Temporary tax provisions and spending should be treated the same. TCJA tax relief is and has been the law for some years now. Maintaining that policy is not a tax cut and so there is no reason to "offset" the cost of maintaining current policy. That is, unless you're willing to argue for offsetting the cost of extending the farm bill subsidies, all highway spending, and all increases in discretionary spending to maintain current services, to name a few. Your position on this creates an undo bias in policy outcomes toward higher spending and higher taxes.
Second point -- a little economics would be good to mix in with the budget discussions. Deficits and debt do not produce inflation, which is a relic argument from Keynesian thinking. If they propelled inflation as you suggest, then why did inflation drop to near the Fed's target while Biden's deficits remained massive? Repeat after me -- inflation is always a monetary phenomenon. And, BTW, for the same reason, none of Trump's policies are inflationary. They may and likely will shift relative prices, and they may be sound or not, but they cannot produce more inflation without triggering a sympathetic response from the Fed in which case it was the Fed and not Trump's policies that caused inflation to accelerate.
However deficit spending is in effect money-printing and does contribute to inflation. So when Biden ramped it up massively in 2021 it did indeed *contribute* to inflation.
The fact that massive changes in government deficit spending *could* be offset by changes in monetary policy notwithstanding.
If we balanced the budget tomorrow morning - AND made no other changes to monetary policy - do you not believe that would be deflationary?
That is simply not true. Deficit spending just means issuing debt. It has no effect on the rate of money creation, nor does it even alter aggregate demand as every deficit dollar spent is a dollar less spent elsewhere in the economy. To argue the contrary is to embrace economic alchemy.
So no, while balancing the budget tomorrow would produce a shock as economic relationships have grown up to adapt to deficit spending, and while that shock would produce both transitory deflationary and inflationary effects, two years later (or so) the price level would be exactly where it would have been if deficit spending had continued unabated.
“ while that shock would produce both transitory deflationary and inflationary effects, two years later (or so) the price level would be exactly where it would have been if deficit spending had continued unabated.”
Note that you have changed your argument to actually *agree* with me.
There would be massive short term effects on inflation from a massive change in the annual deficit, you just acknowledged.
By extension, any massive increase in deficit spending - again, holding all other monetary policy unchanged- will absolutely have an impact on inflation.
Because deficit spending is a form of monetary policy, albeit it not in name.
Now if you want to argue that its effects on inflation are much smaller than other monetary levers, I would actually agree with you. But as my ad absurdem arguments show, massive changes in deficit spending will have obvious effects on inflation.
“ every deficit dollar spent is a dollar less spent elsewhere in the economy.”
Huh?
This is simply factually wrong in any given timeframe.
It is true only in the long-run theoretical sense that every deficit dollar spent eventually has to be taxed away from the economy to pay off the debt.
But unless you assert a short-to-mid-term payoff of such debt - which of course has rarely happened in the real world, and has surely not happened in any meaningful way in the U.S. in the last 60 years - then said deficit dollar spent does NOT result in a dollar less spent elsewhere in the economy in that time period.
Temporary tax provisions and spending should be treated the same. TCJA tax relief is and has been the law for some years now. Maintaining that policy is not a tax cut and so there is no reason to "offset" the cost of maintaining current policy. That is, unless you're willing to argue for offsetting the cost of extending the farm bill subsidies, all highway spending, and all increases in discretionary spending to maintain current services, to name a few. Your position on this creates an undo bias in policy outcomes toward higher spending and higher taxes.
Second point -- a little economics would be good to mix in with the budget discussions. Deficits and debt do not produce inflation, which is a relic argument from Keynesian thinking. If they propelled inflation as you suggest, then why did inflation drop to near the Fed's target while Biden's deficits remained massive? Repeat after me -- inflation is always a monetary phenomenon. And, BTW, for the same reason, none of Trump's policies are inflationary. They may and likely will shift relative prices, and they may be sound or not, but they cannot produce more inflation without triggering a sympathetic response from the Fed in which case it was the Fed and not Trump's policies that caused inflation to accelerate.
I agree with most of what you write.
However deficit spending is in effect money-printing and does contribute to inflation. So when Biden ramped it up massively in 2021 it did indeed *contribute* to inflation.
The fact that massive changes in government deficit spending *could* be offset by changes in monetary policy notwithstanding.
If we balanced the budget tomorrow morning - AND made no other changes to monetary policy - do you not believe that would be deflationary?
That is simply not true. Deficit spending just means issuing debt. It has no effect on the rate of money creation, nor does it even alter aggregate demand as every deficit dollar spent is a dollar less spent elsewhere in the economy. To argue the contrary is to embrace economic alchemy.
So no, while balancing the budget tomorrow would produce a shock as economic relationships have grown up to adapt to deficit spending, and while that shock would produce both transitory deflationary and inflationary effects, two years later (or so) the price level would be exactly where it would have been if deficit spending had continued unabated.
“ while that shock would produce both transitory deflationary and inflationary effects, two years later (or so) the price level would be exactly where it would have been if deficit spending had continued unabated.”
Note that you have changed your argument to actually *agree* with me.
There would be massive short term effects on inflation from a massive change in the annual deficit, you just acknowledged.
By extension, any massive increase in deficit spending - again, holding all other monetary policy unchanged- will absolutely have an impact on inflation.
Because deficit spending is a form of monetary policy, albeit it not in name.
Now if you want to argue that its effects on inflation are much smaller than other monetary levers, I would actually agree with you. But as my ad absurdem arguments show, massive changes in deficit spending will have obvious effects on inflation.
“ every deficit dollar spent is a dollar less spent elsewhere in the economy.”
Huh?
This is simply factually wrong in any given timeframe.
It is true only in the long-run theoretical sense that every deficit dollar spent eventually has to be taxed away from the economy to pay off the debt.
But unless you assert a short-to-mid-term payoff of such debt - which of course has rarely happened in the real world, and has surely not happened in any meaningful way in the U.S. in the last 60 years - then said deficit dollar spent does NOT result in a dollar less spent elsewhere in the economy in that time period.
So you claim that if we ran a 100 Trillion dollar deficit next year, and made no other changes to monetary policy, that there would be no inflation?
🙄
“Reversing Biden's executive actions could save $1.4 trillion.”
You buried what should be the lede!
Most of the rest are same old same old exhortations for fiscal responsibility. (Well, in fairness, the offsetting TCJA extensions is new enough).
The last one is new and disturbing - and easily addressed!
Hopefully it will be - immediately and forcefully.