Lowering the cost of debt is still a good idea, but let’s not pretend we are in a fiscally sound situation.
Only if the government is running a surplus, and the tax cuts are less than the size of the surplus.
When the government is running a deficit, any tax cut results in additional debt, the financing of which is paid for by future taxpayers. So yes, in this case (running a deficit) there are measurable costs associated with tax breaks.
That also means it will be a future generation that eventually has to pay for those tax cuts.
It's less a tax break and more like vulturing public money to pay off their friends and maybe buy some more votes. Unsubsidized tax breaks of this nature, by these people, for their stated reasons over the last 40 years are really just ripping off the entire American public and funneling it to the likes of Betsy Devos' family, and the Koch brothers, and the Mercers. And obviously Trump himself has been dipping his beak in it, any way he possibly can. A better man would do everything in his power to avoid even the appearance of corruption, but he has been utterly shameless about it. Example: raising the fees for Mar-a-lago membership from $100k to $200k at the same time as he became president. I believe they are $500k now. That makes a lot of sense, I'm sure there's nothing weird going on there and that's just a totally normal thing to happen in plain sight.
But seriously, it sure as hell looks like base corruption to me, nothing high-minded or philosophical about it. The Austrian economic philosophies used to justify the whole R fetish for unfunded tax cuts were the economic equivalent of healing crystals and magnetic bracelets 40 years ago, never mind now. Now it's just embarrassing to see anyone making these claims. Especially the whole notion that it is somehow fiscally conservative to have huge unfunded tax cuts, because cutting taxes will magically increase tax revenue by fueling growth. They may as well change their platform to, if elected they promise to be really good boys and girls and will donate the additional gifts from Santa to the IRS, thereby offsetting the huge transfer of public funds to their donor class.
Of course there are no shortage of people who think of themselves as smarter than average (and unburdened by weaknesses like empathy, or feelings of great responsibility towards their fellow citizens) might excuse it as a "starve the beast" scheme, but if anything that's even more idiotic. "Starve the beast" is a shitty excuse for passing the buck in the shittiest way possible, when all you really want to do is take a bunch of everyone's money and give it to yourself and your donor class. It is such a weak excuse, and is especially feeble when it's used in the name of some brand of fiscal conservatism.
I remember a comedian in the '90s fondly describing Republican politicians as, more than anything else, "mean old men who will guard your money". Like, sometimes you need that- you need people who will make it a priority to guard public money tooth and nail, and fight to lower taxes and let people keep more of their money. I don't know if I would vote for that person, but I get it, and for most of my life at least that's how they've unapologetically presented themselves. And I kinda get it, there's a need for fiscal watchdogs like that in the government. They're still using a lot of the same words that they did in the '80s and '90s, but they have never been more hollow, or used to this degree to defend what appears to be the diametric opposite of their fiscally conservative claims: bankrupting the government and paying off their donors and trying to brush it off as some noble act that somehow increases freedom and prosperity for all of America.
There's nothing wrong with consumption. Consumption is what drives the US economy and makes it the powerhouse that it is. The American consumer is what is keeping the US out of a recession while export-driven economies like Germany are heading into recession.
The problem with our fiscal policy was that the tax cuts passed by Trump almost exclusively went to the richest people who have a low MPC (marginal propensity to consume). There's nothing wrong with expanding the deficits, the US doesn't need to worry about debt and the falling bond yields confirms that. But that fiscal spending should have been targeted at the poorest people in America. It should have been to give them universal health care or free higher education, not cutting corporate taxes.
In times like this the public sector must intervene to frame the future for it's citizens and economy: focus on the health and education of your citizens, mitigate future risk by funding solutions to climate change, secure safety by spending on military and providing equal opportunity to quell internal social unrest.
If you have strong instutions and control the currency that your debt is in (US, UK, Japan, China -- as long as the communist party maintains its current strength) this is the way to go, globalization will take a hit but will cycle back in the future.
What's really wealth generating is investing in things that fuel long term productivity growth at a higher rate than the cost - education, automation, useful infrastructure (here's looking at you, Chinese ghost cities), tools/machinery, and R&D. Everyone buying TVs is the complete opposite, yet it would show up as a short term boost to the GDP.
You mentioned China, but that's a perfect example of an economy that isn't driven by consumption. And they desperately want it to be. China is extremely reliant on exports and state-driven infrastructure spending. If there was actual domestic demand for everything they produce they'd be in a much better spot and that infrastructure would actually be utilized.
They're reliant on exports and state-driven infrastructure spending because they're not yet wealthy, per capita. It's the stored wealth that allows a consumption-driven economy, not the other way around.
EDIT: Here's a pretty good overview of debt cycles, and when debt helps/doesn't: https://www.youtube.com/watch?v=PHe0bXAIuk0 Or if you have more time to devote to the subject: https://www.amazon.com/Big-Debt-Crises-Ray-Dalio-ebook/dp/B0...
EDIT 2: When I say "stored wealth", I don't mean the amounts in normal peoples' savings accounts, but the productive capital of the country - land, businesses, infrastructure.
Counter intuitively this creates huge downward pressures on property values as boomers move or die off.
For example investments have two sides the saver (who loans the money) and the borrower for the building, infrastructure, factory, etc. Normally the interest rate can be raised to encourage saving and discourage investment, or lowered to discourage saving and encourage investment.
But what if the interest rate is already low, and companies still don't want to invest? Then you are limited by the amount of credit-worthy investment opportunities and not the savings. You could lower real interest rates to be negative, but do you really want to pursue investments with a negative yield?
In that case, turning some of those excess savings into consumption would help things move along. There already was more than enough savings, so that wasn't limiting investment. And the increased demand will stimulate the need for more buildings, factories, etc, and provide more opportunities for companies to invest (borrow) again.
China has wanted to lower its saving rate somewhat - they've used the government to build out infrastructure and real estate at a tremendous rate, but it's unlikely that they will be able to find enough infrastructure investments (that are actually good investments, with positive returns) to keep going at the same pace forever.
Interest rates are pretty low right now, and companies are accumulating huge cash balances (rather than investing) so the idea for more consumption to increase investment opportunities doesn't seem too crazy. But if such a thing were to be attempted maybe it would be better to use tax policy or other means rather than increasing the debt indefinitely.
The best way to help poor people is to lower the minimum wage so they can get jobs.
Subsidizing the poor increases consumption which is bad not only for the first order effect (throwing away money)... but also for the little thought of second order effect: it incentivizes people to build businesses that cater to consumption that was in the first place unsustainable. Smart people that could have been doing something else instead facilitate the creation of businesses that are only funded by inflation and cheap credit.
This is the story of the US economy in the past 30 years. The two largest disasters in recent history: the student loan bubble and the housing bubble, were both founded upon the notion that we should “give money away” without any real measurement of whether or not there would be a return on capital.
Our government should invest the majority of capital in basic research, healthcare, education and infrastructure... not the creation of a consumption driven bloated welfare state.
Libertarian fantasy must be a pretty dull medium. Always the same story.
People go to HN to avoid discourse like this :(
In the case of student loans, they should have come with restrictions on increases in admin costs at the college as tuition has inordinately increased. In terms of the housing crisis, do not discount the role of predatory lending by institutions that used to engender trust. I find your position to ignore context and subtelty, and to propogate myths about poverty and the impoverished as primarily being the result of a meritocracy.
Raising the minimum wage can have a negative effect on jobs, but unless it's hard to find minimum wage jobs right now, I don't see what lowering the minimum wage will achieve. Also there's labor force participation to consider - if unskilled jobs are too low paying, some people at the margins will choose not to participate (for example, by living with their parents).
> Subsidizing the poor increases consumption which is bad not only for the first order effect (throwing away money)... but also for the little thought of second order effect: it incentivizes people to build businesses that cater to consumption that was in the first place unsustainable.
> Our government should invest the majority of capital in basic research, healthcare, education and infrastructure
Consumption funded by debt may be bad, but I wouldn't suggest that consumption (in other words, having a consumer-driven economy) is throwing away money. Many goods that people spend their own money on (consumer electronics, cars, clothing, etc) have competitive markets with reasonable prices and/or steady improvements. On the contrary to throwing away money, it seems pretty efficient at delivering utility. Especially when compared to recent trends in healthcare, education, and infrastructure.
I agree with some of the other comments that productivity determines the long-run living standards of a country, and that consumption is not investment and it may be a bad idea to finance it with debt. But I don't think the answer is to reduce people's ability to consume goods & services, but rather to enable doing it in a sustainable way.
The modern American consumer is only in debt because debt is so easy to obtain, not because his wages are too low to survive.
Visit Latin America or Asia where there throngs of people much happier and healthier on far less. The welfare state makes the familial structure unnecessary in America — I won’t comment on this. But it is a third order effect even more deeply troubling than the economic ones I highlighted earlier.
I can agree maybe broadly that there are social trends in the US that are contributing to people being unhappy, but I don't think lowering the minimum wage will put that particular cat back in that particular bag. And besides, is it really minimum wage workers, of all people, who are lazy and entitled? Most minimum wage jobs are not particularly pleasant and you just have to do the work and put up with it, and you aren't showered with free food, high salaries and other perks. Do other countries where entry-level workers have it better have more social problems?
I suppose maybe they are entitled compared to some third-world countries. What does that make a tech worker then? We complain about the free food not infrequently.
I think attempting to blanket punish people who are willing to work but don't have valuable skills in the global labor market, will only backfire politically, and probably deservedly so.
The real problem came from cheap consumer credit... everything in our economy is built around the existence of such credit. Consumers are conditioned and targeted to consume and borrow. Full stop.
Same thing happened with education — 4 years of productive time were siphoned towards college degrees that didn’t mean much.
This is the gutting of the middle class... not fiscal conservatism.
I'd also point to globalization and technological changes - unskilled labor is less valuable when there's more supply from automation and outsourcing. And technology has enabled more consolidation even on the nation level - it's now easier for one company to service the entire market; think Amazon vs local shops, or Uber vs local taxi companies. Better communication and transport joins many local markets into one big market and creates fewer, bigger winners.
Land use policies probably have something to do with it too. Historically in the US people have moved from place to place for economic opportunities as new industries developed. But doing new urban development is more difficult than it used to be and supply is added very slowly. The areas with the most global companies and economic opportunities are mostly a handful of cities, but the cost has become prohibitive for new entrants that aren't skilled professionals (despite there being plenty of regular jobs available with higher wages). And of course the people already living there get squeezed too.
In particular, it elevates rent seeking over productive risk taking.