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Comment by PaulDavisThe1st | Hacker News Reader

We owe a bit more than 1 year's GDP.

Most families that own a house owe substantially more than 1 year's income.

Last time we reduced the annual deficit to zero, the usual debt hawks all reversed their position and said "this is terrible". We've demonstrated in my lifetime that we can do this. The fact that "we" don't want to right now has more to do with Republican attitudes towards taxation than anything else.

MMT says we don't need to think about this the way we think about personal and corporate debt.

It's not that there's nothing to see here, but the sky is not falling.

Now, the stock market overvaluation ... that could be a real problem, but not the same problem.

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Comparing a government's debt to its GDP is like comparing a couple's debt to their employers' total revenues. The country's government doesn't own all its residents' property, and is usually unable take their income streams.

MMT says a lot of things, but people only seem to follow it when convenient.

Comparing debt to GDP is very much mainstream economics, not MMT.

https://en.wikipedia.org/wiki/Debt-to-GDP_ratio

> is usually unable take their income streams

It takes a percentage of that, through taxes.

https://en.wikipedia.org/wiki/List_of_sovereign_states_by_ta...

Comparing debt to GDP is mainstream economics, but it's very much different from the analogy of homeowners debts and their salaries. The proper analogy there would be government revenues, not GDP.

The government doesn't owe the debt, we the people do. We authorized & enabled the government to incur that debt on our behalf.

This is pretty non-mainstream macroeconomic point of view. It did not correspond to reality when latest sovereign debt default occurred in Greece.

Then it was government, foreign banks who bought the debt and European Central Bank who was on the hook for restructuring, not citizens or general public.

Who was on the hook for the effects of the debt restructuring deal?

> Comparing a government's debt to its GDP is like comparing a couple's debt to their employers' total revenues.

No. It's more like comparing a merchant's debts to the value of the turnover of their inventory. Sure, their revenue isn't the same as their income, but their income tends to be proportional to their revenue. Similarly, while GDP isn't representative of federal income, because most federal income is derived from taxation of activities that contribute to GDP, they tend to be closely correlated. Per Hauser's Law (https://en.wikipedia.org/wiki/Hauser%27s_law), federal tax revenues have been roughly consistent with 20% of the GDP. Since increasing the share the government extracts from the economy produces net drag on the economy, you don't want to get in to a situation where you have to increase that ratio significantly without a dramatic change in what the federal government puts back in to the economy (which also generally doesn't happen).

So yeah, the experts who look at debt to GDP ratios aren't crazy.

The debt is owed by us, the American people. Thus we compare to the total (economic) resources available to us, the American people.

That's not true, it's not like if the US defaults you become personally liable.

We're more like shareholders, and they are never debtors.

"We the American people" is the corporation.

>That's not true, it's not like if the US defaults you become personally liable.

Citizens might not become "personally liable" in a legal sense, but they get similar consequences, reduction in wealth, poverty increase, etc, that somebody "personally liable" for their personal debt would get.

A country wide failure of economy can be even more devastating to individuals than some personal debt they default on.

Except it can. The way it does that is by printing and taxing. Both can be used to pay debt and are "taking income streams" / "seizing property" in disguise.

>Comparing a government's debt to its GDP is like comparing a couple's debt to their employers' total revenues. The country's government doesn't own all its residents' property, and is usually unable take their income streams.

Doesn't matter, since it's a relative comparison, not an absolute one.

And as a proxy of the severity of the issue it's good. The government might not take "all its residents' property, and is usually unable take their income streams", but getting part of those is exactly where it gets the money to pay the debt (plus printing money, with its own side-effects).

MMT basically says "its ok, we can just print more money". How did that work for Venuzuela? Lets see... 1.00 US Dollar = 3,615,588.83 Venezuelan Bolívares. The 6 inch thick stack of currency required to buy a roll of toilet paper would be more efficient than the toilet paper. Printing more money just devalues the work product of everyone before that. Republican attitudes about tax? Surely you jest.

MMT works well, if exporters want to swap their real assets (commodities, food, chips, metals, labor) with US dollars (nominal). No one wants to export their real stuff to Venezuela unless the latter pays in US dollars.

Don't know why you're being down voted, it's widely accepted that it only really works for currencies that are reserve currency status. It could also work if you were entirely self-sufficient with no exports/imports. All on the proviso that humans are quick to react to inflation, using perfect information, which we're not and which we don't have.

It works for all currencies. Some currencies have higher savings rates than other currencies.

The problem is calling that saving 'debt' and then catastrophising about it.

Most countries are not self-sufficient and do export/import and many countries are not able to issue debt in their own currencies.

So what? You can only import what you can export. In a floating system that swaps the currencies around just fine.

Draw it out and do the balance sheets. Local importers end up paying the local currency costs of exporters.

IIUC, it works for all currencies that are coupled to the economic and political policy making process. It does not work when the currency value is controlled to any significant degree by parties outside that process. These are sometimes called "sovereign currencies", and US dollar is one example thereof.

Except this is the exact opposite of what MMT says? Since MMT is such a boogeyman nowadays and people on the internet can't agree on a single definition, lets take the wikipedia article explaining it (2 seconds of research you didn't do before posting).

https://en.wikipedia.org/wiki/Modern_monetary_theory

"Is limited in its money creation and purchases only by inflation, which accelerates once the real resources (labour, capital and natural resources) of the economy are utilized at full employment"

The whole point of MMT is simply that the painting is not the item, and money is not value, money is a representation of value and that it's inherently worthless. IE, if you suddenly taxed away 50% of everyone's dollars and cut all dollar-denominated debt by 50%, literally nothing would change except that people would need to get used to new prices being half of what they were.

What MMT says is that printing and taxing are just wealth distribution under the assumption that humans are rational and can adjust to new prices quickly. The issue and all complications are

1. Rebasing all forms of currency including weird things like dollar denominated debt, sovereign reserves, stocks etc is hard.

2. Human's aren't rational and will be mad if you suddenly halve the value of their dollar even if in real terms nothing has changed for them b/c government handouts or whatever.

That's not what MMT basically says.

MMT is more like: "printing money is not limited by the things you think it is".

MMT is more about the fact that money isn't some alien artifact but is created by a government that needs to credibly demonstrate that the money it issued is needed for tax payments.

If that credibility is lost, for example, by creating more money than it intends to tax, then you will see inflation.

> We owe a bit more than 1 year's GDP.

And who is this money owed to?

$24T is owed to US domestic entities, while $7T is foreign owned:

* https://usafacts.org/articles/which-countries-own-the-most-u...

Americans are mostly paying money to themselves.

I might be completely off but wouldn’t having more foreign owned debt be better since America can just say “we won’t pay that” and nobody has the power to collect? The military can always just crush whomever disagrees.

> MMT says we don't need to think about this the way we think about personal and corporate debt.

I thought the recent inflation surge has debunked MMT (something which I almost bought, myself). Or is that not enough inflation?

Where do you see the contradiction here? MMT says that government spending and money creation are two sides of the same coin, and the practical limit for both is inflation.

Whether you agree with that identity or not, we've certainly seen a lot of both during the pandemic (government subsidies, tax breaks etc.), which is where the current inflation pretty uncontroversially originates.

> Last time we reduced the annual deficit to zero, the usual debt hawks all reversed their position and said "this is terrible".

(Side: You’re likely referring to the 90s during Clinton’s administration) Reducing the deficit to 0 barely means anything when the overall debt is high. Besides, for your family example, it’s all well and good but families do not have to be concerned about the valuation of an international currency that they’re basing their borrowing off of.

(Couldn’t edit my previous sibling comment as it is out of the edit period)

> We owe a bit more than 1 year's GDP.

> Most families that own a house owe substantially more than 1 year's income.

Minor nitpick: A country’s income is not the GDP but rather the tax revenue collection. The US federal tax revenue is around $4.5T as of last year, which is just about 20% of the US’s GDP.

> The fact that "we" don't want to right now has more to do with Republican attitudes towards taxation than anything else.

No, it has just as much to do with Democrat attitudes towards spending. You're right that the Republicans are partly to blame. But to balance a budget requires cutting spending as much as, if not more than, increasing revenues. The problem is that ~everyone thinks using their preferred approach ("just raise taxes"/"just cut spending") is more important than getting the budget balanced, so they are unwilling to compromise. And the American people get the shaft, as ever.

A lot of Democrats (not all, for sure) would be very happy to massively cut defense expenditure, which is a vast slice of federal expenditure.

Alas, that has two problems: (1) US military spending is our own national version of socialism, in which we prop up communities by providing massive state subsidies, along with housing, healthcare, education and more to a large group of people (2) because of (1), it is hard to convince elected representatives to cut these expenditures because of the very real and direct impact they will have on their communities.

Although both D & R representatives experience the above somewhat equally, there is some imbalance in the relationship between D & R representatives and the military-industrial complex, and that leads to us to a situation where cutting these expenditures is even more difficult than it would be if the only factors were 1+2 above.

The active duty military vote is not actually a solid republican voting block, contrary to popular belief: in 2020, they swung +8 for Biden [1]. It’s the veterans who are solidly (2/3) conservative, currently, but even that’s lessening [2].

Unfortunately I don’t think a majority of either party wants to reign in military spending, considering every admin including Obama and Biden has increased it since Carter, even though likely granting such a blank check is financially irresponsible (i.e. trillions unaccounted for in budget audits [3]). Both parties just want to please that bloc of votes, because it also has ripple effects on the rest of the nation’s votes to be seen as “good on military”.

I personally think our military could be just as effective if we tightened the wallet, but I don’t think either party actually wants to.

[1] https://www.economist.com/united-states/2021/10/14/military-... and https://www.nbcnews.com/think/amp/ncna1245542

[2] https://news.gallup.com/poll/118684/military-veterans-ages-t... (2009, but the trend has only gotten deeper)

[3] https://www.reuters.com/world/us/pentagon-fails-audit-sixth-...

Just to be clear, I wasn't for a moment suggesting that the military itself is a solid R (or D) voting bloc.

What is true, however, is the most (not all) communities with a functioning US military base close by is a solid voting bloc for NOT cutting military expenditures, at least not insofar as they could lead to base closures (and specifically, their base).

The Democrats were much more interested in cutting military budgets until, you know, all that fun with Russia... and China... and Israel. We are very quickly remembering why we spend so much.

The American military budget is mostly the "America guarantees everyone can do business with anyone else (but mostly America) so that we can be very wealthy" budget. Remember that we built and sailed the Great White Fleet before world war 1.

Cutting military alone wouldn't fix anything.

Everybody has their own pet issues they want to cut.

The reality is only broad taxes on the middle class or massive social spending can really change the long term situation.

Not that cutting military spending wouldn't be smart.

There are a lot of Ron Swansons out there, who simultaneously decry big government and make their living directly from government spending.

> The reality is only broad taxes on the middle class or massive social spending can really change the long term situation.

Why the middle class, which has mostly been taxed into not existing? How about the upper class? As Warren Buffett says, they've won the class war, and gone a bit far with it. The lower classes are being depleted of their productivity through a kind of tragedy of the commons as they're relentlessly squeezed from above.

>Why the middle class, which has mostly been taxed into not existing?

Because that's not how the American middle class died? The American middle class died when upper management sold your solid career to the Chinese for a quick buck, and spent all the windfall on enriching themselves for decades. It's amazing you cite Warren Buffet while saying that, who commonly calls for higher taxes on the wealthy.

> It's amazing you cite Warren Buffet while saying that, who commonly calls for higher taxes on the wealthy.

From what I can tell you misread my post.

> Why the middle class, which has mostly been taxed into not existing?

With middle class I mean the population at large.

> How about the upper class?

Again, because it simply doesn't work. Its a leftist fantasy to 'tax the billionaires' or 'tax the top 1%'.

Yes of course you can make the tax progressive and collect more from those groups. But that simply want get it done.

This is my point. Everybody has their pet peeve, their pet group or whatever. But that's simply not realistic.

The only thing that can balance the budget are either broad taxes on most of the population, or massive cuts in social spending. Yes, you might not like it, but its true anyway.

> As Warren Buffett says

Buffett can say whatever he likes, it doesn't change the numbers.

Go on the most extreme socialist tax the rich spree, eliminate billionaires take all their wealth. Have fun. Then add lots of new taxes for the Top 10%, have fun.

All of that helps, but doesn't change the fundamentals.

You simply can't have large European welfare state and not have much of the population to pay for it. And the US has such a large welfare state in terms of what they pay, even if not in the outcome.

Most of this I do not disagree with this, but the fact that you do not even mention cuts in defense spending stands out to me. It may be "unrealistic", but then so are cuts to social security, medicare and medicaid.

Defense spending is not just a "pet peeve". We spend more on national defense than China, Russia, India, Saudi Arabia, United Kingdom, Germany, France, South Korea, Japan, and Ukraine — combined. There is ample scope to reduce our defense spending by massive amounts without threatening our national security.

You're really not accounting for scale. My pet peeve is the US military, your pet peeve (might be) subsidized cell phone service for low income people. One of these things is not like the other.

Again. Yes, some people have dumb theories. And yes, military is one of the best places to cut. The point still stands, you simply, can't get there with just military cuts.

Not just ... perhaps. But this is a major part of the puzzle.

Meanwhile, sure I support higher taxes on the middle class up (but MUCH higher taxes on the top 10% and MUCH MUCH higher taxes on the top 1% and above).

That needs to be coupled to a clear vision of what people are going to get as a result.

>would be very happy to massively cut defense expenditure, which is a vast slice of federal expenditure.

Just to undersocre two details that are often forgotten in discussions about how huge the U.S military budget is:

1st: as a percentage of GDP per capita, the U.S. spends less than at least two other countries and only moderately more than several others that aren't normally considered war-loving. (Singapore and Qatar for example).

2nd and more important: Of the total U.S. federal budget, military spending is far from the largest single outlay. Social services in the form of health services in general, social security, income security and medicare in particular take up much, much more Together any one of them (except medicare but smaller only by a tiny margin) is larger than the total defense budget, in some of those cases by a huge margin. Hell, even the total federal education budget for 2023 was nearly the size of the total defense budget.

Overall, of the total 6.3 trillion federal budget for 2023 at least, military spending accounted for just over 10%. A lot for a country as rich as the U.S. but not to the scale implied by a a lot of hyperbole.

Our taxes cover entitlements, military, and debt. That's it. Everything else is coming from the deficit. The Republicans have cut taxes to an unsustainable level. No matter how big or small the rest of the government is, the tax base is too low to support it.

> have cut taxes to an unsustainable level

Something like half of every dollar I make gets swallowed up by taxes of some sort, either directly or indirectly (by making products and services more expensive). A good portion of it just to fuck around in foreign countries against my wishes. How much more should they take?

I make about $120k/year. I have to pay taxes quarterly, since my income comes from my software business. I pay a total of 22.6% of my monthly income in federal and state (NM) taxes, and that currently nets me a significant refund every year since the TCJA ("Trump tax cuts").

So that's almost a quarter. Does that include social security and medicare?

Now what about property taxes (or your landlords property taxes if that's the case, which just goes onto your rent)? Sales taxes? Gas taxes? Alcohol and cigarette taxes? Any of 100 other taxes?

If you aren't brave enough to take on the tax code yourself, how much do you have to waste on accounting services so you don't wind up making a mistake that costs you even more?

Beyond that, what about all the taxes that come indirectly to you through the prices of everything you buy?

And while not technically a tax, every dollar you make is slowly eroded away by inflation.

That includes social security and medicare (as self-employment tax)

Property tax: $2200/yr Sales tax: hard to say, local rates are in the 5% range

I do my own taxes, have done every year since I moved to the USA 35 years ago.

I don't really have time for this over-generalized argument about "they tax everything", least of all when you try to bring inflation into it.

Just to be clear, I'm not claiming nothing should be taxed. My point is that people often look at their federal income tax rate and think thats the whole story, when it's not even close.

New mexico is a middle of the road state when it comes to taxes (https://taxfoundation.org/data/all/state/tax-burden-by-state...), so that lowers yours a little bit. Mine is on the higher end of that.

Maybe you don't find the argument that taxes increases your costs in other ways compelling, though I don't see how. I think the usual objection to that is "well its worth it", which could be true, but it should show up in an accurate accounting.

I'd argue the same for inflation (this isn't some novel argument on my part https://en.m.wikipedia.org/wiki/Seigniorage#Seigniorage_as_a...).

I guess back to the original question though. If you're convinced your total tax burden is 22.5%, how much more would you like to have taken?

Most of the tax cuts have benefited the "rich" than the average Joe.

> A good portion of it just to fuck around in foreign countries against my wishes. How much more should they take?

Well, if we defunded the military 100% and let the world order go to shit and that's exactly how you want it then we'd still need to raise taxes to cover our deficit.

So go ahead and vilify the military all you want, it's your right. But at least be aware that getting rid of the military is not going to solve the issue.

I think you're reading things in my comment that I didn't put there.

Take a look at Zeihan's video where he shows in a graph how US debt level compares to other major economies. https://youtu.be/mcZPOuI-vcU?t=939. US is in the middle of the pack. US is going to be ok.

Also, watch until 20:38. You will see how screwed up some countries are when it comes to debt.

I started watching and couldn't stop until the end. Now the only question I have is how much should I believe Zeihan? He makes a lot of bold assertions, what's his track record?

That's a valid question. He does have videos where he just speaks off top of his head, and I prefer the ones where he has charts and numbers that he speaks to. If you don't believe his charts and numbers, find ones online that you believe.

I do think someone who can hold that much minute, dry details in his brain and can cross reference them is going to be smarter than most of us. He does after all consult for major corporations and the U.S government.

Yeah, he sounds very smart and pieces a lot of things together, but in a very assertive way. For example he goes on to talk about how gas is used only in the butadien petrochemical vertical but could displace oil verticals and have competitive advantage over other countries. That's cool as a theory, but really isn't a commoditized market a more likely scenario in a capitalist global economy? If I'm Mr. Gas I'm going to sell my LNG at a higher price abroad instead of selling it for the same in the US for others to make a profit instead

> That's cool as a theory, but really isn't a commoditized market a more likely scenario in a capitalist global economy?

Zeihan’s thesis is that the global economy is no longer global because the US is no longer interested in being the world police patrolling the shipping lane. That is, “the end of globalization and Bretton Woods.”

https://www.whitehouse.gov/briefing-room/statements-releases...

Zeihan is informed and generally right, better than 95% of sources. However, there are certain things he will get wrong imo, such as details and a certain siding of the Nagorno-Karabakh conflict, and portraying Navalny as far more militarily hawkish than he is.

I’ve personally disliked Zeihans gung-ho rants about how everyone is nothing without the US but I do have to say, he has nailed the China issues pretty well, him and Kyle Bass.

Not great. His predictions for the outcome of the Ukraine/Russia war were way off, and I haven't seen a mea culpa video for that just yet. There's a good debate between him and Ian Bremmer somewhere that highlights the flaws in Zeihan's thinking. I don't know what his motive is, probably likes, subscribes, money, etc.

https://www.youtube.com/watch?v=ZqsVR9Hl2oQ&t=482s

I listened to this discussion and Bremmer and Zeihan agreed more than they disagreed. What 'flaws' are you referring to?

> US is going to be ok.

Or, alternatively, US and a bunch of other countries are not going to be ok.

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