Kinda glad they went with chained CPI on the tax brackets and not SS. Are people arguing for something different than what's now used to adjust the max income cap for SS or is it called contribution base?
Honestly, I would love deductions getting phased out in such a way that I wouldn't have access to any federal deductions -- that coupled with the IRS implementing its own filing system would make tax season a breeze
Price inflation did not disappear under Reaganomics. It was just greatly limited in its scope.
1. For health care, child care, tuition, and housing owned or rented, or e inflation continued at its 1970s pace with only the occasional stumble.
2. For most consumer goods, partly because of globalization and partly because of Walmart technologies, prices stayed more or less in step with wages. (Wages per hour, not household incomes; the number of person- hours households put into the workplace increased drastically during that time, mainly because of #1)
3. For technical devices like TVs, phones, computers, etc. consumer prices dropped in relation to wages.
BTW “inflation” historically means “increase in the money supply” and “price inflation “ is merely its usual result.
There is this fantasy that “the rich” have enough money to fund the whole system without anyone else being burdened. Unless “the rich” is defined as “anyone with an income much over average,” that is totally false.
This should be read by the numerous budget committees in DC, but I fear it will fall on deaf ears. Two generations of adults (GenX and Millennials) grew up thinking inflation was a remnant from the past and deficits didn't matter. Both the Trump tax cuts and Biden's ARA have made deficits a huge problem, in addition to exacerbating inflation. We reap what we sow.
I look forward to more reporting on this. Without it, I have no proof for what I very much suspect: that the side which has shown a propensity for violence all along, is actually behind these attacks. Until I see more evidence, I’m not inclined to believe that the Buffalo police is a haven for pro-choice cops who refuse to investigate unlawful attacks on pro-life facilities.
I’m not an Economist, only an avid reader who took my first Econ course in 1963 and had an aunt who edited Economic Impact (USIA Journal) for many years. Debt reduction has been much on my mind for years. To my mind, Supply and Demand are still enormously important when beginning to look at a market analysis. (Too Simplistic perhaps). Through this lens, I don’t foresee food, including grazing, becoming less expensive any time soon. The Climate Change weather events are worldwide. People are distressed by oil & gas prices. Again with the strong efforts of Liberals to hasten a “Green” future without acknowledging the immediate need for more oil drilling while infrastructure in put in place, Oil supplies are less than affordable. So many basic survival things have been affected by recent weather that I may be too dense to understand how higher & higher interest rates are going to solve the inflation problem. Of course we all recognize that housing, particularly rental is in short supply.
Matt, you have such great ideas, but I would be very interested in your thoughts re how these ongoing supply issues might skew the traditional weights of different items in market analysis.
I still don’t buy the inflation narrative and I buy the serialized price increase theory even less.
For every product category that shoots through the roof, we’ve always had a specific story about supply shortfalls sourced in the pandemic or, later, the invasion of Ukraine.
"But for now, inflation is not just a little bit above target. It’s way above target, so the Fed is likely going to want to raise interest rates a lot."
I'm on board for deficit reduction. I'm on board for the Fed cooling demand in order to bring down inflation. What I don't understand, however, is the Fed inflation target. As far as I can tell, it's still 2%.
Really? So if after all these actions take place, the economy settles down to 3.5% inflation and 4.5% unemployment, the Fed will keep up the beatings until we get 2% inflation and >6% unemployment?
Who decided that 2% was the holy grail never to be fiddled with? Or are we supposed to believe that if the Fed brings inflation down from >8% to "only" 3.5% it will thereby lose "credibility" or that if it declared 3.5% as its new target it has revealed itself as dangerously dovish?
It seems a just a bit blithe to be calling for "draining the wallets" or talking about "people whose money we need to be taking away"! It sure would be nice to hear a philosophy major explain the moral philosophy of when precisely it is justified to make those impositions on peoples' wallets and whether the current moment really clears that hurdle.
Popularism, but also sneaking in COLA changes that hurt our wealthy constituents pocketbooks and which our poorer constituents won't realize was a good deal for them.
In general, I think you're analysis that actually, unlike 2010, this is a good time to think about reasonable deficit plans. But I have some serious pushback about your analysis regarding the deficit mania in 2010 and specifically about how much "good faith" there was in the GOP mania for cutting deficits.
I think you're right to say that Progressives go to far in saying it was 100% entirely "bad faith". As you note, Romney did not have to put entitlement cuts on the table in 2012. But deficit mania really was driven in huge part by a) bad faith and b) some fairly shrewd political analysis. First, I think you are forgetting just how quickly GOP politicians and GOP pundits were screaming about the need to "tighten belts" as early as Fall of 2008. Remember Grover Norquist? He's not a name you hear much anymore, but in 2008 he was BFD and scared the bejesus out of almost all GOP politicians. Here he is in November, 2008. https://www.usnews.com/opinion/articles/2008/11/24/the-conservative-movement-will-rise-again-grover-norquist-writes. Yes he is almost a parody of a Reaganite zealot. But my point is that very early on, there were GOP aligned voices was out there talking about need for spending cuts. I distinctly remember a number of GOP pols saying the equivalent of "when the American people need to tighten their belts, our government should be doing the same".
But the other part you are leaving out is the Mitch McConnell part. Specifically where he (or more likely an advisor) noted that the goal was to make Obama a one term President and that one of the best ways to do this was to not cooperate on anything as bipartisan legislation almost always redounds to the President's benefit. I know now McConnell's reputation as a smooth operator has taken a bit of a (deserved) hit. And that the observation that the opposition party shouldn't work with POTUS, as politically it helps POTUS way more than "out" party is a pretty banal observation at this point. But at the time it was pretty shrewd ahead of it's time political analysis (the Clinton welfare bill famously was a bipartisan effort, but we forget that it was Ted Kennedy who worked with GWB on "No Child Left Behind" and that the GWB Medicare prescription plan got a number of Democratic votes). Point being, that there was a definite deliberate strategy to not only not give Obama any wins, but to also make sure legislation wouldn't pass (or at least be watered down) that would help boost the economy. It's probably too strong to say GOP was engaged in economic sabotage, but it's not really lie either. And screaming about "deficit reduction" was a way to do this; especially as your old colleague Ezra Klein use to point out, deficit reduction was the one domestic policy that somehow escaped the usual "view from nowhere" political reporting that permeates places like the Times (foreign policy itself is another weird outlier).
I'd also point out that one reason Obama was talking about deficit reduction was because he was a Democrat and he is black (also, he was listening too much to Andrew Sullivan and also hired Bill Daly as Chief of Staff, my pick for one of the worst Obama hires of his eight years in office. But I digress). One problem for Democrats since the 70s is to fight the perception they are out of control spenders who will tank the economy. Talking about deficit reduction was a signal they could be "trusted" with the economy. In addition, Obama was (and is) painfully aware of the racist stereotype that African Americans are wild out of control spenders who can't be trusted with money (see basically everything about the politics of welfare). So much of his demeanor and cautiousness on the economy (and his Presidency in general) was a very conscious effort to not act in any way that would "confirm" the worst bigoted stereotypes Americans have of Black Americans.
Again, I agree in general that you make a good case that deficit reduction has real merit in a way it didn't in 2010. But you're history about the deficit mania of this time needs some real correction to it.
The stimulus, to a large extent, financed the purchase of imported goods, and the “growth” was in the low value-added areas of distributing and retailing those goods.
The key to real growth is exports, we can only buy so much from ourselves, we need new customers. But huge budget deficits set off a series of fiscal and monetary dominoes that undermine our ability to export.
Matt studiously avoids the word “tax”, but that’s the essence of what reducing spending is about. Back when I took one Econ course, taxes were aka “forced savings”. If the government wants to reduce spending, it raises taxes, so people know they have less to spend. Rudimentary.
Taxes are in no sense savings. The federal government doesn’t save money, it spends money. When it taxes someone it is substituting its judgement about what is the best way to spend that money for the judgement of the person taxed.
From an economist’s pov, it’s savings, because it’s not consumption. Thus, while you might spend your money on a new AR-15, the government will invest it in bridges or defense.
No, from an economists standpoint, savings is savings, not tax payments. The difference is fundamental: Savings allows for future consumption, taxes just means you lose money. You might save money to allow a down payment on a home; the government will spend it on cronies to repay campaign contributions or on welfare to buy votes.
Your idea that “the government will invest it in bridges or defense” is incredibly biased. We know the government spends far more on welfare than bridges.
Kinda glad they went with chained CPI on the tax brackets and not SS. Are people arguing for something different than what's now used to adjust the max income cap for SS or is it called contribution base?
Honestly, I would love deductions getting phased out in such a way that I wouldn't have access to any federal deductions -- that coupled with the IRS implementing its own filing system would make tax season a breeze
Price inflation did not disappear under Reaganomics. It was just greatly limited in its scope.
1. For health care, child care, tuition, and housing owned or rented, or e inflation continued at its 1970s pace with only the occasional stumble.
2. For most consumer goods, partly because of globalization and partly because of Walmart technologies, prices stayed more or less in step with wages. (Wages per hour, not household incomes; the number of person- hours households put into the workplace increased drastically during that time, mainly because of #1)
3. For technical devices like TVs, phones, computers, etc. consumer prices dropped in relation to wages.
BTW “inflation” historically means “increase in the money supply” and “price inflation “ is merely its usual result.
There is this fantasy that “the rich” have enough money to fund the whole system without anyone else being burdened. Unless “the rich” is defined as “anyone with an income much over average,” that is totally false.
This should be read by the numerous budget committees in DC, but I fear it will fall on deaf ears. Two generations of adults (GenX and Millennials) grew up thinking inflation was a remnant from the past and deficits didn't matter. Both the Trump tax cuts and Biden's ARA have made deficits a huge problem, in addition to exacerbating inflation. We reap what we sow.
I look forward to more reporting on this. Without it, I have no proof for what I very much suspect: that the side which has shown a propensity for violence all along, is actually behind these attacks. Until I see more evidence, I’m not inclined to believe that the Buffalo police is a haven for pro-choice cops who refuse to investigate unlawful attacks on pro-life facilities.
I’m not an Economist, only an avid reader who took my first Econ course in 1963 and had an aunt who edited Economic Impact (USIA Journal) for many years. Debt reduction has been much on my mind for years. To my mind, Supply and Demand are still enormously important when beginning to look at a market analysis. (Too Simplistic perhaps). Through this lens, I don’t foresee food, including grazing, becoming less expensive any time soon. The Climate Change weather events are worldwide. People are distressed by oil & gas prices. Again with the strong efforts of Liberals to hasten a “Green” future without acknowledging the immediate need for more oil drilling while infrastructure in put in place, Oil supplies are less than affordable. So many basic survival things have been affected by recent weather that I may be too dense to understand how higher & higher interest rates are going to solve the inflation problem. Of course we all recognize that housing, particularly rental is in short supply.
Matt, you have such great ideas, but I would be very interested in your thoughts re how these ongoing supply issues might skew the traditional weights of different items in market analysis.
SallyJones
Can we just keep it simple and raise taxes on the rich?
I still don’t buy the inflation narrative and I buy the serialized price increase theory even less.
For every product category that shoots through the roof, we’ve always had a specific story about supply shortfalls sourced in the pandemic or, later, the invasion of Ukraine.
"But for now, inflation is not just a little bit above target. It’s way above target, so the Fed is likely going to want to raise interest rates a lot."
I'm on board for deficit reduction. I'm on board for the Fed cooling demand in order to bring down inflation. What I don't understand, however, is the Fed inflation target. As far as I can tell, it's still 2%.
Really? So if after all these actions take place, the economy settles down to 3.5% inflation and 4.5% unemployment, the Fed will keep up the beatings until we get 2% inflation and >6% unemployment?
Who decided that 2% was the holy grail never to be fiddled with? Or are we supposed to believe that if the Fed brings inflation down from >8% to "only" 3.5% it will thereby lose "credibility" or that if it declared 3.5% as its new target it has revealed itself as dangerously dovish?
“But I don’t think it really was bad faith.”
2017-2018, republicans had complete control of the federal government. What did they, in all of their good faith, do with the deficit?
It seems a just a bit blithe to be calling for "draining the wallets" or talking about "people whose money we need to be taking away"! It sure would be nice to hear a philosophy major explain the moral philosophy of when precisely it is justified to make those impositions on peoples' wallets and whether the current moment really clears that hurdle.
Popularism, but also sneaking in COLA changes that hurt our wealthy constituents pocketbooks and which our poorer constituents won't realize was a good deal for them.
In general, I think you're analysis that actually, unlike 2010, this is a good time to think about reasonable deficit plans. But I have some serious pushback about your analysis regarding the deficit mania in 2010 and specifically about how much "good faith" there was in the GOP mania for cutting deficits.
I think you're right to say that Progressives go to far in saying it was 100% entirely "bad faith". As you note, Romney did not have to put entitlement cuts on the table in 2012. But deficit mania really was driven in huge part by a) bad faith and b) some fairly shrewd political analysis. First, I think you are forgetting just how quickly GOP politicians and GOP pundits were screaming about the need to "tighten belts" as early as Fall of 2008. Remember Grover Norquist? He's not a name you hear much anymore, but in 2008 he was BFD and scared the bejesus out of almost all GOP politicians. Here he is in November, 2008. https://www.usnews.com/opinion/articles/2008/11/24/the-conservative-movement-will-rise-again-grover-norquist-writes. Yes he is almost a parody of a Reaganite zealot. But my point is that very early on, there were GOP aligned voices was out there talking about need for spending cuts. I distinctly remember a number of GOP pols saying the equivalent of "when the American people need to tighten their belts, our government should be doing the same".
But the other part you are leaving out is the Mitch McConnell part. Specifically where he (or more likely an advisor) noted that the goal was to make Obama a one term President and that one of the best ways to do this was to not cooperate on anything as bipartisan legislation almost always redounds to the President's benefit. I know now McConnell's reputation as a smooth operator has taken a bit of a (deserved) hit. And that the observation that the opposition party shouldn't work with POTUS, as politically it helps POTUS way more than "out" party is a pretty banal observation at this point. But at the time it was pretty shrewd ahead of it's time political analysis (the Clinton welfare bill famously was a bipartisan effort, but we forget that it was Ted Kennedy who worked with GWB on "No Child Left Behind" and that the GWB Medicare prescription plan got a number of Democratic votes). Point being, that there was a definite deliberate strategy to not only not give Obama any wins, but to also make sure legislation wouldn't pass (or at least be watered down) that would help boost the economy. It's probably too strong to say GOP was engaged in economic sabotage, but it's not really lie either. And screaming about "deficit reduction" was a way to do this; especially as your old colleague Ezra Klein use to point out, deficit reduction was the one domestic policy that somehow escaped the usual "view from nowhere" political reporting that permeates places like the Times (foreign policy itself is another weird outlier).
I'd also point out that one reason Obama was talking about deficit reduction was because he was a Democrat and he is black (also, he was listening too much to Andrew Sullivan and also hired Bill Daly as Chief of Staff, my pick for one of the worst Obama hires of his eight years in office. But I digress). One problem for Democrats since the 70s is to fight the perception they are out of control spenders who will tank the economy. Talking about deficit reduction was a signal they could be "trusted" with the economy. In addition, Obama was (and is) painfully aware of the racist stereotype that African Americans are wild out of control spenders who can't be trusted with money (see basically everything about the politics of welfare). So much of his demeanor and cautiousness on the economy (and his Presidency in general) was a very conscious effort to not act in any way that would "confirm" the worst bigoted stereotypes Americans have of Black Americans.
Again, I agree in general that you make a good case that deficit reduction has real merit in a way it didn't in 2010. But you're history about the deficit mania of this time needs some real correction to it.
An economic "recovery" financed by fiscal stimulus is not a sound recovery, just a big party running up the credit card.
If you have actual growth, then it becomes easy to pay down the credit card with the bigger economy a few years later.
The stimulus, to a large extent, financed the purchase of imported goods, and the “growth” was in the low value-added areas of distributing and retailing those goods.
The key to real growth is exports, we can only buy so much from ourselves, we need new customers. But huge budget deficits set off a series of fiscal and monetary dominoes that undermine our ability to export.
That’s true, but only if it happens, and it never does.
Matt studiously avoids the word “tax”, but that’s the essence of what reducing spending is about. Back when I took one Econ course, taxes were aka “forced savings”. If the government wants to reduce spending, it raises taxes, so people know they have less to spend. Rudimentary.
Taxes are in no sense savings. The federal government doesn’t save money, it spends money. When it taxes someone it is substituting its judgement about what is the best way to spend that money for the judgement of the person taxed.
From an economist’s pov, it’s savings, because it’s not consumption. Thus, while you might spend your money on a new AR-15, the government will invest it in bridges or defense.
No, from an economists standpoint, savings is savings, not tax payments. The difference is fundamental: Savings allows for future consumption, taxes just means you lose money. You might save money to allow a down payment on a home; the government will spend it on cronies to repay campaign contributions or on welfare to buy votes.
You are your own worst advocate. Arguing from bias doesn’t persuade economists.
Your idea that “the government will invest it in bridges or defense” is incredibly biased. We know the government spends far more on welfare than bridges.