How do we know when it's time to start getting prudent?

What about something to the extent of using- or popularizing- different metrics to assess progress in a given economy? I am tired of hearing about the Dow twenty times a day.

Isn't it all "funny money" anyway, we can print all we need. The party out of power is always cares about the deficit.

Personally, for the last 20 years I felt that deficits have been an accounting trick to move tax burden from one class of people to another, without the second class of people noticing. (e.g. I get a 2% reduction in my marginal rates, but people who live on dividends get their marginal rates cut by more than half. I'm upset because the debt is up and my share of that debt is up even more!)

But in the current situation, is it more harmful to our economy for ex-construction workers and auto workers to sit at home watching TV (wasted human capital), or to sell treasury bonds to finance paying them to do *something*, like public works, or building vehicles for the military? Public spending can fill in a gap after a popped bubble to allow for a less painful transition and can (theoretically) be wound time more gradually.

Let me be more succinct

I've been hearing the term "crumbling infrastructure" for years. If we're ever going to fix it, then now is the time because we have millions of workers with a lot of time on their hands.

How can we move business strategy discussions back from second-guessing what the government might do next in terms of Fed policy and bailouts back to how to beat the competition? What policy steps will provide regulatory and tax scrutiny to business leaders?

How do we know when it's time to start getting prudent?

When the yield curve starts to steepen.

This may seem pretty basic, but:

There are two major thoughts coming out of the profession of economics right now. 1) That the financial sector, for all it's problems, is good for America - that it should be better regulated, but basically left as it is.

Then there's 2) the idea that the financial sector has grown vastly larger than necessary - that rather than allocate capital efficiently, it diverts a disproportiate share to a very small, well-renumerated bunch of people. In this case, some very fundamental restructuring is needed to shift the incentives out of finance.

I'm a big fan of 2), but it seems the administration has decided 1) is a safer, better option. And that's going to change the way America competes globally in a pretty fundamental way.

Oh. And what's Bruce Bartlett like in person? He's always struck me as the intellectual version of Bruce Banner. Nice guy, but you don't want to see him angry . . .

So, what did you use as an opening statement??

Justin - Did you get my e-mail to your gmail.com? I suggested some ideas to you for furthering your book and extending its sales. Jack

" . . . the deficits can't go on like this forever . . ."

If you want GDP to grow forever, so-called "deficits" will have to grow forever. A growing economy requires a growing supply of money. Where will the money come from to grow our economy?

The people who hate deficits think the federal government is like you and me. It isn't. Federal deficits never need to be "paid back." Our children and grandchildren never will pay them. We are the children and grandchildren of the huge Reagan deficits. We have not paid one penny toward them and never will, so long as the government creates net money.

In 1979, when the gross debt was $800 billion, if someone had said the debt would be $12 trillion in only 30 years, the debt-haters would have predicted the end of the world. Yet during that 1400% growth, the economy grew just fine, thank you, and when it finally tanked for other reasons, even more government-created money is helping to cure it.

Anyway, "debt" is a misleading term, because the government doesn't even need to create debt. It borrows by creating unlimited T-securities from thin air, then selling them. It just as prudently could create money from thin air, which would end all the hand-wringing about debt, as there would be no debt.

As for debt/GDP, it's a totally meaningless ratio. To learn why, see: http://rodgermmitchell.wordpress.com/2009/11/08/federal-debtgdp-a-useless-ratio/

The question, "So how do we tell when it's time to turn prudent?" assumes that "prudent" means starving the economy for money. I suggest that "prudent" means federal money creation to grow the economy.

But in answer to the question: Reduce money creation when inflation cannot be controlled by raising interest rates.

Rodger Malcolm Mitchell

Pneogy,
Of course. In fact, you make a very good point. The Fed sends and receives money from primary securities dealers, or so it seems. In actuality, the Fed doesn't send or receive anything. It merely marks the dealers' accounts.

The Fed doesn't "have" any money. There is no vault containing money that the Fed sends to the dealers. It's just an electronic notation. The entire federal government operates the same way.

When the government "sends" money into the economy, the entire transaction merely is an electronic notation -- of which the government has an unlimited supply. The debt haters (more accurately, "money haters") still believe we are in a gold standard, where the supply of money is limited by the supply of gold.

But the government can mark your account with any number it chooses. It could mark your account with $100 trillion dollars tomorrow, and easily mark mine for $200 trillion. In short, the government operates like a scoreboard.

I strongly urge that you and all readers take ten minutes to go to Warren Mosler's site at: http://www.moslereconomics.com/ and click "The 7 Deadly Innocent Frauds." I promise you will learn more about money in those 10 minutes than you have learned in your entire lifetime -- it's that good.

Or if even 10 minutes is too much to invest, try 3 minutes at http://rodgermmitchell.wordpress.com/2009/10/17/the-problem-with-debt-hawks-economics-chicken-littles/

Rodger Malcolm Mitchell

To start getting prudent, this must be the right time. It is now or never.

No need to look for any cue or listen to any advice any more.

[...] Larry Mantle. And while we're on the self-aggrandizement front, here's some thrilling video from the discussion I did with Bruce Bartlett, Bob Samuelson and others a few weeks [...]