Just a technical note. Mortgage rates are usually higher than treasury bond rate not just because they are riskier. Mortgage rates are also higher because the loans are "callable'. They can be paid off earlier without fees or penalties. Treasury bonds cannot be paid off early, so investors will pay more for the bonds to avoid the risk of being paid off early if rates decline.
The Federal Reserve used to have a target fed funds rate. Now they have a band. The role of the Fed's discount rate varies over time. The fed funds rate itself fluctuates every day. Credit card companies I assume like to tie their rates to something more stable, like the Prime Rate. They figure their lending environment is similar to that of the 30 largest banks.
I've seen very little indication from either Biden or Harris that they care about deficits. Biden continued with his student loan forgiveness nonsense even after inflation became a big issue. Biden has a terrible record on debt and is only marginally better than Trump. The best option right now is for TJCA to expire because of lack of consensus on what parts of it to extend and taxes going up for everyone.
The deficit increase implied by student loan forgiveness shifts resources from investment to consumption, but does not promote inflation. This is precisely Matt's point, deficits cause higher interest rates, not higher inflation in a regime where the Fed has a FIAT.
Why would increase in consumption not lead to higher inflation when consumer prices are already going up? Makes zero sense. The purpose of Fed rate hikes was to discourage borrowing and spending. If students don’t have to pay back their loans, they’ll use the extra savings to spend more.
Just a quick correction on rates: the 30-year mortgage rate most closely follows the U.S. 10-year Treasury Note, not the 30-year long bond. Why? Mostly it's due to 'duration,' which is concept that looks at the expected life of a debt instrument*, and the understanding that most mortgage notes are paid off well before 30 years' time. Many homeowners will sell their house before then, and many may also take the opportunity to refinance or make principal-only payments to shorten the life of the bond. Very, very few notes are held for the full 30 years today. Also, the 30-yr bond has not been consistently issued through the years, while the 10-yr note has always been sold and is thus a better reference. But the bigger issue is that of duration.
*Duration can also be considered in some equities, like for example an early-stage biotech company that is many years from potential revenue. In that case, changes in interest rates will affect the way investors approach such a company, just like they would with a bond.
I really wish there were more "system models" metaphors of the economy. In many models, interest rates are not a supply of anything, but more akin to lubrication/friction. In that view, they can obviously impact how supplies of things will move through the system, but they cannot really be the increase of anything.
From there, many of us have a rote teaching of supply/demand and how that is the larger driver of prices and supply changes. Yes, it is a rote understanding, in that it is clearly more complicated. That said, I think it would already be closer to a reality than most people have.
All of that said, though, it is fairly clear that most emotional responses are ultimately because someone else said so. That famous chart of how people view the economy and how they flip based solely on who is in office is really tough to ignore. And I have no idea what to do about it. I wish education and better mental models were the answers. I don't see it, though. :(
Very minor quibble with this article, Matt: you use duration to represent time to maturity of underlying treasury issuances. Duration is a bit of risk jargon and it actually means price sensitivity to changes in rates.
I think the prime rate is supposed to be related to (or reflect a spread to) the bank's own cost of capital, which is related to but not identical to the fed rate. This was the idea behind LIBOR too. So, in a situation where the bank's cost of capital diverges from the fed rate for some reason, it would important for their lending rates not to be based directly on the fed rate so they don't end up with no or negative margins.
But I think you and I both know in the event of a Trump victory and sweep of Congress, all these “boring” policy consequences would get subsumed by the violent chaos.
Trump’s mass deportation, for example, is not simply an “abracadabra, lotta workforce presto disappearo” moment. It would be a violent, tyrannical convulsion the likes of which the country hasn’t seen in 160-plus years. It would not just involve the government going door to door, yanking out friends and neighbors out, putting millions in camps, etc.—it would necessarily involve a political purge of the federal workforce, a dragooning of the military into being a Pretorian Guard, mass use of the pardon power to foster murderous impunity, etc. etc. etc. Just this part alone.
I’m guessing as much as “oh dear, grocery prices just went up again” and “hmm, wonder what this means for interest rates” would be a public reaction, much more so, around the world, would be “America’s devolved into hell on Earth.”
And, of course, we aren’t even getting to the implications involved in a criminal becoming the most powerful man on Earth, and all the vile things he would do to protect himself, which could supersede even the Glorious Mass Deportation. But that’s understood.
Bottom line: If you wanna know why so many commentators don’t quite focus on the Very Important fiscal policy implications of a Trump presidency, qua policy, this is a good reason why. The violence and the cruelty don’t just tend to swamp all the android-brain stuff—they’re, as they say, the point.
I don’t think enforcing the law as written is quite as bad as you make it sound. Americans move to France and Singapore and Thailand via various visas and when those expire and aren’t renewed they have to leave. That’s not some indescribable evil perpetrated by the governments of France, Singapore and Thailand…
The government should have been tracking visa overstays for decades and rounding up and deporting those with expired visas. Why is that a bad thing?
Conditional on not giving people visas, I don’t think there’s that much further evil in removing them. But the non-renewals, lotteries, quotas, delays, and arbitrary denials that routinely take my friends, neighbors, and colleagues away from me are very obviously evil, as are the functionaries who enforce them and the voters who authorize them.
Skilled workers who meet objective criteria should be approved for work visas in a timely manner, then have a deterministic pathway to permanent residency in 3-5 years. Basically how it works in Canada and the EU, as I understand it.
I appreciate your attempt to make this seem easy, breezy, anodyne, and no big deal, but nice try.
We’re not talking about merely “enforcing the law” here, like cracking down on speeding or license plates or something. We’re talking about rounding up and deporting 3 percent of the U.S. population. (Or rather, realistically, putting them all in prison camps in the desert while we figure out how to “force” countries to accept them back.)
That would be the biggest civil crackdown in U.S. history, and would actually outstrip China’s Uighur crackdown by a fair amount. It would not just involve the military; it would involve deputized police, basically every federal law enforcement agency, and likely militias. All of whom would be protected by the functionally unlimited pardon power of the presidency, and would therefore be encouraged to exercise maximum “strength”—translated, physical brutality. (He enjoys that, as you know.)
Worth noting: All the billionaires, oil guys, techbros, and hedge fund dudes supporting Trump are doing so under the understanding that he is “lying” about these plans. Which should tell you something.
If you think this would all be a la-dee-dah thing you read in the headlines and maybe experience in higher grocery prices, then fine. Vote Trump. See if the feds come to your neighborhood. Odds are, they will.
Some have always suspected the plan is to allow as much illegal immigration as can be tolerated, then wait. Eventually, there will be amnesty, because "it is too hard to enforce the law".
It used to be the case that Bernie believed this was the plan from greedy corporations wanting cheap labor. More recently, the believers in this scenario are the nativists in the GOP. Either way, your comment would ring true to both camps.
I tend to believe the simplest explanation is the right one here. And the simplest explanation is that Trump is running for president to revenge himself on his enemies, as he often boasts.
Being sincere on this particular promise best accords with that motive of revenge and “retribution”. Combined with his clearly insatiable lust to use the pardon power as protection for his friends and a weapon for his enemies, and an absolute disinterest in his party in holding him to account, I take him at his word here.
I cannot fathom why so many of his business allies don’t. Probably groupthink, and fear.
But it is just enforcing the law as written and everyone here illegally has long known this day would come. But they made the decision that the economic advantages, ability to send money home, etc. was worth it. Which is great. And now we’ve decided that’s no longer working for us and have decided to enforce the rules everyone has long known about.
Fining everyone who drives above the speed limit, or who fails to signal when turning, is also just enforcing the rules that everyone has long known about. Just because a rule is on the books doesn’t mean that suddenly enforcing it on millions of people in ways it has never been enforced will be non-disruptive and reasonable.
I’m 100% behind speed cameras and 200% behind cameras the ticket those who don’t signal. Now if you want to see we’re going to start January 1 to give people a chance to adjust their behavior, fine. But I have no problem with cracking down on people who don’t signal.
Okay, but in this analogy, we're talking about not just ticketing everyone who speeds from this point on, but everyone who's been speeding for the last twenty years. You don't think that would jam up the court system, waste LEO resources, make people paranoid, incentivize lying and hiding, etc?
Again—Believe that beautiful nonsense if you want. But lol, no.
Neither those here illegally nor their employers, nor even many Trump supporters “long knew the deportation of 3 percent of the U.S. population would come”. And I’m guessing you know that perfectly well.
Trump is competitive right now because a not-insignificant portion of his voters think his talk here is all talk. When and if the Great Trump Purge happens, it will be opposed by at least a good portion of those fine Americans who think they approve of his plans. Probably even including you.
Fortunately, with luck, we’ll never have to find out. :)
It might not be so bad if it’s a small number every year. Evicting one years worth of overstays every year is likely a small number. But if you’re evicting twenty years of overstays all at once that becomes a lot bigger. Especially if everyone has been counting on those people in practice sticking around (including their landlords, the shopkeepers they patronize, their fellow churchgoers, the schools their children attend, etc).
Your operational concerns are valid. But in principle I don’t see what the issue is. I could have my dream job for years in Paris thanks to some dubious visa HR cooked up. France could say, we’re cracking down on dubious visas and you have to go home. Great at least I had my dream job for a while.
Governments do crazy things all the time when their actions are not governed by cost benefit considerations, but why WOULD the French government want to do that? If it was a dream job it was contributing to the well being of other French residents.
Just because the law exists today doesn't mean it's a good law or even not an evil law. Laws don't self justify, they exist to accomplish a purpose, or a purported purpose. If that purpose is good, and the law trying to accomplish it is good, than things are good. But none of that should be assumed, and importantly just because we haven't been able to fix something doesn't in any way imply to that thing that needs to be fixed is good. Our current immigration process is broken in a number of different directions. Suddenly deciding that we are going to enforce that broken system isn't going to make anything better or unbroken.
Rounding up and deporting millions of people, probably most of whom already have deep positive ties to their communities and our country, would be disruptive to our nation writ large, and have an incredible, terrible, even cruel, effect on real human beings with almost no real human upside.
Your analogy has many flaws, but the largest is that whatever downside there would be for your returning to the vibrant, safe, free US has no correspondent in what would happen to people shipped back to a developing country.
I think you are imagining from the perspective of the individual. I am imagining from the perspective of society. Something that might be acceptable for an individual can, if done to too many at once, be massively disruptive for society. Especially if it represents a policy change.
I agree with you in principle, but I think he's right that in practice it will be a total mess. In reality, a middle approach where enforcement is stepped up on the most recent cases coupled with a live-and-let-live approach to those who've been here a lot longer seems more realistic to me. Maybe this is what we're already doing? I have no idea to be honest.
They are additive and the messages need\s to go to different people. There are people who think they would be indifferent to deportation that don't want to see mortgage rates go up.
Indeed. If we’re talking purely in terms of messaging, and what we think people want to hear, that all makes sense.
Matt, of course, is not a political strategist, though he dabbles. I think, frankly, fiscal boring shtuff is his wheelhouse, and he chooses to focus on it because he wants to.
Yield curve is easier to think of from the investor side of things. Most of the time, the longer you're willing to lock up your money, the better a return a bank or financial institution is willing to offer you.
Anyways, where I have a bigger question mark on Harris is "what is she going to prioritize?" She's thrown out some one-off policies for better or for worse, but I still don't really know what her first move will be if she wins. Biden wins and signs the ARP. Ok. If Harris wins, I don't really have a sense of what her first attempt at legislation will be.
But, her opponent is Donald Trump, so none of that matters lol, that's just a question that would be nice to have answered at some point in the next six weeks.
My view as a fanatical Harris supporter is that the main and almost only job is to keep Trump out of the White House (and the Republicans from control of Congress). Other than that, I think the country is in pretty good shape. I don't care so much what her legislative priorities should be or what she could get through Congress.* Sometimes doing little is just fine.
*Well, except for permitting reform. I personally would love to see that happen.
I am not a fanatical Harris supporter (I'll be voting for Chase Oliver in my state where Harris is expected to win by 10%+), but I endorse this message!
Really, I have almost no complaints abut what is said in this piece, so I have to complain about what is not said which was to hammer at deficits > Σ(expenditures with NPV>0) shifting resources from investment to current consumption and reducing growth of real income over time.
Deficits are bad for growth and interest rates, not inflation.
There's no way that there'll be benefit cuts in Social Security. First, no Congress which allowed it to happen would be reelected. Second, there's no reason to cut them. The bonds which are redeemed to pay about 30% of them are redeemed with money collected in the general revenues. When the bonds are gone, Congress will just go ahead & let those revenues pay those benefits--just as it funds highways above & beyond what gas taxes bring in.
Up until about three to five years ago, I would have agreed with you that Congress would under no circumstances allow Social Security benefits to be cut. Now, I'm frankly not sure -- it seems like enough Republicans have either genuinely gone full nihilist or are paid Russian agents that it's very easy to imagine them forcing Social Security cuts so long as there's a Democratic President in office at the time.
True, although I'm not sure at this point how much of that is simply because of being responsive to high income donors who don't want their bond portfolios destroyed.
Why a Democratic Congress doesn't simply enact a "Protecting SS Benefits" act do instruct Treasury do do as you suggest indefinitely (in the event of trust fund exhaustion) is beyond me.
That's a great question, and I suspect the answer lies in the possibility of making political hay by appropriating money for SS. Back in the day, Congress raised benefits; now it's done by a formula. Don't remember why Congress agree to give up buy us old folks' votes, but it did.
Trump plans: Provided the revenue loss were made up (or even better more than made up] with higher personal taxes and or a VAT – something Republicans never do – further lowering of the tax on business income, and reductions in the wage tax (on tips and overtime but why not the whole darn thing) would be good.
The reason we can’t do belt-tightening is because Republicans always use Lucy and the football tactics. They yell at Democrats to balance budgets when Democrats control the government, then blow holes in the budget when they gain control. It’s been happening for 40+ years. Republicans have no credibility on this issue, and Democrats are tired of being played for chumps.
The Dems would only be chumps in your description if they responded to Republican criticism of their spending. They don’t….they spend away. So I don’t think the Democrats are chumps but it is true the Republicans are hypocrites.
No, this isn't correct. Democratic politicians have been more responsible on the budget than Republicans for decades. Bill Clinton returned 4 years of budget surpluses, and then George W. Bush blew it all away.
Argh. You could just as easily say that the only time that the US has had surpluses in the last 65 years is when Republicans were in control of Congress. I agree that Republicans have been profligate tax cutters, but disagree that Democrats have been any better on the spending side. The only time the deficit doesn't explode is during mixed government.
No. The operative point here is that Republicans will blow up the budget, and only when Democrats have some level of control are they restrained. Under unified Republican govt control, the budget deficit explodes. That doesn't happen under Democratic control.
Aside from 93-94, think about when Ds had unified control. 2009-2011 - major recession, there probably wasn't enough of a budget deficit. 2021-2023 - major recession, there was too much of a deficit, but only because of overlearning lessons from 2009-2011. Some deficit was definitely necessary.
The Congress controls the purse maybe it’s more instructive to look at who controls the congress. I am curious if a split congress provides less spending because of gridlock.
I don't fully understand this comment. Republicans have shown they aren't serious about cutting the deficit. They prefer tax cuts and revenue shortfalls.
I think it's basically that Republicans (through their capture by the Grover Norquists of the world) will ~never raise taxes, even when it's the obviously correct thing to do. therefore, the Democrats have to be willing to fight to do the right thing, even when it's costly, because the alternative is disaster.
Obama specifically tried to work with Republicans to raise taxes AND cut spending to reduce the deficit, and Republicans just said "fuck you, no tax increases ever, even with spending cuts, even to explicitly reduce the deficit".
As far as I'm aware, the only time the budget has been "controlled" since Bush Sr. was president is when Democrats control the presidency and Republicans control the House. There are a few other exceptions such as when Democrats control the house late in Bush Jr. tenure, but otherwise unified party control is almost always maximal spending/tax cuts.
Democrats set the stage for a prolonged drop in the debt-GDP ratio—and an eventual return to (probably ill-advised) surpluses, when Democrats had a trifecta in 93-94. The legislation that actually put us on that glide path was entirely the creation of a Democratic Congress and President.
1) Bush Sr. violated his no new taxes pledge and raised taxes - probably lost the election because of it.
2) Picking up the story with Clinton, he came into office and Democrats raised taxes again, but also increased spending some.
3) Republicans came into office in 1995 and stopped Clinton/Democrats from increasing spending even more.
I agree that Democrats raised taxes to start the glide path, but their natural impulse was going to be to increase spending. Republicans in Congress stopped Democrats from changing the glide path and pushed even further with welfare reform and other spending restraints.
Arguing counterfactuals is the point. Like people who say that Gore would have been than Bush - they're arguing a counterfactual. Maybe he wouldn't have been. But given what we know, we can make credible assumptions. One of mine is that if Democrats has retained control in 1994, they would have tried again to pass health care legislation and that would have been expensive and eaten up most of the savings from 1993-94. I think there's a good possibility that it would have been worth it! But there is way to much history and reporting around what they wanted to do for me to believe otherwise.
“This kind of thinking [deficits bad in 2009, deficits OK in 2024] doesn’t make sense under today’s circumstances, where most people are worried about interest rates.”
Yes, with nuance. OK/not OK depends on whether deficits </>Σ(expenditures with NPV>0). It is probability the case that higher deficits would have been OK in 2009 and definitely the case that higher deficits are NOT OK today (and most anytime the economy is not is serious deep-shit Recession).
Democrats should be/should have been been strongly anti-deficit, e.g. strongly opposed to Republican revenue-reducing tax cuts, not just trying to make them less regressive as they did in 2001 and 2017.
"combined with the somewhat inflationary impact of budget deficits, "
OMG up until this point I was starting to get frightened that Matt had so nailed macroeconomics I's have to start Substacking about something else! :)
Whew!
No. budget deficits are not "somewhat inflationary" for the reason Matt has already pointed out. Inflation happens or does not when the Fed, not the Treasury, makes it happen. Budget deficits, so long as the Fed is doing its job in the way it says it is going to do it, affect interest rates, not inflation.
Just a technical note. Mortgage rates are usually higher than treasury bond rate not just because they are riskier. Mortgage rates are also higher because the loans are "callable'. They can be paid off earlier without fees or penalties. Treasury bonds cannot be paid off early, so investors will pay more for the bonds to avoid the risk of being paid off early if rates decline.
The Federal Reserve used to have a target fed funds rate. Now they have a band. The role of the Fed's discount rate varies over time. The fed funds rate itself fluctuates every day. Credit card companies I assume like to tie their rates to something more stable, like the Prime Rate. They figure their lending environment is similar to that of the 30 largest banks.
I've seen very little indication from either Biden or Harris that they care about deficits. Biden continued with his student loan forgiveness nonsense even after inflation became a big issue. Biden has a terrible record on debt and is only marginally better than Trump. The best option right now is for TJCA to expire because of lack of consensus on what parts of it to extend and taxes going up for everyone.
The deficit increase implied by student loan forgiveness shifts resources from investment to consumption, but does not promote inflation. This is precisely Matt's point, deficits cause higher interest rates, not higher inflation in a regime where the Fed has a FIAT.
Why would increase in consumption not lead to higher inflation when consumer prices are already going up? Makes zero sense. The purpose of Fed rate hikes was to discourage borrowing and spending. If students don’t have to pay back their loans, they’ll use the extra savings to spend more.
Just a quick correction on rates: the 30-year mortgage rate most closely follows the U.S. 10-year Treasury Note, not the 30-year long bond. Why? Mostly it's due to 'duration,' which is concept that looks at the expected life of a debt instrument*, and the understanding that most mortgage notes are paid off well before 30 years' time. Many homeowners will sell their house before then, and many may also take the opportunity to refinance or make principal-only payments to shorten the life of the bond. Very, very few notes are held for the full 30 years today. Also, the 30-yr bond has not been consistently issued through the years, while the 10-yr note has always been sold and is thus a better reference. But the bigger issue is that of duration.
*Duration can also be considered in some equities, like for example an early-stage biotech company that is many years from potential revenue. In that case, changes in interest rates will affect the way investors approach such a company, just like they would with a bond.
I really wish there were more "system models" metaphors of the economy. In many models, interest rates are not a supply of anything, but more akin to lubrication/friction. In that view, they can obviously impact how supplies of things will move through the system, but they cannot really be the increase of anything.
From there, many of us have a rote teaching of supply/demand and how that is the larger driver of prices and supply changes. Yes, it is a rote understanding, in that it is clearly more complicated. That said, I think it would already be closer to a reality than most people have.
All of that said, though, it is fairly clear that most emotional responses are ultimately because someone else said so. That famous chart of how people view the economy and how they flip based solely on who is in office is really tough to ignore. And I have no idea what to do about it. I wish education and better mental models were the answers. I don't see it, though. :(
Very minor quibble with this article, Matt: you use duration to represent time to maturity of underlying treasury issuances. Duration is a bit of risk jargon and it actually means price sensitivity to changes in rates.
I think the prime rate is supposed to be related to (or reflect a spread to) the bank's own cost of capital, which is related to but not identical to the fed rate. This was the idea behind LIBOR too. So, in a situation where the bank's cost of capital diverges from the fed rate for some reason, it would important for their lending rates not to be based directly on the fed rate so they don't end up with no or negative margins.
This is all good stuff.
But I think you and I both know in the event of a Trump victory and sweep of Congress, all these “boring” policy consequences would get subsumed by the violent chaos.
Trump’s mass deportation, for example, is not simply an “abracadabra, lotta workforce presto disappearo” moment. It would be a violent, tyrannical convulsion the likes of which the country hasn’t seen in 160-plus years. It would not just involve the government going door to door, yanking out friends and neighbors out, putting millions in camps, etc.—it would necessarily involve a political purge of the federal workforce, a dragooning of the military into being a Pretorian Guard, mass use of the pardon power to foster murderous impunity, etc. etc. etc. Just this part alone.
I’m guessing as much as “oh dear, grocery prices just went up again” and “hmm, wonder what this means for interest rates” would be a public reaction, much more so, around the world, would be “America’s devolved into hell on Earth.”
And, of course, we aren’t even getting to the implications involved in a criminal becoming the most powerful man on Earth, and all the vile things he would do to protect himself, which could supersede even the Glorious Mass Deportation. But that’s understood.
Bottom line: If you wanna know why so many commentators don’t quite focus on the Very Important fiscal policy implications of a Trump presidency, qua policy, this is a good reason why. The violence and the cruelty don’t just tend to swamp all the android-brain stuff—they’re, as they say, the point.
I don’t think enforcing the law as written is quite as bad as you make it sound. Americans move to France and Singapore and Thailand via various visas and when those expire and aren’t renewed they have to leave. That’s not some indescribable evil perpetrated by the governments of France, Singapore and Thailand…
The government should have been tracking visa overstays for decades and rounding up and deporting those with expired visas. Why is that a bad thing?
Conditional on not giving people visas, I don’t think there’s that much further evil in removing them. But the non-renewals, lotteries, quotas, delays, and arbitrary denials that routinely take my friends, neighbors, and colleagues away from me are very obviously evil, as are the functionaries who enforce them and the voters who authorize them.
How should the system work?
Skilled workers who meet objective criteria should be approved for work visas in a timely manner, then have a deterministic pathway to permanent residency in 3-5 years. Basically how it works in Canada and the EU, as I understand it.
How many?
As many as meet the objective criteria.
Limits on quantity, whether explicit by statute or implicit by staffing, are where most of the arbitrariness and cruelty come in.
I appreciate your attempt to make this seem easy, breezy, anodyne, and no big deal, but nice try.
We’re not talking about merely “enforcing the law” here, like cracking down on speeding or license plates or something. We’re talking about rounding up and deporting 3 percent of the U.S. population. (Or rather, realistically, putting them all in prison camps in the desert while we figure out how to “force” countries to accept them back.)
That would be the biggest civil crackdown in U.S. history, and would actually outstrip China’s Uighur crackdown by a fair amount. It would not just involve the military; it would involve deputized police, basically every federal law enforcement agency, and likely militias. All of whom would be protected by the functionally unlimited pardon power of the presidency, and would therefore be encouraged to exercise maximum “strength”—translated, physical brutality. (He enjoys that, as you know.)
Worth noting: All the billionaires, oil guys, techbros, and hedge fund dudes supporting Trump are doing so under the understanding that he is “lying” about these plans. Which should tell you something.
If you think this would all be a la-dee-dah thing you read in the headlines and maybe experience in higher grocery prices, then fine. Vote Trump. See if the feds come to your neighborhood. Odds are, they will.
Some have always suspected the plan is to allow as much illegal immigration as can be tolerated, then wait. Eventually, there will be amnesty, because "it is too hard to enforce the law".
It used to be the case that Bernie believed this was the plan from greedy corporations wanting cheap labor. More recently, the believers in this scenario are the nativists in the GOP. Either way, your comment would ring true to both camps.
Maybe.
I tend to believe the simplest explanation is the right one here. And the simplest explanation is that Trump is running for president to revenge himself on his enemies, as he often boasts.
Being sincere on this particular promise best accords with that motive of revenge and “retribution”. Combined with his clearly insatiable lust to use the pardon power as protection for his friends and a weapon for his enemies, and an absolute disinterest in his party in holding him to account, I take him at his word here.
I cannot fathom why so many of his business allies don’t. Probably groupthink, and fear.
But it is just enforcing the law as written and everyone here illegally has long known this day would come. But they made the decision that the economic advantages, ability to send money home, etc. was worth it. Which is great. And now we’ve decided that’s no longer working for us and have decided to enforce the rules everyone has long known about.
How is it not "working for us?" Looks to me like it's working just fine.
Fining everyone who drives above the speed limit, or who fails to signal when turning, is also just enforcing the rules that everyone has long known about. Just because a rule is on the books doesn’t mean that suddenly enforcing it on millions of people in ways it has never been enforced will be non-disruptive and reasonable.
I’m 100% behind speed cameras and 200% behind cameras the ticket those who don’t signal. Now if you want to see we’re going to start January 1 to give people a chance to adjust their behavior, fine. But I have no problem with cracking down on people who don’t signal.
Okay, but in this analogy, we're talking about not just ticketing everyone who speeds from this point on, but everyone who's been speeding for the last twenty years. You don't think that would jam up the court system, waste LEO resources, make people paranoid, incentivize lying and hiding, etc?
Again—Believe that beautiful nonsense if you want. But lol, no.
Neither those here illegally nor their employers, nor even many Trump supporters “long knew the deportation of 3 percent of the U.S. population would come”. And I’m guessing you know that perfectly well.
Trump is competitive right now because a not-insignificant portion of his voters think his talk here is all talk. When and if the Great Trump Purge happens, it will be opposed by at least a good portion of those fine Americans who think they approve of his plans. Probably even including you.
Fortunately, with luck, we’ll never have to find out. :)
“ And I’m guessing you know that perfectly well.”
I most certainly do not. Everyone here illegally knows being deported is always in the offing. Come on - get a grip.
No. They may believe that people are more sensible than that, that the will not do something to harm themselves.
It might not be so bad if it’s a small number every year. Evicting one years worth of overstays every year is likely a small number. But if you’re evicting twenty years of overstays all at once that becomes a lot bigger. Especially if everyone has been counting on those people in practice sticking around (including their landlords, the shopkeepers they patronize, their fellow churchgoers, the schools their children attend, etc).
Your operational concerns are valid. But in principle I don’t see what the issue is. I could have my dream job for years in Paris thanks to some dubious visa HR cooked up. France could say, we’re cracking down on dubious visas and you have to go home. Great at least I had my dream job for a while.
Governments do crazy things all the time when their actions are not governed by cost benefit considerations, but why WOULD the French government want to do that? If it was a dream job it was contributing to the well being of other French residents.
To give the dream job to a French citizen, obviously.
Just because the law exists today doesn't mean it's a good law or even not an evil law. Laws don't self justify, they exist to accomplish a purpose, or a purported purpose. If that purpose is good, and the law trying to accomplish it is good, than things are good. But none of that should be assumed, and importantly just because we haven't been able to fix something doesn't in any way imply to that thing that needs to be fixed is good. Our current immigration process is broken in a number of different directions. Suddenly deciding that we are going to enforce that broken system isn't going to make anything better or unbroken.
Rounding up and deporting millions of people, probably most of whom already have deep positive ties to their communities and our country, would be disruptive to our nation writ large, and have an incredible, terrible, even cruel, effect on real human beings with almost no real human upside.
Your analogy has many flaws, but the largest is that whatever downside there would be for your returning to the vibrant, safe, free US has no correspondent in what would happen to people shipped back to a developing country.
I think you are imagining from the perspective of the individual. I am imagining from the perspective of society. Something that might be acceptable for an individual can, if done to too many at once, be massively disruptive for society. Especially if it represents a policy change.
I agree with you in principle, but I think he's right that in practice it will be a total mess. In reality, a middle approach where enforcement is stepped up on the most recent cases coupled with a live-and-let-live approach to those who've been here a lot longer seems more realistic to me. Maybe this is what we're already doing? I have no idea to be honest.
They are additive and the messages need\s to go to different people. There are people who think they would be indifferent to deportation that don't want to see mortgage rates go up.
Indeed. If we’re talking purely in terms of messaging, and what we think people want to hear, that all makes sense.
Matt, of course, is not a political strategist, though he dabbles. I think, frankly, fiscal boring shtuff is his wheelhouse, and he chooses to focus on it because he wants to.
Yield curve is easier to think of from the investor side of things. Most of the time, the longer you're willing to lock up your money, the better a return a bank or financial institution is willing to offer you.
Anyways, where I have a bigger question mark on Harris is "what is she going to prioritize?" She's thrown out some one-off policies for better or for worse, but I still don't really know what her first move will be if she wins. Biden wins and signs the ARP. Ok. If Harris wins, I don't really have a sense of what her first attempt at legislation will be.
But, her opponent is Donald Trump, so none of that matters lol, that's just a question that would be nice to have answered at some point in the next six weeks.
My view as a fanatical Harris supporter is that the main and almost only job is to keep Trump out of the White House (and the Republicans from control of Congress). Other than that, I think the country is in pretty good shape. I don't care so much what her legislative priorities should be or what she could get through Congress.* Sometimes doing little is just fine.
*Well, except for permitting reform. I personally would love to see that happen.
I am not a fanatical Harris supporter (I'll be voting for Chase Oliver in my state where Harris is expected to win by 10%+), but I endorse this message!
Yes. The ARP needed a lot more thought (like including some revenue, like actually reforming unemployment insurance) before it was passed and signed.
That would have been nice. But given the exigent circumstances in place at the time, delay would have been destructive.
Sometimes you just have to be sloppy and fast.
Would be great if this piece also contained a graph of Harris’s proposals’ effect on revenue. Otherwise, an excellent primer.
Really, I have almost no complaints abut what is said in this piece, so I have to complain about what is not said which was to hammer at deficits > Σ(expenditures with NPV>0) shifting resources from investment to current consumption and reducing growth of real income over time.
Deficits are bad for growth and interest rates, not inflation.
There's no way that there'll be benefit cuts in Social Security. First, no Congress which allowed it to happen would be reelected. Second, there's no reason to cut them. The bonds which are redeemed to pay about 30% of them are redeemed with money collected in the general revenues. When the bonds are gone, Congress will just go ahead & let those revenues pay those benefits--just as it funds highways above & beyond what gas taxes bring in.
Up until about three to five years ago, I would have agreed with you that Congress would under no circumstances allow Social Security benefits to be cut. Now, I'm frankly not sure -- it seems like enough Republicans have either genuinely gone full nihilist or are paid Russian agents that it's very easy to imagine them forcing Social Security cuts so long as there's a Democratic President in office at the time.
GOP won't do this alone. But if they could force Democrats to put some of their fingerprints on SS cuts, well...that I could see happening.
That's the GOP dream - the way spending really gets cut is if Republicans can somehow jam Democrats into being the ones to do it.
They haven’t yet forced a debt limit breach.
True, although I'm not sure at this point how much of that is simply because of being responsive to high income donors who don't want their bond portfolios destroyed.
Difference is that Social Security costs a lot more than highways do
Doesn't matter. We're already covering the cost from general revenues. That's my point.
Why a Democratic Congress doesn't simply enact a "Protecting SS Benefits" act do instruct Treasury do do as you suggest indefinitely (in the event of trust fund exhaustion) is beyond me.
That's a great question, and I suspect the answer lies in the possibility of making political hay by appropriating money for SS. Back in the day, Congress raised benefits; now it's done by a formula. Don't remember why Congress agree to give up buy us old folks' votes, but it did.
Both sides want leverage against the other.
Trump plans: Provided the revenue loss were made up (or even better more than made up] with higher personal taxes and or a VAT – something Republicans never do – further lowering of the tax on business income, and reductions in the wage tax (on tips and overtime but why not the whole darn thing) would be good.
https://thomaslhutcheson.substack.com/p/austerity-sic-is-in-the-air
The reason we can’t do belt-tightening is because Republicans always use Lucy and the football tactics. They yell at Democrats to balance budgets when Democrats control the government, then blow holes in the budget when they gain control. It’s been happening for 40+ years. Republicans have no credibility on this issue, and Democrats are tired of being played for chumps.
The Dems would only be chumps in your description if they responded to Republican criticism of their spending. They don’t….they spend away. So I don’t think the Democrats are chumps but it is true the Republicans are hypocrites.
No, this isn't correct. Democratic politicians have been more responsible on the budget than Republicans for decades. Bill Clinton returned 4 years of budget surpluses, and then George W. Bush blew it all away.
Argh. You could just as easily say that the only time that the US has had surpluses in the last 65 years is when Republicans were in control of Congress. I agree that Republicans have been profligate tax cutters, but disagree that Democrats have been any better on the spending side. The only time the deficit doesn't explode is during mixed government.
No. The operative point here is that Republicans will blow up the budget, and only when Democrats have some level of control are they restrained. Under unified Republican govt control, the budget deficit explodes. That doesn't happen under Democratic control.
Which period of Democratic unified control would you point to where the budget deficit hasn't exploded?
Aside from 93-94, think about when Ds had unified control. 2009-2011 - major recession, there probably wasn't enough of a budget deficit. 2021-2023 - major recession, there was too much of a deficit, but only because of overlearning lessons from 2009-2011. Some deficit was definitely necessary.
93-94 as mentioned below.
What’s our most recent data? I do think it’s great Clinton balanced budgets. Kudos to him. If he had more self control his legacy would be greater.
Trump and George W. Bush vs. Obama is instructive, especially since the Republicans refused multiple deals during the Obama term.
The Congress controls the purse maybe it’s more instructive to look at who controls the congress. I am curious if a split congress provides less spending because of gridlock.
Whihc mean that _Democrats _ have to raise the revenue. And lean to fight harder when Republicans try to reduce them.
I don't fully understand this comment. Republicans have shown they aren't serious about cutting the deficit. They prefer tax cuts and revenue shortfalls.
I think it's basically that Republicans (through their capture by the Grover Norquists of the world) will ~never raise taxes, even when it's the obviously correct thing to do. therefore, the Democrats have to be willing to fight to do the right thing, even when it's costly, because the alternative is disaster.
Obama specifically tried to work with Republicans to raise taxes AND cut spending to reduce the deficit, and Republicans just said "fuck you, no tax increases ever, even with spending cuts, even to explicitly reduce the deficit".
As far as I'm aware, the only time the budget has been "controlled" since Bush Sr. was president is when Democrats control the presidency and Republicans control the House. There are a few other exceptions such as when Democrats control the house late in Bush Jr. tenure, but otherwise unified party control is almost always maximal spending/tax cuts.
Democrats set the stage for a prolonged drop in the debt-GDP ratio—and an eventual return to (probably ill-advised) surpluses, when Democrats had a trifecta in 93-94. The legislation that actually put us on that glide path was entirely the creation of a Democratic Congress and President.
1) Bush Sr. violated his no new taxes pledge and raised taxes - probably lost the election because of it.
2) Picking up the story with Clinton, he came into office and Democrats raised taxes again, but also increased spending some.
3) Republicans came into office in 1995 and stopped Clinton/Democrats from increasing spending even more.
I agree that Democrats raised taxes to start the glide path, but their natural impulse was going to be to increase spending. Republicans in Congress stopped Democrats from changing the glide path and pushed even further with welfare reform and other spending restraints.
No. You are arguing what would have happened based on counterfactuals. It remains the case that full Democratic control produced budget restraint.
Arguing counterfactuals is the point. Like people who say that Gore would have been than Bush - they're arguing a counterfactual. Maybe he wouldn't have been. But given what we know, we can make credible assumptions. One of mine is that if Democrats has retained control in 1994, they would have tried again to pass health care legislation and that would have been expensive and eaten up most of the savings from 1993-94. I think there's a good possibility that it would have been worth it! But there is way to much history and reporting around what they wanted to do for me to believe otherwise.
“This kind of thinking [deficits bad in 2009, deficits OK in 2024] doesn’t make sense under today’s circumstances, where most people are worried about interest rates.”
Yes, with nuance. OK/not OK depends on whether deficits </>Σ(expenditures with NPV>0). It is probability the case that higher deficits would have been OK in 2009 and definitely the case that higher deficits are NOT OK today (and most anytime the economy is not is serious deep-shit Recession).
Democrats should be/should have been been strongly anti-deficit, e.g. strongly opposed to Republican revenue-reducing tax cuts, not just trying to make them less regressive as they did in 2001 and 2017.
"combined with the somewhat inflationary impact of budget deficits, "
OMG up until this point I was starting to get frightened that Matt had so nailed macroeconomics I's have to start Substacking about something else! :)
Whew!
No. budget deficits are not "somewhat inflationary" for the reason Matt has already pointed out. Inflation happens or does not when the Fed, not the Treasury, makes it happen. Budget deficits, so long as the Fed is doing its job in the way it says it is going to do it, affect interest rates, not inflation.