The General Economics Thread

I think there is a lot of underestimation of how much the economic system (at least in the USA but likely in other nations as well) does favor people who traditionally vote conservative, especially if you include tax credits and subsidies as part of the welfare system.

There is a lot made of how many conservatives vote against their own interest, but I don't think that is as true as people say, especially if conservatives are not so much looking for an improvement in their overall quality of life so much as looking to maintain their position in the current system, which their moniker would suggest.

It doesn't help that the current system socio-economic system helps cultivate that kind of mind set given the extremely competitive and hierarchical nature of many current capitalist systems.

It all depends, of course, on how you define "interests." Ever since "Whats the matter with Kansas", liberals have noted that conservative voters could maximize their wealth and income by supporting more moderate policies and candidates. But as Fighteer has pointed out, they do not define their interests in exclusively financial terms. Generally speaking, they are more interested in maximizing their future job security than their payroll. Some of this has to do with the core conservative aversion to risk (and their tendency to perceive greater risk associated with new policies and social changes than liberals do). You cant maximize income without taking risk—and they dont like risk.

That is more or less in line with my explanation except that I would also count the desire for "job security" as a financial interest ( or at least an economic one), and I also disagree with the idea that maximizing profit requiring risk, in fact if anything my Economics education would suggest the opposite, that eliminating competition and risk are what you need to do in order to maximize profit.

Honestly, social issues seem to be the main drivers on American politics.

I would say that they're less concerned about job security and more about their relative position in society. It's not about comfort or living standards, it's about how you stack up compared to your neighbors.

Ah yes, the suburban American Dream: having a bigger car than the guy next door.

It's not just that. It's the fear that someone, somewhere is getting money that's being taken from you, that is giving them the ability to rise to your station without deserving it.

Remember when there was outrage in conservative circles a while back that poor people were able to buy refrigerators, microwave ovens, and television sets? Remember when Ronald Reagan made a big fuss over "welfare queens" living large and buying Cadillacs on the dole? Remember when Republicans tried to make it so you couldn't buy certain grocery items with food stamps? It's not just about who has money/privilege and who doesn't, but who deserves to have money/privilege.

It's about making poverty as unpleasant as possible in order to "motivate people to get off their lazy asses and work". It is a moral ideology centered around who deserves to have things.

Edited by Fighteer on Apr 6th 2020 at 7:06:16 AM

As usual, I think it's projection. If anything, THEY are more undeserving of wealth and privilege if we are judging things by "morals".

Edited by Voltron64 on Apr 6th 2020 at 4:09:00 AM

Can someone give me a rundown of how our debt to China works? My mother seems to think it's a big fucking deal.

That, and for all their moaning about "welfare queens" they would happily accept a government check falling in their lap every month, as long as those damned blacks and Mexicans didn't. This is pretty much why we don't have more social programs.

Edited by PhysicalStamina on Apr 6th 2020 at 9:19:55 AM

China owns a tiny amount of bonds issued by the government along with a number of foreign governments. They get some interest from the US, but outside of that (and being a method to keep the Renembi weak relative to the dollar in order to promote their exports) it does not afford them any influence. Hell, even all of the foreign holders of American bonds combined would pail in comparison to all the bonds held by US citizens and US government entities, particularly the Social Security Trust Fund.

The "debt" we owe China is barely what you'd think of as a traditional debt, it's treasury bonds.

It's also not something they can "call in" either.

Anyone feel like researching the several mega-posts I wrote on this issue? I don't right now. I'll try to summarize.

Chinese debt hysteria is just that: hysteria. It's part of a narrative about how federal debt is bad, which is based on a false understanding of how it works. There are some people who genuinely hold this belief, but for the most part it's a con job designed to mask conservative attempts to defund social welfare and lower taxes. Note, for example, how Republicans suddenly stop being worried about debt and deficits when they control government.

Federal debt is not a liability to a sovereign currency issuer like the United States. The net value of all U.S. debt is, in fact, very nearly zero. This is because every dollar of debt is also a dollar of assets on the books of whoever holds the bond. Money managers, governments, even the U.S. government itself all hold bonds as a store of value: as an asset. It is true that China holds the largest value of U.S. bonds outside of the United States, but they hold that as a hedge against the value of their own currency.

First, they cannot "call" the debt, because of its fixed maturity. All U.S. bonds have a fixed maturity date: that is, you can only get the face value when it says so, and not a day earlier. We would just say "no", or force them to take a huge discount. Second, if they tanked the value of the dollar, it would reduce the value of their own dollar assets, causing them to lose money and possibly crashing their own economy.

Third, even if there were a run on the dollar, with a global selloff of bonds, the Federal Reserve could buy the bonds itself with cash it creates on the spot. This could be an inflationary move, but it would not cause the United States to collapse.

There's a lot more where this came from; I'm only scratching the surface.

Edited by Fighteer on Apr 6th 2020 at 10:28:22 AM

Basically throw out almost everything you know about personal debt because that's not how debt works when countries and people who make their own currency are involved.

Is there a source for this I can point to next time my mother brings it up?

I like The 7 Deadly Innocent Frauds of Economic Policy. It's got a very simple description of how fiat money works at a country-scale.

It's just a basic understanding of how treasury bonds work more than anything with a real "source"

But countries can go bankrupt, right? Or is that not a thing anymore?

Countries that doesn't owe its debts in its own currency, or countries that are unable to print their own currency, or countries that are so shit economically that people don't trust their currency can go bankrupt. None of that applies to the US.

And nations that were not able to appease the IMF off their backs in time and really sunk into debt hard.

The issue with looking at a country's bankruptcy as being the major cause of its woes (and therefore spawning the morality tale conclusion that one should never get heavily in national debt) is... When a country gets to the point that the IMF is making life tough, everything is going wrong on a deeply systemic level across the board within that country.

It's not the debt. It's years of running a country so badly it doesn't function as a state (let alone as an economic entity) that's the problem.

Collapses like that are indicative of robber rulers with no checks on their crimes against their own citizens.

Edited by Euodiachloris on Apr 7th 2020 at 11:35:30 AM

Here's the important metric: does a country borrow in a currency that it issues? Substantial debt in someone else's currency is the critical warning factor.

If you borrow in dollars, the bank wants to be paid in dollars. If you borrow in rubles, the bank wants rubles. If you are that bank — you issue the dollars or the rubles — then you can never go bankrupt by definition. However, if you are not, then it is possible to run out of dollars or rubles.

This is exactly why Europe went through such a rough period in 2008-2010. Greece, Italy, Spain, Portugal, and Ireland all had debt crises and were forced to accept bailouts. Why? Because they borrow in euros, which are issued by the ECB under strict rules preventing direct fiscal transfers. In other words, they are like U.S. states without the Federal government giving them any funds.

Edited by Fighteer on Apr 7th 2020 at 6:58:53 AM

Ireland is especially egregious since it is a tax haven, and deliberately avoided taxing big companies like Apple for billions of dollars.

No wonder the EU forced them to take those taxes, then.

While that may be true, it has nothing to do with the fundamental reason why Ireland risked insolvency while, say, Japan does not, even when its debt-to-GDP ratio is over 200%.

The United States is also a currency union; the difference is that the federal government collects taxes and then sends that money to the states, both directly and indirectly, to help them pay for things. It also engages automatic stabilizers like Medicare and food stamps that prevent states from being stuck with the bill even as their income drops during a crisis.

The EU has no such system, guaranteeing that member nations will be hung out to dry when they run into trouble.

Economics is not about morality, not at its fundamental level. It's about how to make systems work, not who deserves it.

Edited by Fighteer on Apr 8th 2020 at 2:03:24 PM

Let's not absolve the IMF of responsibility here, forcing austerity on developing nations is akin to coercing a sick man into drinking bleach. You're just making their existing troubles significantly worse with little to no benefit.

It's certainly correct that there are existing problems for them to get to the level of agreeing to such things but that just means multiple people are responsible. Both the incompetent and corrupt local elites and the IMF's neocolonial and neoliberal ethos.

The news reports that 16 million people have lost their jobs in the US in the past week.