Growth and Government

http://samaltman.posthaven.com/growth-and-government

by sama • 13 years ago

88 122 13 years ago

samaltman.posthaven.com

joelrunyon• 13 years ago

First blog I've seen on posthaven. Is it literally the exact same as posterous w/ the monthly fee?

Trying to figure if I should just import it to a WP blog or if posthaven is worth it (and will still be around down the road)

garry• 13 years ago

We're rewriting Posterous from scratch, so it's a brand new codebase. If you liked Posterous (pre-Spaces), I think you'll like Posthaven. I was the main designer behind the earlier Posterous and also wrote much of the software too. It's easier to write things the 2nd time around.

sama7• 13 years ago

Posthaven is outstanding!

crusso9• 13 years ago

I really like the blog article. You tried to cover a lot of ground, and I think you did a good job being objective. The analysis on growth of GDP was something I haven't seen presented in quite that way.

It got me thinking. Thanks!

abstractbill5• 13 years ago

The GDP growth rate chart is interesting; The overall trend line does point gradually downwards, but the big spikes in both directions seem to have flattened out a lot, rather than just the positive ones going away. I wonder what would cause that.

swombat4• 13 years ago

Many good points, though I'd take exception to this line:

incidentally, it should be a big red flag for growth when the brightest young people start going into finance, since they aren’t actually creating any more wealth, just redistributing it

A modern finance system does more than "redistribute wealth" - or rather, perhaps better phrased, redistributing wealth is fundamentally important to growth and wealth generation. Wealth isn't generated in a vacuum - it's a product of capital and work. The capital can be in all sorts of form, and a modern finance system does its best to keep that capital liquid and keep it in the place where it gets the best return.

Having a faulty banking system would be a bit like having a faulty memory allocation system in a computer program. It may not be the most directly related to performance/growth, but if memory is poorly allocated (e.g. a method that should use just one memory allocation call has to use 10 billion calls), performance will suffer.

Of all fields, technology, with its VC, capital-fuelled madness, should have a pretty clear understanding of the importance of capital allocation.

That said, overall the article is very sensible, or seems so to me. I'd only add that this is not just a US problem, it's a world problem. The whole world is connected together now, and any worthwhile solution cannot be purely US-centric.

We must figure out ways to make growth happen on a global scale, for all countries taking part in "the game".

sama7• 13 years ago

Capital allocation is critical, no question. I think venture capital is a great thing, but I think it's very different than HFT.

swombat4• 13 years ago

For sure! Though, to paraphrase Clarke, I'd say HFT is reality's way of asking "how's that anti-fraud legislation coming along?"

Unfortunately, the people being asked seem to largely be in the pockets of the banks anyway! Oh well...

nawitus5• 13 years ago

HFT makes markets more liquid and efficient. I think people oppose HFT because it prevents small investors from competing with algorithms and bigger players. However, the function of market shouldn't be job creation, it should be used to determine true market prices.

If all traders are replaced by HFT algorithms, that would be fantastic news. Opposition to that is ludditism.

john_b3• 13 years ago

I prefer to think of "finance" (to the extent that its myriad subfields can be subsumed under that label) as the oil that lubricates the machine. That is, necessary for proper operation, but incapable of providing a motive force by itself.

On a related note, it's easy for "financial types" to fall into the trap of equating GDP with the creation of wealth (indeed, some people define it this way), and during economic booms structural problems are often glossed over by citing increasing GDP as a sign of growing wealth. But at the end of the day, improving living standards have a subjective component that can't be fully captured by measuring the total value of the goods & services produced each year.

jbooth4• 13 years ago

I'm not disputing that what the finance sector is supposed to be doing is good for the economy.

But the line is about the brightest young people going into finance. When your brightest people are going into allocation rather than the actual invention and building of things, because it's soooo, sooo much more profitable, you've got a structural problem.

scarmig• 13 years ago

Couldn't you say the same thing about the USSR? All the smartest people should work for Gosplan because correctly allocating capital is key to creating wealth, and to achieve that all the people working in and running Gosplan should get paid the most.

smoyer• 13 years ago

And ... even those who are producing "goods" aren't creating durable (physical) goods. We're selling each other more and more software, services, media, et cetera but if it all comes crashing down, you're going to worry about food, shelter and clothing.

nawitus5• 13 years ago

And what's the problem with selling services instead of physical goods? The automation of manufacture means that there's less jobs to produce goods and more to crete all kinds of services and information. If a factory needs 80% less people to produce the same number of cars, then that's a good thing.

Those people currently producing food and clothing are not going to disappear if the economy crashes.

johnrob2• 13 years ago

typo: "It was their number one priority; the put it up on their desks, on their refrigerator, and on the mirror in their bathroom"

tunesmith• 13 years ago

I think it's an interesting belief - that democracy doesn't scale/work when there is no growth.

But if you combine it with the belief that we can't have growth forever - see "Limits To Growth", Donella Meadows, etc - then it leads to the question of: what kind of government form should we have if both beliefs are true?

johnrob2• 13 years ago

Scary thought: the U.S. is actually going to have to compete going forward. We've leveraged our natural resources for a long time, but we just can't get much more growth out of them.

speeder2• 13 years ago

The first half of the article is good, the second half totally miss the point.

You CANNOT fix what is happening in the western world now (not only US, but even Brazil that is not a developed company is facing the same issues) by fixing the economy.

The economic problems we have, are a symptom of something else, that is the degradation of our culture.

You cannot have infinite economic growth like the author advocates, when you population is dwindling, also, the growth that matters is not really GDP, more money does not always translate to better living conditions and power.

Many people say that Malthus was wrong, because now we have a world full of fat people and the "green revolution" that saved us from starving, yet, he was not wrong...

Yes, we have a world full of fat people, we can produce total calories, mostly in the form of carbs, in amounts that are much more than we need, but several other nutrients are lacking, and we are running out of the material that allowed the "green revolution" in first place (for example, natural fertilisers are not enough, and we are mostly mining it, and it already peaked, we WILL run out of fertilisers, at least the one that we can mine on land, and the only option that will remain is figure how to retrieve from seabed the stuff we threw and discharged there).

More technology and better ran economy is not the solution. Yes, it can be part of the solution, but it is not what really matters. What really matters, is the rebuilding of a behaviour that is less greedy and selfish, we need to recover the urge that people felt to help others, specially their family, the urge to seek happiness of other people, not your own at the expense of others.

Yes, we are in a zero-sum world, but because we put ourselves there.

The changes that rippled on the world in the last century, happened because we could change, prosperity allowed them, and not the opposite, it was not our culture changes that allowed prosperity. The cultures that reach the growth that the author wants, are the ones that understand that they must work for future generations, not for themselves.

We need more sex (with less partners), seriously.

speeder2• 13 years ago

My post got a couple of upvotes...

Then it went back down to 1 point.

Since you cannot undo upvotes, I guess people are also downvoting me.

Can someone refute my arguments, instead of just downvoting? When you agree, it is easy to just upvote, you agree, thus there are not much else to discuss.

But I urge people to write when they disagree, how can we discuss things, if you just do some drive-by downvoting? I made a very big text, I want to know what you are disagreeing with! I want to see your counter-arguments, so I can argue back! It is this way that I can learn more maybe, or teach.

john_b3• 13 years ago

I didn't downvote, but your premise is incorrect. You can have increasing economic growth with a dwindling population. Russia and Romania have experienced this for over a decade. You may discount Russia as a post-Cold War bounce, but there are other examples of economies with negative or stagnant population growth that also experience economic growth.

You claim that our economic malaise is primarily due to cultural problems, but you don't cite any data to support this. I doubt anyone collects statistics on the percent of people who "help others", but there are statistics that contradict your assertion that American culture is declining, e.g. the dramatic decrease in violent crime over the past two decades.

You also ignore the possible causal relationship between a degrading culture (if it is indeed occurring) and national economic problems. Perhaps people would be less likely to help others if they feel less financially secure?

Too much sex with too many partners and a declining stock of fertilizer, as causal factors of economic malaise, is a tenuous connection at best.

If I had to guess, I'd say that most people didn't find enough relevant, substantial claims in your comment to bother replying to.

kbolino• 13 years ago

Well, your post is not very cogent or clearly organized, but I will attempt to address some of my objections since you seem sincere (I did not downvote you, however).

1. Your distinction between "the economy" and "the culture" doesn't make much sense. They're basically different names for the same thing: what we do, how we do it, and what effect it all has.

2. You claim that: "you cannot have infinite economic growth like the author advocates, when you population is dwindling", yet that is precisely what efficiency gains are all about. In fact, ever-greater efficiency combined with limited natural resources contraindicates perpetual population growth.

3. Your diatribe about "fertilizer" and the "green revolution" directly contradicts your thesis. If we're going to run out of fertilizer, and we shouldn't look to technological solutions, then how are we going to feed all these new people? Kindness to your fellow man lasts only as long as both of you have food to eat.

4. You then go on to say: "more technology and better ran economy is not the solution." Yet technology and (some degree of) competence in exploiting it is precisely what enabled our population to grow as large as it has. Without Norman Borlaug, many of the terrible things predicted in the 1950s and 1960s could have happened.

5. Finally, your masterwork: "the cultures that reach the growth that the author wants, are the ones that understand that they must work for future generations, not for themselves." This statement is patently false. Every example of a society which has grown exponentially has done so by rampant exploitation of labor, resources, technology, and capital.

6. Also, what does "we need more sex (with less partners)" have to do with anything else you said?

argumentum12• 13 years ago

Quality of life should improve for everyone; the bigger issue will likely be that people are very sensitive to relative fairness.

It seems like such a blasphemous thing to say, that there is nothing wrong with the top 1% of people owning 99% of stuff. But it's true, as long as their ownership has not come at the expense of others. Why is that so hard for most people to grasp?

99.999999% of sports TV coverage and endorsement income goes to the top 0.000001% of athletes, but its hard to argue that the world isn't a better place for it.

abstractbill5• 13 years ago

there is nothing wrong with the top 1% of people owning 99% of stuff

Presumably you can imagine a point at which inequality would cause the world to grind to a halt; in the extreme, let's say just one person on the whole planet owns everything that can legally be owned. If you can imagine that not being a particularly good thing, then the argument just becomes one of "how much is too much".

argumentum12• 13 years ago

Of course, which is why I used % rather than absolute numbers. In terms of relative inequality, there is no real limit, the limit comes from when a segment of the population falls under some absolute threshold where they can't sustain themselves and therefore cannot create their own wealth.

lftl3• 13 years ago

It seems tricky to me to define what "at the expense of others" means. I can see some people saying pretty much any private gain is that the expense of others because others could have had it. On the opposite end of the spectrum I can see someone arguing as long as you didn't physically harm someone in acquiring your wealth then it's not at their expense. How do you classify it?

argumentum12• 13 years ago

robbery and fraud?

john_b3• 13 years ago

The thing that causes political instability is not that the 1% derive their gains at the expense of the 99%, but the perception that they do.

In sports, it's pretty easy to demonstrate which athletes are superior. Nobody even argues about it except when it's a close call and "home team" loyalty comes into play.

But for some reason, perhaps a legacy of the Puritan ethos that hard work will produce deserved prosperity, Americans have always felt like their net worth is a measure of their worth as individuals. So when the relative purchasing power of the 99% decreases in relation to that of the 1% (as it has over the past few decades), people tend to feel that the game is stacked against them in a very personal way. If, the thinking goes, they have still been working hard all this time, why are they suddenly valued less? Surely someone must be conspiring to steal the fruits of their labor and allocate it to the 1%.

It's the kind of thinking that revolutions are born out of, which is a scary thought.

argumentum12• 13 years ago

It's also the kind of thinking a lot of genocides have been born out of .. a perhaps even scarier thought. That said, it's not quite yet the time to fear such things.

abstractbill5• 13 years ago

Surely someone must be conspiring to steal the fruits of their labor and allocate it to the 1%

That's not necessary at all, and I think everybody knows it. The thing I think people often perceive as unfair is that there's a level of wealth beyond which you don't have to do anything at all, and you will continue to gain wealth - often at a rate that's much faster than people who do work very hard. I can see that feeling unfair. I tend to think in more pragmatic terms personally - I don't care too much if it's fair or unfair, I care more about whether it works (and on that, I'm undecided).

lftl3• 13 years ago

But for some reason, perhaps a legacy of the Puritan ethos that hard work will produce deserved prosperity, Americans have always felt like their net worth is a measure of their worth as individuals.

Problems related to real and perceived inequality is not a uniquely American trait: http://www.ted.com/talks/richard_wilkinson.html

was83092• 13 years ago

because it is not transparent and perfect, having 99% of the stuff means the .1% can and do warp our democracy

FD3SA4• 13 years ago

Interestingly enough, it appears that the wheels of capitalism (free markets) have run out of the lubrication (purchasing power) that allows them to function.

Wealth inequality is at record highs [1], and is being further fueled as a result of productivity gains from technology. Thus, corporate profitability is no longer coupled to wage growth, and "trickle-down" economics no longer applies.

This is a brave new world indeed, and I'm not sure more startups in the web sector will help. However, applying the lean productivity philosophy of startups to government while simultaneously laying out a new plan for revitalizing the purchasing power of the public, through redistribution mechanisms such as Negative Income Tax or otherwise, may be steps in the right direction.

1. http://news.ycombinator.com/item?id=5345267

argumentum12• 13 years ago

Negative income tax is a good idea only if it replaces all the other forms of redistribution. Otherwise you are just adding another middleman bureaucrat who moves wealth around rather than creates it. It's main benefit is that it could cut out a lot of the bloat in government, while keeping a floor for the least fortunate amongst us.

FD3SA4• 13 years ago

Agreed. Ideally, government services would be completely self serve (via web apps), and all current government employees would be laid off and put on Negative Income Tax benefits. Law would be non-profit, as would healthcare, and there would be severe limits on legal complexity.

In a nutshell, the government must be engineered such that form follows function. Currently, it has become a malignant tumor that grows for the sake of growth itself. Until we agree that government must be leanest of all institutions, we will continue to fall into this ever deepening quagmire of bureaucratic impotency.

kaonashi5• 13 years ago

For a sovereign currency issuer, taxation and spending are not operationally connected. Taxation serves to regulate inflation and unemployment. Too much taxation, you get high unemployment and idle output capacity, too little, you get inflation.

In a situation with a general lack of aggregate demand and high unemployment, adding a minimum income would work similarly to a tax decrease on the extreme low end of the income scale.

I'm not sure what the windging about middleman bureaucrats is about. Look at something like Social Security, it's direct payouts to beneficiaries, so the decision making is left to the beneficiaries as to what to buy. No central planning, just let demand and markets do their work.

NoPiece2• 13 years ago

You could say the wheels of capitalism has run out of lubrication, or you could say that the creeping growth of regulation and governemnt spending has thrown sand into wheels. See this graph of spending as a percent of GDP:

http://www.ritholtz.com/blog/wp-content/uploads/2011/07/outl...

You may want a lot of government spending but you have to acknowledge there is a cost. You may think we need a lot of the regulations, but there are plenty that are a drag on the economy (see patents).

FD3SA4• 13 years ago

Agreed, though I don't believe the two are mutually exclusive. In fact, we suffer from both maladies at present.

Government can spend, but that spending should be as investment, not overhead. Current government spending is akin to charities which have 90% overhead per dollar donated.

nhashem5• 13 years ago

We have, in startup parlance, a high burn, and most of it can’t be considered ‘investment’ but is instead ‘expense’. Spending money on things like infrastructure improvement or new technology that are likely to generate more money in the future helps growth; spending money on the so-called entitlement programs, and parts of the military, does not. Of course medical care and defense are important, and we have to have them—this is a tough balancing act. In some cases, the competitive nature of the private sector may provide a better path. Sooner or later, we are going to have an ugly conversation about our national budget—we can delay it for a long time but not forever. The government, when it needs to spend money at all, should aim to invest.

If you have a high burn, you either have insufficient revenue or excessive costs. I have gotten so frustrated the past four years at the demagoguery of the national debt as a result of excessive costs.

These are the data points I want to point to every time someone suggests our national debt is "unsustainable":

- In 2000, the federal government collected tax receipts of 20% of GDP[0]. From 2009-2012, these tax receipts were around 15% of GDP. This is due to, as you'd imagine, the huge private sector deleveraging that happened in 2008 and the fact that, politically, any suggestion at raising taxes gets you called a Kenyan Muslim Communist. Yet we didn't seem to have a problem with growth when taxes collected were much higher than they were now, as a percentage of the economy.

- 2/3 of our federal budget is spent on Social Security, Medicare/Medicaid, and defense. Any issues with Social Security being considered unsustainable is that only $113,000 of payroll is eligible for taxation. It would seem to me that if you made all payroll eligible for taxation, you would only be impacting those well into the upper-middle class, and would ensure solvency for at least 75 years. Legislation to do so was recently proposed by some Democrats in the Senate[1].

- We spend a lot on Medicare because we spend a lot on healthcare. We spend a lot on healthcare because we are the only first-world country in the world that doesn't put a ceiling on how much health care providers (hospitals and drug companies) can charge, even for basic services. Yet those that have good insurance are completely price-unconscious. We essentially have the worst of both worlds -- not enough free market forces for health providers to price competitively, and yet not enough price controls either. If you have a free 30 minutes, I highly recommend anyone read Steven Brill's recent writeup in TIME magazine[2].

- It is a complete fallacy that we're living longer, so therefore we have to jack up the age of eligibility of programs like Social Security and Medicare. Most gains in expected life expectancy over the past several decades are due to reducing infant mortality -- in other words, the only change is that we have less people that died before they could even pay anything into SS. Furthermore, most life expectancy gains are concentrated on the wealthy -- those that don't even need Medicare. The life expectancy for working-class Americans is actually shrinking.[3]. I'm not really sure why we need to cut government benefits for janitors because lawyers are living longer. Paul Krugman is constantly trying to explain this on his blog[4].

- If you want GDP growth after a recession caused by massive private sector deleveraging, Keynesian government budgets are exactly what you want. Beyond stimulating spending when everyone is clinging on to whatever money they have because they're living paycheck to paycheck, with US treasury interest rates under 2% for years, this is the perfect time for our government to run deficits at cheap interest rates.

The OP says "Borrowing money to get ninety growth cents on the dollar does not count, although that may work for a while." But in current conditions mean we'd be getting much more than ninety growth cents on each deficit dollar. Conversely, cutting each deficit dollar results in much less growth than one dollar. This is known as the "fiscal multiplier," and there is a lot of research showing that in depressed economic conditions, the multiplier is much higher than 1.0. The utter economic clusterfuck in Europe is because too many people in controlling the Euro felt the way the OP does, so you have countries like Greece and Spain cutting their budgets to eliminate deficits, yet resulting in such a harsh economic contraction that their budgets end up with even bigger deficits.[5].

- We obviously have a shitload of waste in the federal government. You can't have a $3 trillion budget and not have some dumb stuff in there. But for the purposes of any macro fiscal impact in terms of GDP or unemployment, it's literally irrelevant. After Social Security and Medicare/Medicaid, you're left with $1.3T in the budget, over half of which is military spending[6]. Yeah, we have too many military bases and we probably have some useless bureaucrats in the Department of Transportation. But for the most part this spending is on core government programs that are helpful and that people like, which is why the only specifics Mitt Romney could give on what programs he would actually cut was Big Bird. I'm sure you could cut $100 billion with nobody really caring, and we should obviously strive to have the least wasteful government possible, but are a few wasteful programs the reason why democracy is going to unravel?

- In the early 1990s, it was legitimate to argue the federal deficit was crowding out private sector growth. Deficit spending required the Federal Reserve to keep borrowing rates high to fend of inflation, which meant it was more expensive to borrow money for any sort of investment. As George H. W. Bush and Bill Clinton passed tax increases in 1990 and 1993 to balance the budget, the Federal Reserve was able to lower interest rates in lockstep, thus preventing any fiscal contraction. In other words, counterbalancing public spending with looser monetary policy can be a good receipt for stimulating growth[7].

However, the Federal Reserve rates have been at zero for years now, because the recession of 2008 pales in comparison to 1991. If you make money as cheap as possible the private sector continues to say "meh, I think I'll just hoard profits" and you don't have any inflation even with absurdly cheap money, then there are no more bullets in the monetary policy gun left, but bless Ben Bernanke for still trying (QE, Operation Twist, etc).

Yeah, yeah, "OMG HYPERINFLATION WEIMAR ZIMBABWE!" The same people have been yelling this for years. Wake me up when the Bureau of Labor statistics reports a CPI inflation over 3%[8].

- 2% growth isn't great, but it's not going to cause democracy to unravel. It may cause democracy to unravel when 99% of the wealth generated by that modest growth is concentrated in 1% of the population, however[9].

In conclusion: in principle, there's nothing really too controversial about what the OP is saying. We should absolutely be talking about the ways to grow the US economic pie so that our political process doesn't keep grinding to stalemates over who gets what of the pie we already have.

Our government isn't perfect. It could do a lot to improve a lot of things to encourage growth, and many of them aren't even fiscal in nature (e.g. patent reform). But if you're just going to point to the national budget, echo popular political talk-show points about "$16 TRILLION IN DEBT OUR GRANDKIDS WILL HAVE TO PAY" and "WE'RE ON THE ROAD TO GREECE" then I'd argue you're completely missing the forest for the trees.

[0] http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Doc...

[1] http://vtdigger.org/2013/03/07/sanders-reid-defazio-introduc...

[2] http://healthland.time.com/2013/02/20/bitter-pill-why-medica...

[3] http://www.nytimes.com/2012/09/21/us/life-expectancy-for-les...

[4] http://krugman.blogs.nytimes.com/2013/03/05/the-life-expecta...

[5] http://www.imf.org/external/pubs/ft/wp/2013/wp1301.pdf

[6] http://www.cbo.gov/sites/default/files/cbofiles/attachments/...

[7]http://www.washingtonpost.com/blogs/wonkblog/wp/2012/08/06/w...

[8] http://data.bls.gov/timeseries/CUSR0000SA0?output_view=pct_1...

[9] http://money.cnn.com/2012/12/03/news/economy/record-corporat...

jbooth4• 13 years ago

Personally, my biggest beef with the current situation is that we're not borrowing to fund infrastructure. You talk to any corporation in America, offer them the opportunity to make capital investments at 0.1% interest, and they'll jump at it. And we need infrastructure investment. But unfortunately, that idea's a rhetorical casualty of the debate on entitlements, despite being a drop in the bucket by comparison.

FD3SA4• 13 years ago

Superb analysis. Please feel free to add this reference for your final point:

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/06/t...

crusso9• 13 years ago

demagoguery of the national debt as a result of excessive costs

If you look at government revenues as a percentage of GDP (your first link) over the last century, they've actually stayed within a fairly narrow window between 15%-20%. With the expiration of the "Bush Tax Cuts", they're up to average levels.

If you look at expenditures, historically they've hovered in the same range. Recently, they've climbed to over 24% of GDP.

How can you look at historical revenue AND expenditure levels and call the unsustainability of spending "demagoguery"?

We have a spending problem.

nhashem5• 13 years ago

If you look at government revenues as a percentage of GDP (your first link) over the last century, they've actually stayed within a fairly narrow window between 15%-20%.

This is like saying my weight has stayed within a fairly narrow window of 150 pounds to 275 pounds. Your "narrow window" is massive. And it's not even accurate, because there is not one single year prior to 2009 in the Tax Policy Center link showing tax receipts under 16%. Historically, the window is more like 17%-19%.

How can you look at historical revenue AND expenditure levels and call the unsustainability of spending "demagoguery"?

I'm not arguing our government should spend 24% of GDP ad infinitum. I was just as enraged in the 2000s during the W. Bush deficits. Had we been running balanced budgets and not fighting absurd wars in Iraq, running deficits to get out of a recession would not nearly be controversial.

But please, to crusso or anyone else, please explain to me what the causes of our "spending problem" are. The only projected growth in spending is due to Medicare, which is a healthcare spending problem, not a government program problem[0].

So are you suggesting we should cut Medicare? My parents have some health issues, and if it wasn't for Medicare, they'd probably be dead. I left my day job in 2011 knowing that I was unlikely to be financially burdened by their well-being, otherwise I wouldn't have done it. But how many startups will die before they're even born because software engineers are too worried about leaving their day job and covering not just their health insurance but their parents? And when will the deficit-mongers finally realize that while government programs technically require taxation, they can provide a basis of society for us to unleash our maximum capitalist risk-taking potential?

[0] http://www.washingtonpost.com/blogs/wonkblog/wp/2012/11/09/t...

jbooth4• 13 years ago

"We have a spending problem" is a dumbed down, politicized way of putting it.

We have an entitlement problem, caused by a population bump, healthcare cost inflation and increasing lifespans.

nawitus5• 13 years ago

"We have a spending problem."

Scandinavian countries spend way more and can balance the budget (though there's the eurocrisis, but it was possible before the depression). The problem with budget deficit in USA is lack of taxation. Tax revenue per GDP is very low.

United States: 26.9% Sweden: 47.9% ( http://en.wikipedia.org/wiki/List_of_countries_by_tax_revenu... )

Just increase taxing and there's no deficit.

prostoalex2• 13 years ago

>>> It would seem to me that if you made all payroll eligible for taxation, you would only be impacting those well into the upper-middle class, and would ensure solvency for at least 75 years.

Assuming no change in economic behavior.

Incomes at that level can be restructured into a variety of vehicles (stock compensation, deferred compensation, stock options) that would not be a subject to SS.

You gain more by enabling job growth.

strlen• 13 years ago

(Note, this is an honest question on my behalf -- I don't have a preconceived opinion on this matter.)

Do you have any data points about Keynesian deficit spending being effective in more recent times? I was under impression that it hasn't had much effect on Japan's "great recession" or when it was embraced in US under -- ironically -- republican presidents, most recently George W. Bush.

I recall "pump priming" also being used to justify tax cuts which came without accompanying spending cuts.

nhashem5• 13 years ago

We haven't needed Keynesian deficit spending in a long time because the Federal Reserve has done a decent job "moderating" economic cycles. Too much growth/inflation, put the brakes by raising interest rates. Too little growth, stimulate growth by lowering rates. Some economists call the 1980-2000 period "the Great Moderation" for this reason.

One of Japan's issues has been that its central bank was not with loose with monetary policy as it could be. Investors expected the central bank to raise interest rates at the slightest hint of a recovery... which they did, thus limiting recoveries. Ben Bernanke wrote a paper in 2000 (when he was a professor at Princeton) criticizing this -- http://books.google.com/books?id=WAgXuZxPvrUC&lpg=PA149&....

You really have to go back to the Great Depression for events that would enable a good analysis of the impact of federal deficit spending. I refer you or anyone else to Christina Romer's paper -- http://elsa.berkeley.edu/~cromer/What%20Ended%20the%20Great%...

Romer was one of Obama's economic advisors in his first term. She suggested the 2009 American Recovery and Reinvestment act should have been $1.8 trillion, instead of the $800 billion it ended up being[0]. She also, under political pressure, gave the estimate that the stimulus would keep unemployment under 8%. Oops.

This is typically what happens in practical execution -- due to political posturing, the stimulus isn't as much as it needs it be or is oversold in its ability to help. Then the opponents say "nyah nyah, stimulus doesn't work, all toy did was cause a bigger deficit, so let's cut government programs instead!" And then everyone acts surprised when cutting spending leads to an economic contraction and everyone ends up with an even bigger deficit. The UK has acted out this drama to the tee, to disastrous consequences[1].

[0] http://www.huffingtonpost.com/2012/02/14/escape-artist-noam-...

[1] http://www.guardian.co.uk/business/2013/jan/24/imf-george-os...

joelhaus• 13 years ago

Thanks for this very well crafted response (could actually feel my frustration subside as I read through your post). This is precisely the kind of sanity that is sorely lacking in today's pop-discourse.

Regarding obstacles to economic growth, a key factor was mostly omitted in the OP's analysis, regulatory capture. The result of large organizations failing to innovate and, instead, turning to regulators for legal protections from competition (e.g. startups). Lawrence Lessig has become an outspoken critic in favor of reforming lobbying rules[#]. In fact, I believe he mentioned that he came to embrace this cause after having several issues he cared about (i.e. net neutrality, copyright, etc.) defeated at the hands of monied interests.

[#] http://en.wikipedia.org/wiki/Republic,_Lost

miked• 13 years ago

From 2009-2012, these tax receipts were around 15% of GDP.

Total US government receipts in 2013 are projected to be $5.56 trillion. US GDP for the same period is projected at $16.3 trillion.

State and local governments consume about 17% of GDP (averaging across all states). http://www.usgovernmentrevenue.com/state_tax_rank

Current US (federal) debt is $16.1 trillion, the burden of which is largely hidden by the fact that interest rates are currently extremely low.

Add to the above numbers an inflation tax of about 1.5 - 2.5%.

Your analysis starts by excluding any taxes you find inconvenient (such as, apparently, social security, inflation, tariffs, ad-valorem taxes, and especially state and local taxes -- which you somehow don't regard as governments) to get the numbers you want. If a business did accounting the way you just did, they'd rightfully land in jail.

But if you're just going to point to the national budget, echo popular political talk-show points about "$16 TRILLION IN DEBT OUR GRANDKIDS WILL HAVE TO PAY"...

You fail to mention who's going to pay it then? It must wonderful to be an Entitled One and write checks that someone else has to cash.

...and "WE'RE ON THE ROAD TO GREECE" then I'd argue you're completely missing the forest for the trees.

Unfortunately, you didn't argue it, you merely asserted it without any evidence and worse, started by providing "evidence" that was misleading at best.

As for Greece, I actually lived there 15 years ago. Even then the government was obviously bloated beyond all recognition, with government "jobs" that required little or no work being handed out as political favors. I left in part because I knew that the country would deteriorate eventually, with a rapidly aging population and three -- count 'em -- viable communist parties and one socialist party (PASOK) that was at that time the largest party in the country. Current newspaper reports and email accounts from a friend there sound pretty ominous.

Years ago a prominent foreign politician -- I'm sorry I can't remember who -- was asked how his country went bankrupt. He replied "Two ways. Slowly at first, then quickly."

nhashem5• 13 years ago

I had assumed the OP was talking in terms of the federal government, as that is the government debt that is most criticized. Also, did state and local taxes not exist in 2000? I would assume the tax and spending ratios would be close to the same.

Also, if the government got to do accounting the way businesses do, then they would be able to capitalize things like infrastructure costs. But because our governments can't, transportation funds dry up and we end up with decaying infrastructure.

You seem to suggest I'm being deceiving here, but all I'm pointing out is this: We had a recession caused by the private sector. As a result of this recession, tax revenue went down, because taxes go down in a recession. Spending also went up, because spending on safety net programs intended to mitigate recessions goes up. And certain people, like yourself apparently, think this is an unprecendented catastrophe. And our long-run debt projections are almost purely a function of healthcare costs and have nothing to do with aging or population trends.

You fail to mention who's going to pay it then? It must wonderful to be an Entitled One and write checks that someone else has to cash.

Where is it written that a country is required to eventually reduce it's national debt to $0? The US will not "die" and leave a bunch of credit card bills to its heirs, like human being. China is not going to knock on our door, throw a bunch of IOUs in our faces, and demand we pay up or they'll break our legs. The figurative way this could happen is if our debt causes expensive borrowing costs or massive inflation. Why don't we wait for either of those to start to happen -- none of which has happened in countries with much greater debt than US that control their own currency (as we do), like Japan -- before you throw the "future burden of our kids" argument out?

Even then the government was obviously bloated beyond all recognition, with government "jobs" that required little or no work being handed out as political favors.

I posted this link down below, but public sector employment has completely collapsed since the recession[0]. So, I can't imagine too many jobs are being handed out this way.

Greece had multiple problems, and yes, government corruption was one of them. It also has no control of a central bank to increase/decrease the money supply. Its government does not also does not possess roughly $100 trillion in asssets[1]. I don't like the idea of selling Yellowstone to Disney (for example) in the face of fiscal deficits, but if you're going to make the "future generations" argument, it's more accurate to compare the government debt to government assets than the government's tax receipts in a single year.

[0] http://krugman.blogs.nytimes.com/2012/04/25/american-austeri...

[1] http://business.time.com/2013/02/05/the-federal-governments-...

sama7• 13 years ago

It seems like we agree far, far more than we disagree.

All I meant by a high burn is that we are net negative more than a trillion dollars per year. I believe we probably need more taxes and less spending to solve it (or just a lot of growth).

Yes, we should just spend less on healthcare. We have a broken system right now.

I agree that social security has a real problem with the income cap. I also don't think I said anything about raising the eligibility ages.

I also agree that discretionary spending is eseentially irrelevant, and entitlement and defense spending is the issue. I believe I said this too.

geoka9• 13 years ago

Why is there no date for the post? When I read "last Friday", I immediately scrolled up to check when it was written, but there's none.

CleanedStar2• 13 years ago

The US has a military base in Djibouti. It has a military base in Cuba - which the Cuban government has been asking the US to get out of for over half a century. The US has military bases in Germany. It is now openly bankrolling anti-government forces in Syria. The US has 10 aircraft carriers in service and is spending a massive amount of money to build a new class of supercarriers. No other country has more than 1 aircraft carrier other than Italy which has 2 - and it is unlikely the US will go to war with Italy any time soon.

None of this of course is on the chopping block. I've paid into Social Security my entire life. It's one of the few things my massive federal taxes are going to give to me in this life. Of course, this one "entitlement" (it's apparently an entitlement to at some point pull out some of the thousands I pushed into Social Security) is the only thing really on the chopping block in any form.

There was an economist who wrote a book about a century and a half ago how the economic system would eventually lead to slow growth, with ever larger recessions, depressions and economic crises, with ever higher unemployment etc. The economist was Karl Marx, and the book he explained this in is Capital. It seems the higher unemployment goes, the worse the economic crises get, the less any kind of left prognosis seems to come around, the establishment view from Paul Krugman to the Cato Institute is full steam ahead. Thus for any other kind of answer one must look outside the establishment view.

CleanedStar2• 13 years ago

As an aside...the bottom of the web page mentions help from Peter Thiel. Thiel has been standing up and saying he has had the brilliant insight that competition hurts capitalism, and this sort of thing. He says he is stating economic truths no one else has said.

While I can't concur with everything Thiel says, I think what he says about competition is correct, and he's also correct people don't say it. But they don't say these things because these ideas are part of capitalism's raison d'etre. It's kind of like him wondering why no one is mentioning the wife of the cocktail party host is ugly. It's something everyone knows, but doesn't say. I guess we should be thankful he's being candid about such things. Perhaps the 1% is so powerful nowadays they feel they can be candid about such things.

stretchwithme2• 13 years ago

When did Thiel say competition hurts capitalism?

kunle6• 13 years ago

>I've paid into Social Security my entire life. It's one of the few things my massive federal taxes are going to give to me in this life. Of course, this one "entitlement" (it's apparently an entitlement to at some point pull out some of the thousands I pushed into Social Security) is the only thing really on the chopping block in any form.

The bases around the world were how the US bought global security, upon which our economic growth for several decades was premised. Without (what looks like) a sprawling military with bases everywhere, we would have less safe/reliable sea lanes, which means higher prices of inputs and lower value for exports, and we would also have much of the advanced world spending ever more of its money on defense goods (it's called a nuclear umbrella for a reason).

Social Security is one of the few things your massive federal taxes are going to give to you in this life THAT ARE OBVIOUS. The other stuff is just as important, though way less obvious.

RougeFemme4• 13 years ago

The bases in Germany were certainly "necessary" after WWII, but 70 years later, do we still need so many and do they need to have so many personnel? Especially with all the "force multiplying" technology that's been developed since WWII.

malandrew• 13 years ago

Question: What inputs does the US need that cannot be found or created in one form or the other in the US?

Is there some natural resource that the US does not have access to within its own borders?

dakinsloss2• 13 years ago

The post is overall good but it misses one huge question and seems to implicitly assume something that is incorrect.

I agree growth is good, but shouldn't we then ask what causes growth or halts it? The post does not explore this, but Sam seems to assume that growth is caused by government investment in infrastructure, science and technology. This is false. What are real concrete examples of this abstract idea 'economic growth'. Many of the best examples are actually due to individuals acknowledged in the post such as Peter Thiel and Paul graham. Growth comes from individuals like these choosing to invest in entrepreneurs (at various stages) based on their judgment. Those investors who judge right enough accumulate more capital to reinvest and continue encouraging growth as long as their judgment about what should grow is good enough.

Sam seems to suggest that growth is achieved through government investment. I disagree. Every dollar the government spends comes from a Peter, a Paul or an Elon. Who is going to do a better job investing and causing growth? Elon or a government bureaucrat. Elon is one of those rare entrepreneurs who has plowed into areas of deep regulation such as space travel and transportation. Imagine if the government wasn't financing roads with money taken from those accumulating capital, then how much easier would it be for Elon to disrupt transportation and grow that industry through innovation? How many more entrepreneurs would be willing to work in that industry?

Each of the most broken and stagnant industries are most touched by government: education, healthcare, defense, finance, transport, and energy. Growth has happened in software/tech because government is far away meaning it is easier to work on problems free of intervention and more people are willing to. Growth has stagnated in these other areas because government has disincentivized entry (and often teamed with established inneffectivr big cos) by getting involved, regulating, giving away for free, and generally making it difficult to impossible for entrepreneurs to enter and thus undesirable.

So what has caused growth? Individual investors and entrepreneurs exercising good judgment. What has slowed it? Government regulation as government has grown its tendrils into more and more areas. What should we do to promote growth? Shrink government leaving investors their money to invest and opening more industries for potential private investment that won't have to face burdensome regulation or competition against public entities that don't try to profit.

humbyvaldes• 13 years ago

Fantastic point. Everything the Government has is first taken from it's people.

RougeFemme4• 13 years ago

There are also arguments that - at least in the U.S. - some of the money taken from Peter and Paul was used to fund technolgy R&D that then spurred investment by entrepreneurs and other private entities. . .DARPA, NASA. . .

sama7• 13 years ago

I actually say that government is bad at picking individual companies to invest in. I do think infrastructure investments by the government are important; go try to do business in a country where the roads are terrible and the trains don't run on time. If we had an efficient system for the private markets to do this, it might be better, but we don't right now.

dakinsloss2• 13 years ago

Thanks Sam for the clarification. I think the likelihood of one developing is much greater with less government involvement (because now there is less incentive to start a competing infrastructure business since your competitor can lose money and not die). If government were not providing roads, we would have tolls (likely in aggregate costing us less than what we spend through bureaucracy) and a lot more people thinking creatively how to build infrastructure. It's such a 'schlep' problem (thanks pg) only bc you have to beat a competitor that can't die and can arbitrarily decree that you are not allowed to do certain things.

pnathan• 13 years ago

Note that stagnation is often caused by high levels of risk-averseness. If a company is sued out the wazzoo for healthcare constantly, they jack up their prices to compensate, as well as upgrading their process, which increases prices.

Note also that government winds up loosely reflecting the will of the people. Popular pressure gets things done to some amount.

It's not all the government's fault is what I'm trying to say.

kunle6• 13 years ago

> We should understand that as a consequence of technology and an economy of ideas, the gap between the rich and the poor will likely increase from its already high-seeming levels.

The gap doesn't just "seem" high, it "is" high. The core reason this is a problem is that higher gaps in income in a society are correlated (not necessarily causal, but they frequently appear) with social instability.

As voters, we currently want more America than we've proven willing to pay for. This means one of 2 things must happen.

1. We pay more for the America we have

2. We get less America than we want

"less" in this case could mean really obvious things like less services or benefits of certain types. It could also mean less of intangibles/unquantifiables such as social stability, or opportunity etc, which are hard to value until they're not there (I've spent much of my life in seriously unstable places in the world, and I can attest that little else works when you dont have the basics). Most likely, we'll have to pay a little more, accept a little less, and as OP suggests, buy slightly different things with what we're paying. If we don't make those decisions, gravity will make them for us.

crusso9• 13 years ago

I would argue that plenty of "less" is "more". - less inefficiency - less duplicate programs - less intrusion upon personal liberties (drug war, EPA) - less government power ~= more personal sovereignty.

kunle6• 13 years ago

Your argument makes sense insofar as we as a society need to litigate/revisit what our positions are on these things, but, as is typically the case, the answers aren't all that clear. All the things you mention are things that reasonable people can disagree on.

dbul• 13 years ago

A shocking data point about how things are going is that the median real net worth for households headed by someone under 25 dropped 68% from 1984 to 2009, to $3,662.

I remember hearing this on NPR a couple days ago. It's actually 35.[1]

To all who write blog posts: please cite your stats.

[1] http://www.pewsocialtrends.org/2011/11/07/the-rising-age-gap...

gjm11• 13 years ago

Net worth can be negative and quite often is. Quoting percentage changes for values close to zero isn't very meaningful -- a change from $12k to $5k net worth probably has about the same impact as a change from $8k to $1k, but one is a "58% decrease" and one is an "87.5% decrease".

If there's something shocking about this statistic, it's how small the figure is, not the fact that it's dropped by 68%.

dsugarman• 13 years ago

>Robots are going to replace human workers in lots of factories; jobs that do require human labor are going to continue to move to the lowest-cost place. But that’s ok, and these sorts of jobs are not what will generate economic growth for us anyway.

This is all very true, but automation doesn't remove jobs just at factories. We will continuously figure out how to automate more and more jobs. Capitalizm should dictate that these jobs would fall into a ranking where the highest paid, easiest to automate jobs should be replaced first, that might mean traditionally very "safe" jobs like Accounting (see: InDinero). What happens to those who are unskilled an can not assume jobs that really promote growth?

I think it is very important that the government can react to these changes quickly, and while entitlement programs may not be investing in growth, it prevents a very large class of US citizens from being very very unhappy resulting in a very harmful situation for all of us. I do think in the end, you are right, if we can hit growth, everyone will benefit. The consequences lead to an extremely complicated problem and every idea I have to solve the problem is pretty porous.

ashwinaj2• 13 years ago

America needs a societal change. You cannot have a celebrity obsessed, self-serving, lazy, first-world problems obsessed, narcissistic society and believe that all the problems can be solved. I'm obviously making a rash generalization but have a look beyond your zip code. It sounds harsh but it is what I've seen as an outsider for the past ~8 years.

RougeFemme4• 13 years ago

I agree, but the question is how that societal change will come about. Through individual or group efforts? Via religion, self-study, social engineering. . .

ashwinaj2• 13 years ago

That's a $16.7 trillion dollar (and ever growing) question.... I don't know, it certainly should be a collective effort, but looking at Congress I don't have much hope.

jellicle• 13 years ago

> We should understand that as a consequence of technology and an economy of ideas, the gap between the rich and the poor will likely increase from its already high-seeming levels. There is good and bad to this, but we should be careful not to legislate against it, which will hurt growth.

Oh, it was going so well, and then, BOOM!, the whole essay explodes into flames and plummets to the ground in a ball of fire and greasy black smoke.

Hey! Who's going to buy your startup product? Hint: it is NOT people who are working 25 hours per week at Walmart for $8/hour. Government action to put more money in those people's pockets and take it away from these people...

http://online.wsj.com/article/SB1000142412788732466240457833...

...is purely beneficial for ANYONE who wants to do ANY sort of business with or in the United States. You can't charge $19.95/month to the whole population of North America (or whatever your made-up business plan shows) if they don't have $19.95/month to give you.

sama7• 13 years ago

I think you misunderstood my point.

I am a big believe that the middle class, not the super-rich, are the job creators for this exact reason. And I'm not saying we should take money from them.

All I'm saying is that everyone can get richer together, but the way that works in our current system is that there will be a big disparity between the rich and the middle class.

maceo• 13 years ago

The general points on growth are well-put but the 'anti-science' examples are very poorly chosen. The anti-science population isn't the group of people who want to see GMO labels and drone restrictions, it's the group of people who don't believe in evolution. These groups are distinct, and I think it's very clear that the former isn't the one pushing budget cuts in alternative energy and technology. There are plenty of valid reasons to oppose GMOs in food and the chemical companies who aggressively defend their controversial patents.

"Technology magnifies differences in innate ability."

It also magnifies your inherited financial circumstances. The industry directs much attention to its gender gap, but there is an equally embarrassing lack of engineers from lower class & lower middle class backgrounds and this never gets enough attention.

sama7• 13 years ago

Good point, I could have chosen better anti-science examples--just picked two recent issues that I think are hurting innovation.

I think the tech industry magnifies your inherited financial circumstances less than most other industries.

bjhoops12• 13 years ago

"it should be a big red flag for growth when the brightest young people start going into finance, since they aren’t actually creating any more wealth, just redistributing it"

God I could not agree more. I absolutely hate the fact that the most lucrative jobs in our country go to those who move money around, not those who create anything of real, tangible value.

bjhoops12• 13 years ago

"Technology magnifies differences in innate ability"

I hope you are not confusing innate ability with realized ability. I am sure you are a talented, skilled individual, but if you were born in a horribly disadvantaged situation I doubt you would have amounted to as much. I am a fairly successful, and rather bright person myself, but I do delude myself into thinking that my own success are solely the result of "innate ability" magnified by technology. A more complete and accurate statement would have been that "Technology magnifies differences in realized ability."

This type of thinking is dangerous because in a perceived Meritocracy, the poor deserve to be poor and the rich rich.

sama7• 13 years ago

Luck trumps everything else, by a huge margin. Choosing your parents well is the best decision you can make.

For equal-luck people, I stand by the above point.

p3r12• 13 years ago

Just a question, how can growth be sustainable and good in a resource-limited world?

I mean, fore sure that everyone is better where we have a lot of lemons to give, but the lemon tree is limited to a number of lemons per year, if the demand increases, how we can producte more lemon if we only have this tree?

jpadkins3• 13 years ago

the limiting resource on our information economy is smart people's time. We don't suffer from a lack of raw materials. The only natural resource I can think that may be limiting economic growth is energy, and that is largely going to be solved with smart people's time.

p3r12• 13 years ago

Ok, so with optimizing the process of taking lemons from the tree with technology we can care less of the tree (resources).

But, at the end, the tree is the same, so we can stay X years more using more productive ways to consume this resources, but at the end we life in a limited world.

So isn't logical to thing that a neverending grow is impossible?

I think we have two ways, or stop growing, so we become a world sustainable or we find somehow to produce infinite resources.

jpadkins3• 13 years ago

I don't understand why we can't all be happy with euro social-democratic levels of spending done at the state level, with minimal federal spending for military, justice dept, and programs that 80+% of the population agree with (~10% GDP). You don't hear Scandinavians petitioning for a Euro wide healthcare system (the equivalent scope and scale of Obamacare). This way progressive/liberal states can still be happy with their programs, while conservative states can keep their taxes low. This is the philosophy of 50 experiments on what is good government policy.

I just don't understand why Americans feel like we can impose our values on everyone else. We live in a free country, and people are free to immigrate to a government that aligns with their values. We don't need to solve this at the federal level.

BenoitEssiambre• 13 years ago

I don't think the type of growth advocated in the article, relying mostly on innovation and technology, is the type that the government can influence effectively. Outside of keeping the population educated and maybe reducing the sting of patents and regulatory capture, it is mostly up to the private sector.

Growth and Government

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