"Since COVID" is a bad baseline, I would draw a parallel with someone who's condition "stayed stable since they entered the hospital a few days ago". It is too recent and the situation pre-COVID was quite bad. The US is the most indebted entity [0] in history. But it is not obviously the most productive; since that title may sit with China now. It is a precarious position.
Complaining about the “national debt” is the clearest sign that someone does not understand economics.
What do you think happens if the debt goes up? Do you think the government is gonna go bankrupt? That’s literally not how it works.
Do you think inflation is gonna happen? Again, literally not how it works. In fact, too low public spending means you get deflation which is even worse than inflation.
Infinite free money hacks is literally how fiat currencies work.
The government wants the economy to operate at close to full capacity, so it creates money and spends it into the private sector.
Eventually that money makes it to individuals, who want to save some of that money. There’s also foreign agents that might want to hold on to your currency, and trade happening that means some of your money leaves your country.
If the government maintains steady spending, this money supply slowly dwindles, which leads to a shrinking economy.
So governments issue debt to offset that dwindling money supply. The catch is that spending that doesn’t create real resources is inflationary, so you have to spend money on things that eventually earn you more money.
At the end of the day, that’s the idea of macro economics. Spend enough to get your economy growing, while making sure inflation doesn’t go up too much. Which is why people that complain about debt have no idea what they’re talking about.
The reason Trump won was because “the economy is doing great since Joe Biden”, meant the billionaires tripled their wealth as mega corporations went from less than a trillion market cap to more than 3 trillion, while me and millions others fixed salaries went up 5% if you were fortunate.
Biden governed far too much as a center-right President, I agree. Meanwhile Trump had those same billionaires with front row seats at his coronation. So the situation will continue to get much worse.
Those billionaires didn’t choose to inflate the money supply. I have no issue with them having assets that go up in value. That just doesn’t mean the economy is doing great. The point is there is way too much spending, and this includes Trump, yet it seems like they really are trying to make a dent in our federal spending, and Musk going in and looking at USAID, is quite awesome.
Trumps net worth actually went down from being in office, and so far so has Elon’s, so I ain’t worried.
I don’t see how that’s relevant to the macro economics discussion, and I don’t see how Trumps tax cuts for billionaires are going to help you in any way.
If you don't see how that's relevant to the macro economics discussion, i don't see how the macro economics discussion is relevant.
We're sending in the young guns to save on government spending because trump won partly on "Biden ruined the economy". The government spending leads to the increase of government debt. Or is the debt coming from a separate source?
I think you're arguing against a position that not many people here hold - people aren't worried about bankruptcy so much as inflation.
My understanding is that the reason the USD is unusually resistant to inflation is that there's artificially high demand due to international demand for the currency as the global reserve currency.
But yeah, if that effect weakens (and the BRICS are trying to challenge the USD as reserve currency), then I think you'll see the USD weaken/inflation spike in response to large deficits.
> What do you think happens if the debt goes up? Do you think the government is gonna go bankrupt? That’s literally not how it works.
You're the one that has no idea what hes talking about.
Debt uncontrollably going up without something to balance it means exactly that. If the debt exceeds the GDP, which is where the US is clearly going, we are looking at a collapse of the US dollar and its global influence. Theres no telling what will happen after that because its unfathomable
This is also why the techbros are staging a coup on the US, so the US doesnt come for the billions when it goes bankrupts
Well, yes. Japan as a nation is a net creditor. Net creditor don't generally struggle when paying back their debts. The question of where the money will come from has an obvious answer. If the US was a net creditor then the story would be completely different.
The value of a currency has nothing to do with how that country’s economy is doing. It’s mostly a factor of international trade. That has nothing to do with debt ratios.
1. I don't think you have a theory for how it works.
> means you get deflation which is even worse than inflation
2. People regularly come up with this theory that prices dropping is a terrible thing. An extraordinary claim for which I've never seen an argument I accepted and the evidence is as thin as a rake. Typically the countries that experience the horrors of deflation go on to be unusually wealthy and prosperous - I'd like to see more of it. But it is easy to see why the governments would believe deflation is bad that since they are typically enormous debtors and inflation favours debtors.
Frankly I suspect that if prices go down all else equal most people will be better off and able to afford more stuff. Wild take, I know.
People who bring up this theory, bring the great depression as evidence, forgetting that the problem there was caused by the law forbidding to reduce salaries, which made prices going down equivalent to minimal wage going up, which of course leads to unemployment.
Given the confusion around, eg, the 2008 financial crisis I just flat out reject that there was 1 lesson in the 1930s that was so unambiguous that the debate is settled. It is a ridiculous claim. There was so much going on and so many people always pop up in a crisis trying to muddy the waters to get their preferred policy through. Look at the minimum wage debate - still unsettled despite what I would consider overwhelming evidence in theory and practice. And whatever anyone's personal beliefs, if that can't be settled there is no way at all that the inflation/deflation question has a firm answer from one event in the 1930s.
Especially given that "prices always up"="good" is counter-intuitive and I can't find anyone with a clear argument in favour of inflation. There is lots of gobbledegook and occasionally people who make arguments equivalent to holidays being bad because they reduce economic output. Which is an argument but not very persuasive, I'd prefer to optimise towards an end state where I get to live out a permanent comfortable holiday; even if the economic metrics go down. I like comfort.
Well if I want to talk about inflation we have things like the Nazis, Zimbabwe, a long list of collapses that countries never really recover from. But if we look up deflation... https://en.wikipedia.org/wiki/Deflation#Historical_examples
EU - Still to see the long term consequences, but it isn't obvious the deflation was the bad thing in the story.
Hong Kong - Jewel of Asia.
Ireland - Very high HDI and GDP ppp per capita.
Japan - Economic success story.
UK - Can't argue that they're a success! But their problems after WWI wasn't the deflation.
US - Some good some bad, lots to debate, but the latest episode (Great depression in the 1930s) set them up to conquer the world and establish the Not-An-Empire they have now. If that is a bad outcome I fear the good ones.
I'm not seeing the Zimbabwe equivalent. In fact it looks a lot like deflation is associated with - if not a precursor to - long term economic success and prosperity.
Is there an example where you can explain how the deflation actually led to economic success? The above feel like very distant correlations more than a result.
'prices dropping' often includes labor as well, since currency is primarily a medium of exchange.
I'm not arguing that deflation leads to economic success. I'm arguing the evidence that it is bad is nonexistent. Although it has some interesting interactions with the tax system and government policies.
If you go through the arguments, inflation/deflation are both mostly neutral because people just adjust their expectations by whatever they think the rate will be. In practice though inflation policy is typically masking money printing projects or policies that destroy wealth. And by reversing that, deflation is usually positive but only because it suggests that the political leadership at the time was interested in honest market signals rather than seizing an opportunity to conduct handouts.
> 'prices dropping' often includes labor as well, since currency is primarily a medium of exchange.
Inflation or deflation, by definition, doesn't impact how much someone can buy in real terms. Because wages and goods are theoretically changing at the same rate.
Deflation is bad because it’s literally your economy shrinking. It’s not prices dropping, it’s less spending across the board. Depending on your demographics you end up with huge unemployment numbers or a standard of living for the older generation that can’t be sustained by the new generation.
If you’re arguing a fringe point of view please make that clear up front. If I knew you think deflation is good I wouldn’t have ever replied.
And by the way, you say Japan is an economic success story because of deflation, but I guess you never bothered looking up their 300% debt ratio that they have been running for decades, exactly because they didn’t want deflation to ruin their economy.
> Deflation is bad because it’s literally your economy shrinking.
Well, this comment is off to a bad start. What about a very small economy of 1 widget that can be produced and sold for $2 per unit time, then a technological change that causes the equilibrium to move to 2x widgets for $1 apiece in over the same time? The real production of the economy has doubled, and experienced 50% price deflation. The same basic scenario can be developed at any economic size and complexity. No unemployment. No standard of living drop. Just people affording more stuff.
Deflation, in fact, is literally not the economy shrinking. It is a systemic reduction in prices.
> And by the way, you say Japan is an economic success story because of deflation, but I guess you never bothered looking up their 300% debt ratio that they have been running for decades, exactly because they didn’t want deflation to ruin their economy.
This is pretty typical of anti-deflation comments in my experience - what are you trying to say here? Countries manage to overwhelm themselves with high debts with inflationary monetary policy too; the problem - if there is one - is the borrowing of money. It is hard to end up in debt without borrowing money and investing it unproductively. That decision is independent of monetary policy.
And I didn't say Japan was an economic success because of deflation. There wasn't a "because".
> Inflation or deflation, by definition, doesn't impact how much someone can buy in real terms. Because wages and goods are theoretically changing at the same rate.
From your earlier post:
> Frankly I suspect that if prices go down all else equal most people will be better off and able to afford more stuff. Wild take, I know.
As you mention above, this isn't likely to actually be that different.
But:
>In practice though inflation policy is typically masking money printing projects or policies that destroy wealth
Inflation rewards moving money into goods, and deflation rewards moving money out of goods. Generally, an economy where money moves around is better than one where it sits idle. Yes, it does penalize saving cash (), which offends many puritan mindsets (including mine), but it rewards risk-taking and committing your currency towards capital, both of which tend to make the economy more productive.
() - So, if your 'wealth' is in currency, then inflation does devalue your wealth. But if your wealth is in capital, that capital should fluctuate with the currency, and inflation doesn't devalue that.
Heh, you noticed. I was being a bit sneaky in my word choice [0] there - the commonly used measure is the CPI [0] which doesn't include wages - so in practice it would often measure "deflation" which is really just prices going down due to technology improvements and people becoming better off. Think what has been happening in the tech world for however long. If not for pro-inflationary policy the overall economy would tend to stable prices except for massive drops in the cost of tech goods, leading to measured "deflation" (not really deflation but error in the measure) and people getting wealthier.
That was why I said "prices go down" instead of "deflation" - because the measure in practices is a price basket which doesn't directly include wages.
> But if your wealth is in capital, that capital should fluctuate with the currency, and inflation doesn't devalue that.
In the abstract, yes. In practice, after you factor in the interactions with capital gains tax it actually means there is a wealth tax (transaction tax? Extra tax on the principle, anyway) which is relatively punishing to anyone trying to save for their old age.
EDIT [0] With benefit of 24 hours hindsight, it would have been more proper to say "consumer prices" to distinguish the CPI from inflation.
[0] https://en.wikipedia.org/wiki/Net_international_investment_p...