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Comment by nhaehnle | Hacker News Reader

The truly positive contribution of a federal government (besides the questionable benefit of military protection) comes in the form of automatic stabilizers for the economy.

When there is a shock to the economy, social safety nets dampen the pain significantly. Local and state governments would never be able to provide a reliable social safety net, because they have to operate on the same principles as every other user of a currency. The federal government can operate on the principles of an issuer of the currency. That is a big difference.

In fact, you can see this difference play out in slow motion in the Eurozone, which still has not recovered from the financial crisis. Things would have played out very different had their been a Eurozone federal government that provides at least the basic components of the social safety nets.

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This is basically argumentation by story. You told one of many possible stories as if it was obviously and indisputably true. You provided no support for it. What about all the other plausible stories that you ignored?

What if these "stabilizers" (i.e. money creation) are doing more harm than good, or even causing the business cycle? What if social safety hammocks decrease growth? What if welfare provided by prudent local governments through savings, or even private means, are sufficient? What if there are a ton of differences between the Europe and America other than the Federal Reserve?

And argumentation by loaded, leading questions is better because...?

I'm not arguing the position, I was providing a few examples where people can reasonably disagree with the story that was presented as obvious and definitive and educational.

Fact 1: Government current expenditures directly contribute $5.621 trillion out of $16.6 trillion of US GDP.

http://research.stlouisfed.org/fred2/series/W022RC1A027NBEA?... http://research.stlouisfed.org/fred2/series/GDP

Fact 2: State and municipal governments have subsidized borrowing costs via the federal tax exemption. I don't know where you live, but are your state and local governments borrowers? What about the road money from the Federal Government?

Fact 3: Private savings come from public deficits

http://research.stlouisfed.org/fred2/graph/?g=mzu

What if, what if, what if...

Well, you will discover in due time what all of this nets out to and no one will enjoy it. The forces of deflation are far mightier than the forces of inflation for inflation requires persistent and exponentially increasing consumption, fueled by net-borrowing of the combined public and private worlds.

As it turns out, the zombie apocalypse isn't triggered by an infectious disease or rapidly mutating virus. Instead, it's capital destruction via chaining debt defaults.

The fact that you equate economic stabilizers with money creation strongly suggests that you are not interested in genuine discussion. If you seriously believe that equating those two things is in any way reasonable, then believe me, you're just confused - and if you are genuinely interested in learning more, holler (but it might take a while for me to respond in detail because I'm traveling).

One important point though is that welfare provided by local governments cannot be sufficient. Local governments are entirely dependent on tax revenue and the goodwill of creditors. If a local government is hit badly enough by an economic crisis, they will be unable to continue providing this welfare.

This is especially true if other local governments in the same currency zone are less badly hit by the crisis. In this case, creditors will "flee" towards those other local governments, which creates a vicious cycle.

The previous paragraph is exactly what happened in the Eurozone, except that national governments played the role of local governments.

What if the government was behind 9/11?!!!11

>In fact, you can see this difference play out in slow motion in the Eurozone, which still has not recovered from the financial crisis. Things would have played out very different had their been a Eurozone federal government that provides at least the basic components of the social safety nets.

I don't understand this argument. Are you claiming that there's no social safety nets in Europe? There are and have been and will still be without a federal government (although I like to argue we already have a defacto federal government).

Just because individual member states provide their own social security and finance it through borrowing money from the central bank(s), doesn't really seem that different from a federal government directly providing social safety nets. In fact, most member states have a way better social security net than United States. I could, in theory, just stop working today and get paid about $1200/month in addition to things like practically free health care and university education. Of course, there are poorer member states that have worse social security.

The issue is with the ability to issue currency, not with the social safety net. The sentence that you reference is a little misleading. What was implied, was that if the Eurozone had a federal government with the ability to issue currency, and that same government was also in charge of the social safety net (among other programs), then there wouldn't be as much of a crisis because they could print money to pay for the programs. Because the social safety nets are implemented by the individual countries, and those countries cannot print their own currency, they are currently forced to implement austerity measures. This is why recovery has been so difficult. The last thing you want to do is to cut spending during a recession.

Thank you for helping with a clarification.

I would add the following: If there had been a federal government, then that government would not even have had to do anything that looked like "printing money" in public discourse.

This is because this federal government would not have had any trouble issuing new debt in the form of bonds. Why not? Because everybody would have known that the European Central Bank would effectively guarantee those bonds under any condition, and therefore there would not have been a panic about the debt in the first place. It's all a psychological game.

As evidence, consider that the fiscal policy part of the US federal government has not done anything that looks like "printing money" up to this point. All they have done is issue bonds, i.e. get loans from creditors.

Yes, the Fed has done things that look like "printing money", but that's monetary policy which has nothing to do with social safety nets.

You can "print money" by loaning it from the central banks, which individual member states certainly can do. In fact, that's what all EU members are doing.

"questionable benefit of military protection" ...

You may not like the extent of their protection, or how they go about protecting, but it is childishly naive to suggest the country does not need protection.

But I know it is cool these days to pretend that the military is 100% evil and every dollar spent on it is a total waste.

I think it's not a matter of having a military but it's relevant how big it is and how much people are working for it (direct or indirect). Keeping the balance. There are so many people working for them or dependent through government contracts in the US, it's shocking (don't know another word for it right now; americans often talk about freedom and free market and so on but so many are dependent on this complex, a huge chunk of their economy is. Like in almost no other country).

I was not overly precise due to time constraints. The "questionable" part refers to the problem of the military-industrial complex that tends to arise.

This is a particularly massive point right now.

With 46 million people dependent on food stamps, the only thing separating the US from great depression style bread lines right now is that single program. Especially with the huge plunge in the labor force participation rate and the U6 being at 14%.

The downside to that is program is, the Federal Government is masking just how bad the US economy really is, with a trillion dollars a year of stimulus help from the Fed. Many people believe the economy is healthier than it really is when they read the fake unemployment number of 7.3%.

According to numerous articles, food stamps (SNAP) aren't affected by the shutdown.

School lunches and breakfasts would continue to be served, and food stamps, known as the Supplemental Nutrition Assistance Program, or SNAP, would continue to be distributed. But several smaller feeding programs would not have the money to operate.

http://usnews.nbcnews.com/_news/2013/09/29/20745618-a-govern...

The USDA said food stamps would not be affected in October.

http://www.huffingtonpost.com/2013/09/28/government-shutdown...

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