Comment by diogenes_atx | Hacker News Reader

Comment by diogenes_atx | Hacker News Reader

All the great Western hegemonic powers have used public debt to finance the requirements and ambitions of the state. This was true of Spain in the sixteenth century, Holland in the seventeenth century, England at the height of its power during the eighteenth and nineteenth centuries, and the USA since World War II [1]. Public debt finance is a force multiplier that enables the government to undertake far greater civilian and military projects than it could otherwise achieve. Everyone knows this, including the people who are running the U.S. Treasury and the Federal Reserve.

As a percentage of GDP, government debt is high by historical standards, and it is rising at a fairly rapid pace. That could be a problem if it continues unabated. But there are two solutions: reduce spending and/or raise taxes. Most U.S. federal expenditure goes toward either defense, entitlements or interest on the debt, so it seems unlikely that spending will fall very much. That means higher taxes. At some point, the country will need to find a political reformer who can sell tax increases to the electorate. Until then, the crisis just continues to quietly grow.

[1] Giovanni Arrighi (1994) The Long Twentieth Century: Money, Power and the Origins of Our Times

https://www.amazon.com/Long-Twentieth-Century-Money-Origins/...

Third solution is "taxation through inflation" in which the official inflation is 4%, the unofficial one is 10%, interest rates kept low, and over a few decades the debt gets nominally trimmed down against a nominally rising GDP. Real GDP growth will even accelerate this. Owners of assets that are not real-inflation protected (such as the debt owners) see their asset value go down ; people who have no net equity see their salary go up, but only in nominal value ; people who hold real-inflation protected assets that also distribute dividends are the winners in this.

> But there are two solutions: reduce spending and/or raise taxes.

there are other solutions, that are more convenient politically than austerity:

- productivity boost

- higher nominal growth through inflation

- financial repression

and in theory there is also the option of defaulting

"Austerity" is a red herring. I mean let's be serious, every option is austerity for someone...

Cutting spending, means those who would have received that debt spending take a loss (perhaps their job). Raising taxes means taxpayers pay. Raising productivity or inflating the debt means the young and laborers shoulder most of the burden. Financial repression means capital owners pay. Defaulting means bond holders pay.

This is what people who argue the debt doesn't matter don't understand. Sure it doesn't matter in the sense that we could always just roll the debt forward, and continue to make future generations pay. Just as it's possible to choose over and over again to wine and dine at someone else's expense, against their will.

No the debt always matters, because, it's a matter over who gets to benefit and who has to pay.

That framing makes it sound like high defense and welfare spending are laws of physics, impassable mountains you just have to navigate around. They aren't, they're very specific political choices that can be changed quickly and easily once the will is there. If you're going to pin your hope on a "political reformer" who can "sell" to the electorate, you'd do better to hope for one that can sell lower entitlements and defense spending.

In reality changing defence and welfare spending is pretty hard here in the UK. Most of the welfare budget is spent on pensioners, who vote in droves. And defence spending is non-negotiable and in fact needs to be greatly increased if we're not to get rolled over by Russia. There's no amount of will that can help.

I mean, the UK isn't in danger of invasion by Russia. Even Finland barely is. Ukraine is currently invaded and Russia seems to be a bit stuck in the mud.

The UKs threat from adversarys is nuclear, nearly nothing else.

Now the threats to the UKs interests abroad are larger and may necessitate a large military, of course.

I can understand being afraid of the Russians up until about 2025, but now that we've seen how they perform in a large war (alternative, now that we know that the state of the art in war has swing to favor the defending side) I don't get the fear.

The conventional wisdom is that the Cold War ended in 1991. George Friedman prefers to put the end of the Cold War in 2024 or 2025 when it became common knowledge that the Russians just didn't have much military strength.

Before Feb 2022 we didn't have any conclusive way to determine its strength, so a prudent military strategy would have been to assume that the Russian military was strong -- until 2024 or 2025, when a well-run country in Europe would have realized that it is safe to lower its defense spending (except Ukraine of course and to a lesser extent Moldova, Georgia and maybe the Baltic states and Finland).

>As a percentage of GDP, government debt is high by historical standards

I think this means: GDP === Debt not seen since WWII?

I mean true, that is high by historical standards, but also seems slightly not like the other times in past years when people said it's a bit high by historical standards.

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