Like a lot of analyses, this focuses on what can be done not what should be done, almost as if deficits were good in themselves, but subject to constrains. Now such thinking of this can be useful. Constraints are real and the principles behind the constraints can give guidance to the “should.” But deficits are ultimately just the results of taxing and sending decisions so THAT is where thinking should be focused.
I'll try to flesh this out in the future, but for the moment here are:
I agree that it all bottoms out in taxing and spending in the end. This framework helps me wrap my head around what kinds of deficits are sustainable.
One new-ish idea here is that if growth continues for a long period (a big if!), governments don't have to cover all of their spending with taxes. It's pretty odd to me that in some sense future citizens can pay today's taxes in perpetuity.
But again, I insist that it is better to ask how much a state should borrow not how much CAN it borrow. The former is relevant at each and every decision point. And this depends on what the expenditures are FOR and the costs (dead weight loss) of taxation, which are decisions to be made at each point.
Right, the state should be doing some sort of cost-benefit analysis to identify what projects to fund, adding up the total cost, and borrowing as needed.
But the amount that a state should borrow is at least constrained by the amount that it can borrow. There's a maximum sustainable annual budget that depends on interest rates, growth, and time horizon.
If the total cost of worthwhile projects is less than what the state can collect, then there's no conflict. But if there are $5 billion of worthy projects and the state only has access to $1 billion (combining taxes and borrowing) then it has to pick and choose.
I do not believe it is safe to assume that US population and income growth will continue at the same rate for that length of time. It is one reason I think we can expect a more “inflationary” future as governments around the world try to inflate-away their debts by “printing” more currency.
Yeah the fact that the US government is acting as if population growth will continue for another 43 years is a bad sign. We know US population growth is stagnating, so either income growth has to accelerate (unlikely) or gamma has to rise (but there's limited room for this, going from 0.98 to 0.999 doesn't change much).
Besides inflation or boosting income growth (with AI?), the only other options are to boost population growth or find a new source of tax revenue.
Like a lot of analyses, this focuses on what can be done not what should be done, almost as if deficits were good in themselves, but subject to constrains. Now such thinking of this can be useful. Constraints are real and the principles behind the constraints can give guidance to the “should.” But deficits are ultimately just the results of taxing and sending decisions so THAT is where thinking should be focused.
I'll try to flesh this out in the future, but for the moment here are:
https://thomaslhutcheson.substack.com/p/fiscal-policy-and-everything-else
https://thomaslhutcheson.substack.com/p/debtpocalypse
I agree that it all bottoms out in taxing and spending in the end. This framework helps me wrap my head around what kinds of deficits are sustainable.
One new-ish idea here is that if growth continues for a long period (a big if!), governments don't have to cover all of their spending with taxes. It's pretty odd to me that in some sense future citizens can pay today's taxes in perpetuity.
But again, I insist that it is better to ask how much a state should borrow not how much CAN it borrow. The former is relevant at each and every decision point. And this depends on what the expenditures are FOR and the costs (dead weight loss) of taxation, which are decisions to be made at each point.
Right, the state should be doing some sort of cost-benefit analysis to identify what projects to fund, adding up the total cost, and borrowing as needed.
But the amount that a state should borrow is at least constrained by the amount that it can borrow. There's a maximum sustainable annual budget that depends on interest rates, growth, and time horizon.
If the total cost of worthwhile projects is less than what the state can collect, then there's no conflict. But if there are $5 billion of worthy projects and the state only has access to $1 billion (combining taxes and borrowing) then it has to pick and choose.
I do not believe it is safe to assume that US population and income growth will continue at the same rate for that length of time. It is one reason I think we can expect a more “inflationary” future as governments around the world try to inflate-away their debts by “printing” more currency.
Yeah the fact that the US government is acting as if population growth will continue for another 43 years is a bad sign. We know US population growth is stagnating, so either income growth has to accelerate (unlikely) or gamma has to rise (but there's limited room for this, going from 0.98 to 0.999 doesn't change much).
Besides inflation or boosting income growth (with AI?), the only other options are to boost population growth or find a new source of tax revenue.
Or cut spending. Seems to me this is the best option.
Cut spending and increase taxes such that deficits < Σ(expenditures such that NPV>0), basically deficits only finance investment.
Makes sense. What do you count as investment? Stock investments? R&D spending? Baby bonus? Welfare programs with a positive cost-benefit?
I take a more expansive view of what counts as investment but curious to hear what others think.
Any of those could be. How much of a "transfer" actually reduces future costs/generates future income is anyone's guess.
Investment, I assume, means primarily R&D?