In the Mass Psychology thread, we were discussing a floating payroll tax and I suggested it be called a full employment tax system since the payroll taxes would only be paid at their standard rates at full employment; otherwise the further north of FE, the more FICA rates would be automatically reduced. Tom Hickey made an interesting point.
Right. This is the error in the thinking that balancing the budget will produce FE and optimize output. Tail wagging the dog. Rather a FE budget balances at FE. Under FE run the appropriate deficit to increase effect in order to offset demand leakage and over FE (inflation) run a surplus to damp down effective demand by creating leakage to govt saving. Now explain that to Paul Ryan.
I was at Easter mass today and I suddenly realized that explaining all this to Paul Ryan, Joe Scarborough or anyone who’d rather focus on trees north of the Brooks Range instead of the forest fire behind their house isn’t just pointless, its kind of mean (of course, there are no trees north of the Brooks Range). Its mean because if believing something brings them comfort and purpose and keeps their minds from failing into anomie and depression, are we doing them any favors waking them up?
In 1959, social psychologist Milton Rokeach wanted to test the strength of self-delusion. So, he gathered three patients, all of whom identified themselves as Jesus Christ, and made them live together in the same mental hospital in Michigan for two years.
Rokeach hoped the Christs would give up their delusional identities after confronting others who claimed to be the same person. But that’s not what happened. At first, the three men quarreled constantly over who was holier. According to Rokeach, one Christ yelled, “You oughta worship me!” To which another responded, “I will not worship you! You’re a creature! You better live your own life and wake up to the facts!” Unable to turn the other cheek, the three Christs often argued until punches were thrown…
See, that’s just cruel. Better I think to let sleeping dogs lie and work around their delusions. The idea isn’t changing their goals, instead we should be moving the goalposts. The first step is so obvious that I feel like I annoy readers bringing this up again but we should zero out the trade deficit with something like Warren Buffett’s import certificate plan. Our trade deficit must necessarily either swell the budget deficit and/or create a demand leakage by hundreds of billions of dollars a year. But it isn’t necessary to run a trade deficit. Its bizarre that we haven’t had current accounts in balance in over two decades and the CBO doesn’t even bother tracking the CAD in its budget projections (another case of the tail wagging the dog, I don’t think the CBO realizes trade deficit inflates budget deficit and not vice versa).
The second step is less obvious though perhaps equally annoying to the reader for me bringing it up again, simply move fiscal authority to the Fed and let the Fed governors decide whether to tighten of loosen the government’s fiscal stance off-budget. I’ve explained before my idea that Obamacare should be junked by universal Medicare and put it on the Fed whether to fund it with some combination of seigniorage and transaction fees. Say the Fed is obligated to put $1 trillion into Medicare trust fund, $1T in seignoirage (i.e. buying a TDC) and $0 in fees would be fully loose fiscal policy while $1T in fees and $0 in seigniorage would be fully tight fiscal policy and it’d be up to the Fed to use this lever to adjust the fiscal stance. Between balanced trade and off-budget Medicare funding, short of World War III, there’d never be a reason for Congress to ever run a budget deficit, allowing every Washington politician to keep on believing he’s Jesus.
Finally, I’ll share a story a Russian once told me about prisoners who’d escape from Soviet gulags in the wilds of Siberia; they’d come across people living in the forest who’d treat them kindly, giving them shelter and food. It was only after the escaped prisoners drifted off, well-fed and warm next to the fire, that their host would kill them in their sleep and then collect their dead or alive bounty. Do you know what I call that? Good Government.