (or any other sovereign-currency) government needs to issue bonds at all is just a throwback to gold-standard economics. The only effect of issuing bonds is to provide an interest-earning account for spare bank reserves (and thus a flow of money to people who are already rich), and to influence the term structure of interest rates; government bonds neither finance spending nor reduce inflationary effects (if any) of spending.

    As I pointed out, increases in the price of gold can foster expansion of gold mining,

    That has got to be the lamest claim of a stimulating effect in history.

    Interesting fact: all the gold ever mined, at the current high price of gold, is still worth less than about $9 trillion USD; since about 15% of produced gold is eventually lost, and about 40% is used for financial purposes, that implies only about $3tn of gold is available worldwide. Think about what that means, especially any hard-currency nutcases who might be reading.

  • http://verbosestoic.wordpress.com Verbose Stoic

    Andrew,

    “Greece can go broke because it does not issue its own currency and therefore has to obtain euros by borrowing or taxing before it can spend them or pay back loans.

    The US can not, under any circumstances, be forced to default on a loan, because loan repayment is just a matter of moving numbers from one account in the Fed to another account. The same is true for the UK and all other countries which (1) issue their own currency, (2) don’t peg that currency to another currency or any commodity, and (3) don’t have substantial borrowings in foreign currencies.”

    The problem, as I pointed out, is that the U.S. does not just, at least, owe money to itself. It owes money to other countries — in bonds, for example, if I’m remembering correctly — and to institutions that it does not run. It can’t simply move numbers from one account to another when that account has nothing to do with them. And they can’t simply print more currency to pay it off because that devalues the currency which at best makes there to be less profits for those who wanted to actually loan them money in the first place to get capital or profits and at worst simply means that they have to pay them more, depending on which currency the pay off is supposed to be in. This is why China weighed in on the debt crisis; the U.S. owes them a lot of money that they needed to borrow to pay them back.

    “Demand for US bonds has continued to skyrocket in spite of the downgrade, completely refuting the idea that the government will have to pay more interest. ”

    I never claimed it was absolute, or even that people other than S&P think that they are really in trouble. But S&P interpreted them as a worse credit risk — ie a worse risk to loan money to — because of it. The others don’t seem to agree with them … yet. But if the U.S. decides to take on even more debt without making any cuts to try to reduce their deficit, it could indeed happen, as all the lenders decide that they’re too much of a risk and say that they need to pay more in interest before they’ll loan/give them money. That’s what that downgrade ultimately means. We can debate over whether they should be or if the actions really would indicate that, but recall that I was replying to people who — like you it seems — were simply saying that it wouldn’t matter at all, and that’s false.

    “That has got to be the lamest claim of a stimulating effect in history.

    Interesting fact: all the gold ever mined, at the current high price of gold, is still worth less than about $9 trillion USD; since about 15% of produced gold is eventually lost, and about 40% is used for financial purposes, that implies only about $3tn of gold is available worldwide. Think about what that means, especially any hard-currency nutcases who might be reading.”

    I think you don’t understand my point. My point was that there are companies mining gold and selling it. They make money doing it. The money they make is directly related to the price of gold. If the price of gold is low, expansion into new areas — ie new veins — or into areas where there’s a steep initial start-up cost to get to the vein, or where it’s expensive to mine the gold won’t make enough profit to make it worthwhile, so they don’t bother to expand (until they need to, like if the veins run out). But if the price of gold goes up, then they make more money from selling gold and these sorts of expansions become more cost effective, and so they may indeed expand their operations. This means that they have to hire more people.

    This is standard for any resource. Why do you think it, then, so lame beyond an argument of “It won’t create enough jobs to have enough of an effect” which I will happily concede?

  • Andrew G.

    The problem, as I pointed out, is that the U.S. does not just, at least, owe money to itself. It owes money to other countries — in bonds, for example, if I’m remembering correctly — and to institutions that it does not run. It can’t simply move numbers from one account to another when that account has nothing to do with them.

    Paying off a bond is just a matter of moving numbers from the Fed’s “outstanding bonds” account to the reserve account (also at the Fed) of the bondholder’s bank, which credits that amount to the bondholder’s account. That’s equally true whether or not the bondholder is in the US or not, or even if it’s a foreign government – in order to receive the payment (as something other than actual dollar bills), the recipient either has a reserve account at the Fed or has an account at a bank which in turn has such an account.

    In a very real sense, there are only two places where a dollar can exist: either as a physical piece of paper, or in a Fed reserve account. (The sum of nonbank deposits (“broad money”) will, thanks to the reserve banking system, exceed the the number of physical and reserve dollars (“base money”), but since all payments to and from the government amount to movement of base money, this detail can be ignored for our purposes.)

    And they can’t simply print more currency to pay it off because that devalues the currency which at best makes there to be less profits for those who wanted to actually loan them money in the first place to get capital or profits and at worst simply means that they have to pay them more, depending on which currency the pay off is supposed to be in.

    Moving numbers around to pay off bondholders does not represent “printing more currency”. That misleading term is a holdover from gold-standard economics. In fact, what creates more currency is government deficit spending, and whether or not the government issues bonds to match that deficit makes no difference to whether the spending is inflationary or not. (Inflation occurs when the government tries to deficit spend when the economy is already running at full capacity; prices go up because of excess demand. When the economy is running well below capacity, as now, the additional spending increases supply rather than increasing prices.)

    In a gold-standard system, there’s a difference between base money (physical currency or reserve balances) and government bonds, because the base money can be exchanged for gold and the bonds can’t (until they mature and are converted back to base money). Take away the gold standard and the two become equivalent, with the bonds becoming nothing more than a savings account at the Fed.

    But if the U.S. decides to take on even more debt without making any cuts to try to reduce their deficit, it could indeed happen, as all the lenders decide that they’re too much of a risk and say that they need to pay more in interest before they’ll loan/give them money. That’s what that downgrade ultimately means. We can debate over whether they should be or if the actions really would indicate that, but recall that I was replying to people who — like you it seems — were simply saying that it wouldn’t matter at all, and that’s false.

    You’re completely misunderstanding the way that government balances work here. If the private sector decides to stop saving money as government bonds and start investing it elsewhere instead, then the government deficit automatically goes down. The three balances — the government budget balance, the private sector balance (savings minus investment), and the external trade (current account) balance — are linked together by an iron law of accounting (the sectoral balances equation). This graph from Gavyn Davis at the FT is extremely revealing — notice especially the association between the Clinton surpluses and the start of the period of private-sector deficits that represents the debt-fueled financial bubble.

    I think you don’t understand my point. My point was that there are companies mining gold and selling it. They make money doing it. The money they make is directly related to the price of gold. If the price of gold is low, expansion into new areas — ie new veins — or into areas where there’s a steep initial start-up cost to get to the vein, or where it’s expensive to mine the gold won’t make enough profit to make it worthwhile, so they don’t bother to expand (until they need to, like if the veins run out). But if the price of gold goes up, then they make more money from selling gold and these sorts of expansions become more cost effective, and so they may indeed expand their operations. This means that they have to hire more people.

    This is standard for any resource. Why do you think it, then, so lame beyond an argument of “It won’t create enough jobs to have enough of an effect” which I will happily concede?

    Well, you just conceded my point, but I’ll explain further: the number of jobs that can possibly be created even by large increases in the gold price is sharply limited (not to mention geographically inconvenient for the US). Suppose the price of gold doubles, and the US production of gold doubles, then that represents an increase of $36bn in the US economy. Peanuts.

  • Wolf

    I love the comment, “… because this is not a graduate level course in economics.” Exactly. It’s easy enough to say that raising taxes on corporations (not just “the rich”) will fix our economy–and easy enough to get back the response “then corporations will just go overseas.” No one ever adds in the effect of tariffs. Easy enough to say that there have been no experiments in finance–without looking at the causes of the Great Depression–without factoring in the fact that our population is larger, our economic base vastly different.

    In short, it is NOT easy for the uneducated, or partially educated, to understand or explain or verify the value of their own beliefs, though we may be “right.”

    Ditto the question of climatology or evolution. I have studied Global Warming theory and climate change since I was 8 years old, eventually adding to my own curiosity several science courses that were either specifically on weather science or, following from it, expanded on my understanding of the mechanics of weather. People ask why, when the world is warming, Florida was freezing the last two winters, and Canada couldn’t get enough snow together for the Olympics. Valid question: because the Jet Stream is vulnerable to shifting its track, but do you know what the Jet Stream is, its effects on weather and climate, or even where it is supposed to be?

    As for evolution, I can name at least a handful of the Ten Commandments, perhaps even all 10 if my feet were to the fire, but I have yet to meet an anti-evolutionist who can name even one of Darwin’s initial postulates that leads to the concept of natural selection. What’s the best source of understanding of climate science or evolution? Your own educated mind.

    College textbooks sit in the libraries. Colleges and universities sometimes allow audits. And some universities even put their lectures online. Like all things worthwhile, it does not come without effort–unlike armchair punditry, of which I am personally guilty. Study away–and enjoy.

  • http://verbosestoic.wordpress.com Verbose Stoic

    Andrew G.,

    I’m not sure we’re disagreeing here. Basically, all “monetary” transactions are made by flipping bits. But they have to be backed up by capital in some way, and that’s what I’m talking about. For bonds, for example, the bondholders put money into an account that is, presumably, backed up by some sort of capital (ie they have some “money” somewhere). The government takes it from there and them places it into their “bonds received” account. They then take it from there and put it into the “revenues” account as necessary. At the end of the bond term, the government takes stuff from their “bond payout” account and puts it in their accounts, which represents the stuff the bondholder put in plus the interest. But this is all based on some sort of capital. If there isn’t enough money in the “bond payout” account, the government can’t just add a few zeroes to what’s there; they have to get more capital somewhere. If they can’t transfer it from another account, then they have to borrow it. Which means they owe it to people and have to pay them back. And if people don’t think they’ll get the money back, they won’t loan it to them.

    I’m really not sure what relevance the “changing numbers” is supposed to have to my point at all.

    Moving numbers around to pay off bondholders does not represent “printing more currency”.

    Take it up with Ebonmuse, then, because that’s what he was suggesting and that’s what I was replying to. It’s quite annoying to have you go after me for something that someone else was going on about. And yes, you can indeed print more currency to, in theory, provide more capital. It’s a bad idea because all that means is that the currency devalues because there isn’t actually any new capital infused.

    (Inflation occurs when the government tries to deficit spend when the economy is already running at full capacity; prices go up because of excess demand. When the economy is running well below capacity, as now, the additional spending increases supply rather than increasing prices.)

    Um, first, inflation happens fairly consistently and happens regardless of deficit spending. It reflects demand FOR PRODUCTS AND SERVICES and the price that people will pat for them, and doesn’t have much to do with the government. It happens when the economy is good because then people have more spending money and are willing to pay more to get what they want. You could take a government out completely and that would still happen.

    If the private sector decides to stop saving money as government bonds and start investing it elsewhere instead, then the government deficit automatically goes down.

    The government deficit is really the difference between the revenue it takes in from taxes and bonds and everything else and what it spends on programs. If people don’t buy bonds, that affects revenue, but does not in and of itself affect spending. But if the private sector invests in creating jobs in the country, tax revenue increases and increasing employment takes people off of some of the social programs, which may reduce the deficit if the government doesn’t then spend that money elsewhere. If the deficit decreases in these cases, it’s coincidence, not any sort of causal link.

    See, I can disprove it. Imagine that private investment increases, and at the same time the government decides to spend $1trillion dollars on buying military equipment from another country. Do you really think they won’t have a deficit increase?

    Suppose the price of gold doubles, and the US production of gold doubles, then that represents an increase of $36bn in the US economy. Peanuts.

    Again, I agree that it won’t be significant, but this isn’t what I’m talking about. I’m talking about a case where gold mining companies spend $72+bn opening new mines and hiring new miners because they figure they’ll get it all back and more over the next five years.

  • Andrew G.

    I may come back to the other points later, but just to cover this one:

    If the private sector decides to stop saving money as government bonds and start investing it elsewhere instead, then the government deficit automatically goes down.

    The government deficit is really the difference between the revenue it takes in from taxes and bonds and everything else and what it spends on programs. If people don’t buy bonds, that affects revenue, but does not in and of itself affect spending. But if the private sector invests in creating jobs in the country, tax revenue increases and increasing employment takes people off of some of the social programs, which may reduce the deficit if the government doesn’t then spend that money elsewhere. If the deficit decreases in these cases, it’s coincidence, not any sort of causal link.

    See, I can disprove it. Imagine that private investment increases, and at the same time the government decides to spend $1trillion dollars on buying military equipment from another country. Do you really think they won’t have a deficit increase?

    Buying $1tn from another country is a huge forced change in the external trade balance, which (while I admittedly didn’t mention it) I was assuming would not occur significantly for this scenario.

    The exact relationship is that (government surplus) + (private sector surplus) = (external trade surplus). For a given external balance of trade, a larger private sector surplus implies a smaller government surplus (or larger deficit), and vice-versa. (Likewise, that equation makes it obvious that if there’s an external trade deficit, then at least one of the government sector or private sector must necessarily be in deficit.)

    Whether you think there is a causal link here or not is irrelevant, because this is an accounting identity; it can no more be false than a balance sheet can fail to balance.

  • Scotlyn

    Verbose Stoic: This:

    What I’m against is this notion that it’s okay to take the money from the ‘wealthy”

    reveals exactly the values that you are so “stoicly” defending with all the rest of your argumentation.

    By implication, you think that it is just fine to take money from the poor, which is the direct result of following the policies arising from your value system. (Although giving you the benefit of the doubt, perhaps you’re so caught up in defending the wealthy that you simply haven’t given due consideration to the logical consequences of policy-making based on your values and priorities for the poor).

    Many people here have a different value system.

  • Scotlyn

    What a country needs to do is make it so that it benefits the wealthy to invest their money in ventures in that country.

    If, with all the incentives in the world, the wealthy fail to take an interest in paying the wages, or boosting the spending power of the other 99%, then where can a country go?

    Perhaps, it might remember that it is constitutionally mandated to govern, by the people’s consent, to regulate the common good OF ALL. Perhaps it might remember that the wealthy 1% constitute ONLY 1% of its constituency, and that it has a long-unfulfilled duty to represent the 99% who are non-wealthy. Perhaps, as the only other wealthy enough, large enough body able to do so, it might choose to incentivise actual earning and spending on the part of the 99% of its citizens who are non-wealthy.

    So, what a country needs to do, is get back to being a country, not a country club for the wealthy.

  • http://verbosestoic.wordpress.com Verbose Stoic

    Scotlyn,

    Your comments are basically rants expressing “values” that really don’t relate to what I was talking about.

    1) You are not the Eye in the Sky. Looking at me, you cannot read my mind. And I don’t need to read anymore to know that you can’t read my mind. Thus, you have no idea what my values are or what value system I support. Please stop pretending you know everything about me and do the reasonable thing and ASK … or argue for it with details and examples.

    2) You chopped off my statement in a way that I find misleading. I actually said this: “What I’m against is this notion that it’s okay to take the money from the ‘wealthy” because otherwise it just sits there.” I was arguing the supposed fact that money just sits with the wealthy and so we should take it away and use it right, by pointing out that the “wealthy” don’t want it to sit there; they want to invest it, whether they do that themselves or give their capital to their financial advisors. Ebonmuse has a point that right now, in this uncertain economy, they are moving to areas that could be called “it just sitting there” … but then you need to fix the problems that are making them not invest, not simply take it away and not solve the underlying problems. So, that’s based completely on facts, not values.

    3) If you’re coming at this from an ideological perspective, using your value system, then you’re part of the problem, not the solution. We need solutions that will work, whether they fit your ideology or not. It may well be the case that taxes should be increased on the “wealthy” … or it might not. But it’s not likely to solve this issue … unless you’d care to argue for that beyond appealing to value systems?

    “By implication, you think that it is just fine to take money from the poor, which is the direct result of following the policies arising from your value system. (Although giving you the benefit of the doubt, perhaps you’re so caught up in defending the wealthy that you simply haven’t given due consideration to the logical consequences of policy-making based on your values and priorities for the poor). ”

    Since you have no idea of my value system and priorities, you also have no idea what my policies are, and so you have no idea what implications they have, let alone that they take money from the poor.

    (Note that my comment on what Canada did in the last recession — that I approved of — was to increase their deficit more to provide stimulus spending while not raising or even lowering some corporate taxes. Seemed to work well enough.)

    Onto the second comment:

    “If, with all the incentives in the world, the wealthy fail to take an interest in paying the wages, or boosting the spending power of the other 99%, then where can a country go?”

    Do you have an argument or discussion for this? What are you wanting or expecting the “wealthy” to do that they aren’t? And how do you plan to go after that 1% without also hitting professionals and those who have more income than the average but not enough to hide it?

  • 2-D Man

    but then you need to fix the problems that are making [the wealthy] not invest,

    The “wealthy” don’t actually save money in the way you’re positing. The people who are now hoarding their money are people who just save it, which depresses the economy. But wealthy people actually have the money — and spare money — to follow the actual financial advice and INVEST that money to get them more profit later.

    Noted without comment.

  • http://verbosestoic.wordpress.com Verbose Stoic

    2-D Man,

    And what, precisely, are you noting?

  • 2-D Man

    The stuff in blockquotes, VS.

  • http://verbosestoic.wordpress.com/ Verbose Stoic

    2-D Man,

    And what’s notable about them?

  • http://kagerato.net kagerato

    [Verbose Stoic]: Basically, all “monetary” transactions are made by flipping bits. But they have to be backed up by capital in some way, and that’s what I’m talking about. For bonds, for example, the bondholders put money into an account that is, presumably, backed up by some sort of capital (ie they have some “money” somewhere). The government takes it from there and them places it into their “bonds received” account. They then take it from there and put it into the “revenues” account as necessary. At the end of the bond term, the government takes stuff from their “bond payout” account and puts it in their accounts, which represents the stuff the bondholder put in plus the interest. But this is all based on some sort of capital.

    Andrew was trying to correct some of your misunderstandings about how a nationally self-issued, non-convertible currency actually works. You’ve made many more mistakes here without failing to admit your previous ones.

    No, transactions committed by the Federal Reserve and/or Treasury do not have to be “backed” by capital in “some way” — as though it were black magic. Where do you think money comes from, VS? The government issues all this fantastic capital you think is so special and needs to come from the magic bond fairy living in other countries (universes?). All legitimate U.S. dollars and U.S. treasuries originate with the government alone.

    Yes, this does imply that the government can simply “flip bits” in computer tables and change anything and everything they want. When we deficit spend, we simply increase the relevant values of the accounts held by the recipients.

    There is no actual need to issue any kind of debt to anyone as a result of deficit spending. The debts created by law, structure, or demand for treasuries do not even help control inflation. In fact, any pressure interest-generating debts have would be in the direction toward inflation, not the reverse.

    The real reason* the U.S. government issues treasury bonds, which create a debt for payment later, is to maintain demand for the dollar. In the absence of treasuries, the slow rate of inflation would gradually degrade the purchasing power of those who hold U.S. dollars. This would make dollars poor to hold compared to other currencies. We could eliminate this issue either by viciously crushing inflation (which has other very bad consequences and is thus infeasible), or by having all countries everywhere simultaneously agree not to ever again issue interest-bearing bonds on their currencies (likewise impracticable).

    [*] NOTE: This explanation is relevant only to today. The historical reason for treasuries was as a funding strategy during the first World War, back when the country was still on the gold standard. (We left the gold standard during the Depression, and permanently stopped all gold conversion even for international markets during the 70s.) When dollars are directly convertible to a rare finite commodity like gold, it’s not possible to simply create more money without risking a banking crisis.

    When any person, company, or government buys U.S. treasury securities, the result is pretty simple. At a computer controlled by the Treasury Department, the applicable value from a “checking” column is transferred into one of the adjacent “savings” columns (depending on maturity date). When the bond matures, the value in the savings column is deducted, the relevant interest is added, and the result is added back to the checking column. That’s it; no bond fairy involved.

    If there isn’t enough money in the “bond payout” account, the government can’t just add a few zeroes to what’s there; they have to get more capital somewhere. If they can’t transfer it from another account, then they have to borrow it.

    It absolutely can simply add zeroes or otherwise increment the values as it pleases. That’s what it actually means to be in complete control of your own non-convertible currency. The only genuine economic restrictions are inflation (for deposits/spending) or deflation (for withdrawals/taxes). All other limits are either legal or social in nature and have nothing to do with economic theory.

    We really, truly can create as many dollars as we want. The U.S. government can not run out of dollars any more than the scorekeeper at your favorite sporting event can run out of points.

    Take it up with Ebonmuse, then, because that’s what he was suggesting and that’s what I was replying to. It’s quite annoying to have you go after me for something that someone else was going on about. And yes, you can indeed print more currency to, in theory, provide more capital. It’s a bad idea because all that means is that the currency devalues because there isn’t actually any new capital infused.

    Ebon isn’t perfect. Most people have the misconception that deficit spending somehow creates more physical currency. It doesn’t. Currency and your bank account are equally good for spending, however, so either has the same influence on demand. We just don’t like to waste paper.

    Hard currency is not the basis of capital. There is no physical resource basis of capital; it comes from the government. It is introduced through deficit spending, loans from the Fed to banks (who may chose to lend it further, including and often at fractional reserve), and issues of physical currency from the Treasury such as at a mint.

    We are not on a gold standard or backed by any other resource, and have not been for decades. The limits you think exist do not.

    Introducing money into a slack economy also does not cause inflation. Top-down inflation is caused by excessive spending power relative to the actual supply of goods and services. A different form of inflation can be caused by wage-price spirals when a relatively small number of actors have an excessively high degree of control over wages and prices. For example, strong labor unions coupled with strong corporations. The unions lobby for higher wages; companies can’t argue with a very well organized and consolidated worker pool and must give in. However, corporations turn around and try to recoup the cost by raising prices. This was one of the significant causes of inflation during the 70s, along with the oil price shocks.

    In any case, we are not at risk of any notable inflation and are not likely to be anytime soon. Wise deficit spending on new jobs, infrastructure, and research typically has a very modest inflation impact, because effective investments ultimately create new goods or services — an increase in supply which offsets the growth of demand.

    Um, first, inflation happens fairly consistently and happens regardless of deficit spending. It reflects demand FOR PRODUCTS AND SERVICES and the price that people will pat for them, and doesn’t have much to do with the government. It happens when the economy is good because then people have more spending money and are willing to pay more to get what they want. You could take a government out completely and that would still happen.

    Inflation can and does still occur without deficit spending. The main cause in good economic times is actually lending, which you did not mention.

    The idea that you can have a functional monetary system or a broad market without a government is pretty amusing, though. You cannot remove central authority from the equation and be left with something that still works. The demand for money is created by taxes, which are only payable using currency or accounts issued and managed by the government. It’s a very clever and effective lock-in mechanism.

    Even gold standard currencies collapse easily without reliable government. Ever heard of debasement? Without some powerful regulating entity to control the ratios of metals in your coins, invariably people will cheat the system and it collapses.

    The government deficit is really the difference between the revenue it takes in from taxes and bonds and everything else and what it spends on programs. If people don’t buy bonds, that affects revenue, but does not in and of itself affect spending.

    As a quick aside, bonds are distinct from the federal budget; they reside in separate private accounts. If the federal government actually ‘spent’ the money in those savings accounts it would have to later create it with the interest in order to pay out the result. That would be terribly broken accounting. It is true that money removed from the economy by bonds is temporarily similar to taxes, but in the long run the repayment with interest makes bonds much more like spending than taxes.

    Government does not need revenue provided by taxes or bonds. What would it use it for? To spend? Why would an institution need to collect an artificial resource that it issues and established itself, in order to then give it out again? Does the NFL collect points from after the New England Patriots game in order to later use them at a Jets game?

    If you have ever paid taxes in cash, the IRS shredded the bills and melted the coins you gave them. Go ask. Similarly, when you issue a check or a bank transfer to the IRS, the relevant accounts are deducted — but there is no corresponding deposit anywhere. Ask Federal Reserve and Treasury officials about this if you still can’t believe it, or read their former statements.

    Taxes exist to create central, adjustable demand for money and to control inflation (higher taxes exert deflationary pressure). That’s it; that’s their primary purpose in modern economies with their own national notes. There are secondary uses, such as wealth redistribution, but those functions are tangential to the core economics.

    I’m talking about a case where gold mining companies spend $72+bn opening new mines and hiring new miners because they figure they’ll get it all back and more over the next five years.

    It’s not only macroeconomics; you don’t understand good business, either. No sane company would take the risk of borrowing billions of dollars on a gamble that the price of gold will continue to substantially increase over the next five to ten years.

    Firstly, the chance of success is low. The current demand for gold is based in speculation about economic collapse, not on its utility. If the economy recovers, the price of gold will crash and your hypothetical mining company is completely hosed.

    Secondly, mining for rare minerals is subject to the problem of diminishing returns. We hit peak gold many years ago now; it is no longer possible to continually increase gold yields year after year. This means that any investment in mining such a resource must pay off in the relatively short to mid term to be worth considering, since long term growth is not a feasible prospect.

    Thirdly, it is very costly to establish a mine. There is either land to be bought or environmental permits to acquire, both of which are typically expensive. The cost of labor, machines, and explosives is extensive. Once you’ve sheared and fully separated the rock to be processed, there is plenty of smashing, grinding, and filtering to be done. Finally, the end result has to be shipped.

    All for relatively low yield that is guaranteed to decrease over time, for a commodity whose price is known to jump wildly?

    No. Companies are not engaging in a gold rush because it is a terrible idea and very unlikely to be profitable. No bank will issue the loans because they know default is nearly certain.

    (Perceptive readers probably realize that all of the above is actually also very applicable to oil, with some modest adjustment for time and quantity. Presuming that demand for oil continues to increase indefinitely, an oil crash is inevitable. I doubt that premise, though.)

  • 2-D Man

    And what’s notable about them?

    Geez, has this been the problem all along?! It’s not the blockquotes themselves that are noteworthy; it’s the text they contain.

    Read the text inside them (if it helps, imagine someone else wrote them). You should be able to figure out what I found noteworthy.

  • http://verbosestoic.wordpress.com Verbose Stoic

    kagerato,

    The problem is that you and Andrew are spending lots and lots of time talking about specific details that have absolutely no relevance to the discussions of what should be done. At the end of the day, the U.S. has a significant deficit as defined by the difference between their revenues — including tax revenues — and their expendatures, which has left them with official debt, much of which is owed to foreign countries, and they can’t just wish that away.

    Onto some of the details:

    No, transactions committed by the Federal Reserve and/or Treasury do not have to be “backed” by capital in “some way” — as though it were black magic. Where do you think money comes from, VS? The government issues all this fantastic capital you think is so special and needs to come from the magic bond fairy living in other countries (universes?). All legitimate U.S. dollars and U.S. treasuries originate with the government alone.

    So … why is it that you think that describing that being backed by capital “in some way” indicates my stupidity? Recall that foreign countries buy U.S. bonds. Their investment is not backed up by the U.S. generated capital (obviously) but by the capital those countries generate. Private companies buy bonds using their own capital. They couldn’t buy the bonds if something hadn’t put it in their accounts in the first place. Thus, the guarantee for those purchases is backed up by capital that is not officially just the U.S. governments. And thus, they want or need it back at the end, which is then backed up by the U.S. generated capital. And that’s how it all works.

    My comment was “But this is all based on some sort of capital.”. And your reply essentially was “You’re an idiot, because it’s based on THIS SPECIFIC sort of capital”. Well, freakin’ duh.

    The real reason* the U.S. government issues treasury bonds, which create a debt for payment later, is to maintain demand for the dollar. In the absence of treasuries, the slow rate of inflation would gradually degrade the purchasing power of those who hold U.S. dollars. This would make dollars poor to hold compared to other currencies. We could eliminate this issue either by viciously crushing inflation (which has other very bad consequences and is thus infeasible), or by having all countries everywhere simultaneously agree not to ever again issue interest-bearing bonds on their currencies (likewise impracticable).

    I think you’re mistaking an effect for a cause. If the U.S. didn’t do this, their currency would devalue. But why? Just ’cause? Why does a currency increase in value if there are bonds against it? Why do countries want to do it if if no one did it all the currencies would stay the same?

    It absolutely can simply add zeroes or otherwise increment the values as it pleases. That’s what it actually means to be in complete control of your own non-convertible currency. The only genuine economic restrictions are inflation (for deposits/spending) or deflation (for withdrawals/taxes). All other limits are either legal or social in nature and have nothing to do with economic theory.

    Which, effectively, means that in order to solve their deficit problem they, in fact, simply can’t flip those bits. Why? Because of all of the legal and social limits. We aren’t talking in detail about economics and about what are really economic factors and limits and what aren’t. The fact is that trying to pay off the deficit and their debt by flipping numbers is, in fact, not allowed and so can’t be used to solve their problems because of the consequences … including, as is implied from what you said above, the devaluation of their currency which may or may not be a good thing.

    See what I mean? Somehow I’m an idiot for not knowing details that I never said or argued for, but which at the end mean the precise same thing for my argument: you can’t just flip bits and get rid of debt without consequence if you’re a government.

    We really, truly can create as many dollars as we want. The U.S. government can not run out of dollars any more than the scorekeeper at your favorite sporting event can run out of points.

    Actually, this is a really good analogy, because it highlights the issue of currency deflation. If you have a sport where points are hard to get, then 1 point is meaningful. Think hockey or soccer. But if there are tons of points available, then value of any one particular point is pretty low. Think of basketball here. In hockey, the first goal might win the game, and is important. In basketball, the first two points are utterely meaningless.

    The government can, indeed, create as many points as they want … as long as they’re willing to live with each individual point (or dollar) being mostly valueless.

    n any case, we are not at risk of any notable inflation and are not likely to be anytime soon. Wise deficit spending on new jobs, infrastructure, and research typically has a very modest inflation impact, because effective investments ultimately create new goods or services — an increase in supply which offsets the growth of demand.

    I already said that arguments of “We won’t have enough of an impact in this case for it to matter” were decent arguments. I was complaining about Ebonmuse’s suggestion that that would be good.

    The idea that you can have a functional monetary system or a broad market without a government is pretty amusing, though.

    You are being unprofoundly literal here. I was arguing against the idea that all inflation came from government spending, pointing out that essentially inflation can and will occur without direct government interaction. I was not arguing against having a government. I am not a libertarian, and don’t even play one on TV.

    As a quick aside, bonds are distinct from the federal budget; they reside in separate private accounts. If the federal government actually ‘spent’ the money in those savings accounts it would have to later create it with the interest in order to pay out the result. That would be terribly broken accounting.

    Or, you know, the exact same thing as a loan. Except generally at a lower rate of interest. And it’s not like the government doesn’t have any of those, right? Or are you going to deny that? And if they have things that look like or are loans, then they must be using it for something, right? Are you really asking why a government would need revenue?

    Taxes exist to create central, adjustable demand for money and to control inflation (higher taxes exert deflationary pressure). That’s it; that’s their primary purpose in modern economies with their own national notes. There are secondary uses, such as wealth redistribution, but those functions are tangential to the core economics.

    And yet … governments when they budget count revenues including tax revenues, and the difference between that and their expenditures is the deficit or surplus. So, the IRS claims that the government got that revenue, even if they don’t put it anywhere. I am not a tax expert, but the only reason for them to do that is if they already counted it somewhere and then putting it in an account would mean they count it again. Which hardly supports your contention about what taxes do.

    It’s not only macroeconomics; you don’t understand good business, either. No sane company would take the risk of borrowing billions of dollars on a gamble that the price of gold will continue to substantially increase over the next five to ten years.

    Good thing I didn’t suggest that then. I suggested that the price now — assuming it stayed the same — would allow them to pay that off in the next few years, and I used Andrew’s estimate of “doubling” and the resource level for it. If, then, that was produced for two years at that price, it would cover the cost off, which would work. Even if it crashes, as long as it still is profitable you’d still have more supply to sell to make the investment back. And note that higher prices now can provide extra money to spend since you can maintain the same profit margin while diverting some of it to open up new mines. Thus, in a lot of cases, a higher price of gold can allow gold companies to expand their operations in a lot of ways.

    (Perceptive readers probably realize that all of the above is actually also very applicable to oil, with some modest adjustment for time and quantity. Presuming that demand for oil continues to increase indefinitely, an oil crash is inevitable. I doubt that premise, though.)

    Oil is an even better example, since the Alberta Tar Sands projects only exist because the price of oil was high enough to make the initial investment in the infrastructure and higher maintenance cost worth it. If they haven’t made the initial investment back yet, they surely will before that crash … and then all they need is for the price to stay high enough so that they still make profit even with the higher operating costs. Which is quite likely to occur for things that are always in demand like gold and oil.

  • http://verbosestoic.wordpress.com Verbose Stoic

    2-D Man,

    Oh, I have a pretty good idea what you were after, but I wanted you to own your own comments. Since you aren’t brave enough to do so, let me reply anyway:

    You seem to be suggesting that this is a contradiction, but it isn’t. In the first quote, in that context, I was working as if that was a universal assumption: the “wealthy” just sit on their money, and arguing that they don’t. All “wealthy” people do try to follow the advice of not simply sitting on money, but investing it so that it makes more money for them. In the second comment you quoted, Ebonmuse had clarified/modified it to “Well, right NOW they aren’t” which I think I conceded, and then pointed out that, again, they don’t want to do that, so you need to fix what’s wrong that’s making them run to safety instead of simply taking money away from them.

    So, you’re wrong if that was what you meant, and I think it was.

  • 2-D Man

    …which I think I conceded…

    If you really think that, then you’re dumber than a bag of hammers.

  • http://kagerato.net kagerato

    [Verbose Stoic ]: Recall that foreign countries buy U.S. bonds. Their investment is not backed up by the U.S. generated capital (obviously) but by the capital those countries generate. Private companies buy bonds using their own capital. They couldn’t buy the bonds if something hadn’t put it in their accounts in the first place. Thus, the guarantee for those purchases is backed up by capital that is not officially just the U.S. governments. And thus, they want or need it back at the end, which is then backed up by the U.S. generated capital.

    You left out a very important step: the currency exchange. The Treasury will not accept anything other than U.S. dollars to purchase a bond. If any foreign entity wants bonds but doesn’t have spare dollars, it’s forced to pay whatever price is necessary to acquire them from someone who does. When no private entity will negotiate for trade, only the government is left. (It hasn’t happened in the past to my knowledge, but at that point the Treasury is free to refuse to sell.)

    The normal means of international currency exchanges are strongly influenced by governments. If a country really wants to, it can keep its currency artificially strong or weak against others. The more powerful the country, the larger its influence.

    What ordinarily restricts most countries from performing currency manipulations of that sort is the bidirectional trade of goods. Strengthening the currency damages exports, which become artificially expensive to foreign markets. Weakening it damages imports, which are costlier to domestic consumers.

    However, there are cases where a country is primarily an exporter or importer and modifies its currency exchange ratios in the favor of macroeconomic goals. China has notably weakened its currency a great deal compared to where it would otherwise be, simply because its policy makers believe maintaining strong exports is more important than nearly anything else at this time.

    In the most extreme case, a country may do little international trade at all. This was largely true of the United States in the 40s and 50s. Full scale currency manipulations are possible in that context, and the only substantial economic consequence is encouraging or discouraging foreign investment. (There may be political and/or social outrage of some kind, for poorly justified changes.)

    Again, there is nothing “backing” the capital (money). That’s an old truth that became false with time. If a foreign player needs their native currency back for whatever reason, they must once again utilize a currency exchange market. The only exception is if their dollar holdings are unusually strong due to international economic conditions. In which case, it may make more sense to buy goods that can be easily resold later for the desired currency. That’s no different from a short term investment, though, and carries risk that direct exchange does not.

    I think you’re mistaking an effect for a cause. If the U.S. didn’t do this, their currency would devalue. But why? Just ’cause? Why does a currency increase in value if there are bonds against it? Why do countries want to do it if if no one did it all the currencies would stay the same?

    It doesn’t gain or lose value, necessarily, except to the extent that there is differential investment in bonds of certain currencies compared to others. If all currencies were actually equal on the bond markets, there would be no relative change compared to the markets not existing. (There may still be an absolute change, but it represents cross-market inflation and/or differences in unrelated economic activity.)

    I’ve already explained that treasury bonds are a holdover from the gold standard. The reason they still exist and operate is that people want a relatively safe investment in particular currencies to combat inflation. We can’t eliminate inflation in a world where the population continues to grow without reducing the standard of living in unacceptable ways. Furthermore, we can’t get all countries to agree to eliminate their bond markets — it’s a prisoner’s dilemma. If even one large country were to defect, it would grant them a substantial advantage on the international scene and send many rushing to buy their bonds.

    The fact is that trying to pay off the deficit and their debt by flipping numbers is, in fact, not allowed and so can’t be used to solve their problems because of the consequences … including, as is implied from what you said above, the devaluation of their currency which may or may not be a good thing.

    You misunderstand what the social, legal, and political limitations exist for. They exist to protect the rich. We can, in fact, eliminate the debt through inflation or by legal dissolution of the appropriate debts. Both, actually, have been done before. The only thing standing in the way is the power of the rich to influence our methods.

    The point, though, that you still do not understand is that the nominal value of the debt doesn’t mean anything unto itself. It’s just a number. The United States will never need to default on its debts (mostly to itself, by the way) regardless of how high they become. No government with complete control of its own money would need to do so. Any default under such circumstances is, necessarily, either political, legal, or social in its cause.

    Note that if it were really such a huge security or economic concern, we could decide to stop issuing bonds to one or more countries. Though we’d have to stop issuing them to U.S. citizens to really have much of an effect on the Treasury’s additions to the federal debt, which themselves are only a negligible part of the total cause of the yearly deficit.

    What would happen if we stopped issuing treasury bonds entirely? Not much; certainly not economic catastrophe. Countries holding dollars would start switching to other currencies with safe investment opportunity, or they would spend their savings on whatever Americans agreed to sell them. Dollar based debts owed to other countries are no threat to any American, now or in the future. Dollars can only buy things that we agree to sell, at the price we agree to sell at. They have no inherent power because no one is legally obligated to exchange them for anything*.

    * The only exceptions are government recognized debts (typically taxes or loans), which by legal requirement must be payable via dollars. That’s simply by design.

    This concept that we’re placing some kind of burden on future Americans with debts issued now is nonsense. All goods and services produced in the future will be consumed in the future. They cannot be magically sent into the past. Nor can any country force us to sell them anything at any price**.

    ** With the obvious exception of war and military conquest. However, that threat exists from any powerful country regardless of what may or may not be otherwise “owed”. It’s also ludicrous to think at this point in time that any nation is capable of defeating the United States in a conventional war fought on its own soil. We spend more, after all, on the military than our ten strongest ‘threats’ combined. Let’s not even consider the lose-lose scenario of nuclear war.

    The government can, indeed, create as many points as they want … as long as they’re willing to live with each individual point (or dollar) being mostly valueless.

    As I said, meaningful investments ultimately pay for themselves. They don’t generate inflation, especially when there is a large pool of unoccupied labor.

    In any case, even if we are to take moderate inflation (five to nine percent or so) as a premise, that’s only a net detriment if you’re rich and holding a ton of other people’s debts. The vast majority of Americans today would benefit from higher inflation.

    Or, you know, the exact same thing as a loan. Except generally at a lower rate of interest. And it’s not like the government doesn’t have any of those, right? Or are you going to deny that? And if they have things that look like or are loans, then they must be using it for something, right? Are you really asking why a government would need revenue?

    From the perspective of the private citizen, yes, it looks a lot as though they are loaning the government money. However, the facts I mentioned are nonetheless the facts. The money is held privately and is never spent on anything. The interest is paid out of thin air. Bonds have no proper deflationary pressure, just the opposite in the long term.

    Please do go read materials written by current or former Treasury and Federal Reserve officials, or at least an economist who understands how those institutions work today. Taxes truly do exist to exert deflationary pressure, create domestic demand for money, and serve political goals. That’s it. The federal government doesn’t need revenue to spend, and if that were the case the economy would have collapsed decades ago.

    During the Civil War, the government and economy operated primarily on issues of new money (greenbacks). Despite four years of intensely destructive war, prices only rose to twice what they were before and the economy did not, in fact, collapse. Taxes were weak to non-existent during the time (there were no federal income, estate, property, or sales taxes). If we had enforced the gold standard rates during that period, a funding and banking crisis would have been certain.

    War spending and its effects on employment and growth is the singular example which disproves much of classical economics.

    And yet … governments when they budget count revenues including tax revenues, and the difference between that and their expenditures is the deficit or surplus. So, the IRS claims that the government got that revenue, even if they don’t put it anywhere. I am not a tax expert, but the only reason for them to do that is if they already counted it somewhere and then putting it in an account would mean they count it again.

    The accounting of deficit or surplus is done for other purposes than needing money to spend. As to the latter, claiming that it would be double counting to deposit tax money is ludicrous on its face. That’s equivalent to saying deducting your private purchase from your account but failing to deposit it at the seller’s is double counting.

    Taxes remove money from the economy. That’s a fact.

    I’m not going to delve much further into microeconomics on gold and oil. Suffice it to say there is no gold rush because the costs exceed the profits. There is an oil rush, but it’s roughly analogous to the 1840s and within the next few decades oil will be in the same boat as gold. That is, if demand for oil actually holds up that long.

  • http://theotherweirdo.wordpress.com The Other Weirdo

    Any person who believes that prayer is a viable method of dealing with a drought, or indeed with any problem of the real world is only one step removed from suggesting that to get a bumper crop this year we should sacrifice a few virgins to the Sun God.


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