If you’ve ever wondered how we’ve gotten into the fiscal mess in which we’ve find ourselves, look no farther than this snippet from Matt Miller of the Center for American Progress in an op-ed in the Washington Post:
But, at least for now, the policy consequences are modest and manageable.
How can I say that? Because even the most debilitating debt is racked up only one year at a time. And that means the staggering $9 trillion in fresh debt that President Obama has projected over the next decade is only a number on paper for the moment. If they came to pass, these levels of debt would be country-wrecking, next-generation-crushing and downright wrong. Is the president’s forecast of such debt proof of the White House’s unwillingness to lead on hard choices? You betcha. Does it mean we’ll actually incur this debt? In a word, no.
Let me restate this another way. “Who cares if we can’t support the payments on a $10 million house on a $30,000 salary? Maybe we’ll make more next year. And we can always walk away from it.”
I can only speculate that Mr. Miller is suffering under the same misconception that a generation of Democratic politicians seems to have. The budget surpluses under the Clinton Administration were not a result of prudent stewardship and the tax increases implemented in his presidency. They were a windfall, the result of increased revenues which were in turn the result of twenty years of capital investment. I’m not seeing that sort of investment now, there will be no similar windfall to save us, and we can’t tax our way to prosperity.
Uhhmmm, okay, but lets not forget that tech bubble. Sure did help alot in bringing in extra tax revenues.
And is that what we get to look forward too? Periods of bubbles and busts? What if they keep on getting bigger and bigger? This last bubble was bigger than the tech bubble. What if the next one is even larger?
Where do you think the tech bubble came from, Steve? I think it was one of the results of twenty years worth of investment in technology. It also produced the increases in productivity we’re seeing now.
I assume the author’s point is that any estimates of future debt are virtually guaranteed to be incorrect. Reality may be better or worse. But estimates from the CBO, the whitehouse, from pundits, from journalists all have one thing in common. They are all proven to be wildly inaccurate.
I don’t think 20 years of investment will give you a bubble. There has to be more to it than just 2 decades or even N decades of invesment. And if I knew where bubbles came from I’d become a rich and famous economist.
True, estimates are always wrong after the fact, and I wouldn’t be surprised if the CBO, et. al., if wrong frequently. Part of it might due with that the CBO ignores its own influence and also assumes static conditions (i.e. it often assumes current law holds for n-periods).
But from that to say, “Oh, the debt, its managable,” is just idiotic. Blindingly and stunningly so.
Clumsy diction on my part. Significant investment over a long period of time created industry and the expectations of future growth, lots of money chasing what looked like sure things created the bubble.
Not sure if this is what you mean Dave, but here is how I’d describe it. The whole “New Economy” thing where people didn’t matter processor speeds did was I think also an important consideration. It suggested a wide spread disconnect from the way things really worked. I think people thought there were lots of profits to be made (at least early on) because you could sell as many widgets as X-Co. (an old economy brick and mortar operation) without all the brick and mortar!!!! You can charge the same price, ignore sales taxes, and not spend hardly anything on stores, sales people, and stuff like that! Why it practically prints money!!!!!!11!!! We’ll be rich!!!!111!!!one!!!eleven
It looks like a compelling story, but in the end people like to still be able to go into the stores. Peruse the selections, see the item first hand, etc. I know for books it is not at all uncommon for me to pick up a book and see if the first few pages “grabs me”. If not, I’ll often put it back. And while you can ignore sales taxes you have to pay shipping and handling and you have to wait a few days to get the product, the old brick and mortar places don’t have that issue.
I think it was a case of expectations far exceeding what the dot.com business could deliver. When people finally realized it…bubble bursts. That and I’d also look at interest rates. Interest rates get too high and maybe that jolted people out of it.
That is my TL;DR guess.
I think we could all agree that we passed through one of those 2-4 in a lifetime events in technology/productivity in the 90’s. Like the steam engine, or electrification.
20 years of investment? Too specific for my tastes, but………
The bottom line is that info technology spawned the internet spawned an equity bubble. As a general proposition, info tech is here to stay. The bubble came and went.
As far as Miller goes, what an idiot.
And bubble taxes…….gone.
Looks like a bubble spike to me.
I remember that Rubin supposedly advised Clinton to cut back on some of his more ambitious spending plans because of concerns about the deficits. We also had pay as you go then, which Republicans let expire in 2002.
Steve
The basic point I’m making is that counting on a once-in-a-lifetime occurrence to keep right on occurring is fiscally irresponsible.
I think you need to check your premise. We’ve had two within 20-25 years. Not exaclty a life time. I keep telling you, its the new black.
Of course, your conclusion is still on the money. Trying to balance the budge via bubble-bust cycles is the road to ruin, not salvation.
Shall we say “once a generation”? I view even that with foreboding since the peaks seem to be getting higher and the valleys deeper.
The irony of all of this is that the fiscal and monetary strategies evolved over the last 75 years were supposed to be antidotes for the booms and busts of the business cycle. It strongly looks to me as though they’re now being used to engineer booms (which opens us up to a compensating bust).
Lately I’ve been thinking of writing a post titled “We Are All Half-Keynesians Now”. Somehow the pro-cyclical part of Keynes’s prescription has been elided.
Lets see, dot.com bubble: 1995-2000 (or so).
Housing/financial bubble: 2002-2008 (or so)
We could probably move the dates around a bit, but the point is this is twice a generation at least by looking at the data. I’d argue that the current responses are laying the seeds for the next bubble. Our government has very clearly and very loudly said, “Irresponsible behavior is A-Okay with us, we’ll cover it with the full faith and credit of the American Taxpayer!”
I think that is a bit overly broad. I think if you were to look at guys like Kydland and Prescott or Lucas you’d find that they’d be more in favor of things like monetary rules vs. the discretionary policy we now have.
It certainly seems to me as though the policy of the Greenspan Fed was to create a boom or, as they probably thought it, continue economic growth.
My own view is that the Fed should, by custom, charter, and legislative mandate, be limited in its operations to managing the money supply and regulating the banks. Lord knows that’s enough without trying to manage the economy at large, too.