Government borrowing doesn't always crowd out private borrowing
Four years after the end of the presidency that must not be named, Republicans are no closer to figuring out what went wrong or what comes next.
Sure, the GOP has decided Bush spent too much, but there's been little other reckoning (outside of wonks like David Frum, Reihan Salam, and Ross Douthat). After all, it's hard to see what fiscal profligacy had to do with stagnant median incomes, rising healthcare and college costs, and a fragile financial system -- and harder still to see what remedies the Republicans have to offer. When it comes to policy, the GOP is stuck in 1980: lower taxes, less regulation, and more drilling for oil are always and everywhere the answer, no matter the question. (No, really).
Even Obama's reelection hasn't been enough to wake the Republicans from their Reagan von Winkle slumber. The GOP has chosen re-branding over rethinking. In other words, they think they have a messenger, not a message, problem -- and that's where Marco Rubio comes in. As Jonathan Chait of New York explains, Rubio offers the party an appealing, young salesman for its same, old policies, immigration aside. It was no accident his response to the State of the Union was so devoid of anything resembling new thinking. It was the point. Indeed, Rubio just rounded up the usual talking points, saying, among other things, that the government was a major cause of the housing bubble (it wasn't), and that Washington needs a balanced budget amendment (it very much does not). These are certainly cringe-worthy mistakes, but Rubio's biggest one is even more fundamental. He doesn't think the government can create jobs, except when it does.
Every dollar our government borrows is money that isn't being invested to create jobs. And the uncertainty created by the debt is one reason why many businesses aren't hiring.
Rubio has fallen victim to one of the classic economic blunders. It's called Say's Law, and it's not, in fact, a law. It's more like a guideline. The idea is that supply creates its own demand, which is true enough during booms, but not so during busts. The underlying logic here -- producing goods gives you the income to buy other goods -- makes sense, but only as long as you don't include money. Then everything falls apart. We'll return to why money is the root of all depressions in a second, but first, let's think about what it would mean if Say's Law were true. It would mean a world where demand can never lag supply; where unemployment is either voluntary or transient (when people switch jobs); and where government spending can never help the economy. After all, public borrowing has to come from somewhere, and a dollar the government borrows is a dollar the private sector doesn't. In other words, government borrowing "crowds out" private borrowing, pushing up interest rates as it competes for funds.
But this is terribly wrong. In the real world, people are out of work because they can't find work, not because they don't want it; the Great Recession has not been a Great Vacation. Supply doesn't always create its own demand, because demand for money might increase. In other words, people might hoard money. Now, "hoard" probably brings to mind people frantically stuffing money into mattresses, but it's a bit different than that today. It means households don't want to spend, and businesses don't want to invest, and banks don't want to lend. There's an excess of desired savings over desired investment -- or, as it's more commonly called, a recession. The Fed can make hoarding less appealing by cutting interest rates to inject money into the economy, but it can't do so now, at least not easily. Interest rates are already at zero, and unconventional money-printing hasn't been quite as effective. In short, the Fed hasn't been able to get us to stop hoarding right now.
That leaves two options: depression or deficits. In other words, either nobody borrows the unborrowed money, or the government does. If nobody does, the economy will contract by as much as isn't borrowed; if the government does, the economy will (at least) stabilize. As Matthew Yglesias of Slate points out, it's easy enough to tell the government is borrowing money that otherwise wouldn't be today, since interest rates have fallen despite big deficits. There has been no crowding out.
But it turns out we are actually all Keynesians now, even Marco Rubio. At least when it comes to military spending. (Though he's hardly alone with this cognitive dissonance). Here's what he told HispanicBusiness.com last September about the upcoming sequester cuts set to hit the Pentagon:
Thousands of jobs in defense-related enterprises have been lost already, with many more projected to go if the sequester crisis is not averted. These defense cuts hurt innovation, medical research and thousands of small businesses who subcontract for defense-related work.
Rubio is actually a pretty ambitious Keynesian! Not only does he think the government can create jobs, but he also thinks those jobs create other jobs -- that is, there's a multiplier on government spending.
Joe Moran’s book Shrinking Violets is a sweeping history that doubles as a (quiet) defense of timidity.
The Heimlich maneuver, in the nearly 50 years since Dr. Henry Heimlich established its protocol, has been credited with saving many lives. But not, perhaps, as many as it might have. The maneuver, otherwise so wonderfully simple to execute, has a marked flaw: It requires that choking victims, before anything can be done to help them, first alert other people to the fact that they are choking. And some people, it turns out, are extremely reluctant to do so. “Sometimes,” Dr. Heimlich noted, bemoaning how easily human nature can become a threat to human life, “a victim of choking becomes embarrassed by his predicament and succeeds in getting up and leaving the area unnoticed.” If no one happens upon him, “he will die or suffer permanent brain damage within seconds.”
By replacing Mike Flynn with H.R. McMaster, President Donald Trump added one of the most talented officers the U.S. Army has ever produced to his team.
Let me be as clear as I can be: The president’s selection of H.R. McMaster to be his new national security advisor is unambiguously good news. The United States, and the world, are safer for his decision.
McMaster is one of the most talented officers the U.S. Army has ever produced. That sounds like hyperbole but isn’t. In the Gulf War, he led an armored cavalry troop. At the Battle of 73 Easting—a battle much studied since—his 12 tanks destroyed 28 Iraqi tanks, 16 armored personnel carriers, and 30 trucks. In 23 minutes.
In the next Iraq war, he led a brigade in 2005 and was among the first U.S. commanders to think differently about the conflict and employ counterinsurgency tactics to pacify Tal Afar—one of the most wickedly complex cities in Iraq. He excelled at two different echelons of command in two very different wars.
“I’ve never seen anything quite like” Trump’s approach to national security, says a former counterterrorism adviser to three presidents.
Updated on February 20 at 4:40 p.m. ET
President Donald Trump has made national security a centerpiece of his agenda, justifying policies ranging from a travel ban to close relations with Russia. But the United States is now more vulnerable to attack than it was before Trump took office, according to the man who served as George W. Bush’s crisis manager on 9/11.
“In terms of a major terrorist attack in the United States or on U.S. facilities, I think we’re significantly less ready than we were on January 19,” said Richard Clarke, who served on the National Security Council in the George H.W. Bush, Bill Clinton, and George W. Bush administrations. “I think our readiness is extremely low and dangerously low. Certainly [government] agencies at a professional level will respond [to an attack], but having a coordinated interagency response is unlikely given the current cast of characters [in the administration] and their experience.”
It’s a great physics thought experiment—and an awful accident in 1978.
What would happen if you stuck your body inside a particle accelerator? The scenario seems like the start of a bad Marvel comic, but it happens to shed light on our intuitions about radiation, the vulnerability of the human body, and the very nature of matter. Particle accelerators allow physicists to study subatomic particles by speeding them up in powerful magnetic fields and then tracing the interactions that result from collisions. By delving into the mysteries of the universe, colliders have entered the zeitgeist and tapped the wonders and fears of our age.
The preconditions are present in the U.S. today. Here’s the playbook Donald Trump could use to set the country down a path toward illiberalism.
It’s 2021, and President Donald Trump will shortly be sworn in for his second term. The 45th president has visibly aged over the past four years. He rests heavily on his daughter Ivanka’s arm during his infrequent public appearances.
Fortunately for him, he did not need to campaign hard for reelection. His has been a popular presidency: Big tax cuts, big spending, and big deficits have worked their familiar expansive magic. Wages have grown strongly in the Trump years, especially for men without a college degree, even if rising inflation is beginning to bite into the gains. The president’s supporters credit his restrictive immigration policies and his TrumpWorks infrastructure program.
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Experts on Turkish politics say the use of that term misunderstands what it means in Turkey—and the ways that such allegations can be used to enable political repression.
Over the last week, the idea of a “deep state” in the United States has become a hot concept in American politics. The idea is not new, but a combination of leaks about President Trump and speculation that bureaucrats might try to slow-walk or undermine his agenda have given it fresh currency. A story in Friday’s New York Times, for example, reports, “As Leaks Multiply, Fears of a ‘Deep State’ in America.”
It’s an idea that I touched on in discussing the leaks. While there are various examples of activity that has been labeled as originating from a “deep state,” from Latin America to Egypt, the most prominent example is Turkey, where state institutions contain a core of diehard adherents to the secular nationalism of Mustafa Kemal Ataturk, which is increasingly being eroded by the government of Recep Tayyip Erdogan. Turkey has seen a series of coups, stretching back to 1960, as well as other activity attributed to a deep state.
When my wife was struck by mysterious, debilitating symptoms, our trip to the ER revealed the sexism inherent in emergency treatment.
Early on a Wednesday morning, I heard an anguished cry—then silence.
I rushed into the bedroom and watched my wife, Rachel, stumble from the bathroom, doubled over, hugging herself in pain.
“Something’s wrong,” she gasped.
This scared me. Rachel’s not the type to sound the alarm over every pinch or twinge. She cut her finger badly once, when we lived in Iowa City, and joked all the way to Mercy Hospital as the rag wrapped around the wound reddened with her blood. Once, hobbled by a training injury in the days before a marathon, she limped across the finish line anyway.
So when I saw Rachel collapse on our bed, her hands grasping and ungrasping like an infant’s, I called the ambulance. I gave the dispatcher our address, then helped my wife to the bathroom to vomit.
Lip service to the crucial function of the Fourth Estate is not enough to sustain it.
It’s not that Mark Zuckerberg set out to dismantle the news business when he founded Facebook 13 years ago. Yet news organizations are perhaps the biggest casualty of the world Zuckerberg built.
There’s reason to believe things are going to get worse.
A sprawling new manifesto by Zuckerberg, published to Facebook on Thursday, should set off new alarm bells for journalists, and heighten news organizations’ sense of urgency about how they—and their industry—can survive in a Facebook-dominated world.
Facebook’s existing threat to journalism is well established. It is, at its core, about the flow of the advertising dollars that news organizations once counted on. In this way, Facebook’s role is a continuation of what began in 1995, when Craigslist was founded. Its founder, Craig Newmark, didn’t actively aim to decimate newspapers, but Craigslist still eviscerated a crucial revenue stream for print when people stopped buying newspaper classifieds ads.
Their history informs fantastical myths and legends, while American tales tend to focus on moral realism.
If Harry Potter and Huckleberry Finn were each to represent British versus American children’s literature, a curious dynamic would emerge: In a literary duel for the hearts and minds of children, one is a wizard-in-training at a boarding school in the Scottish Highlands, while the other is a barefoot boy drifting down the Mississippi, beset by con artists, slave hunters, and thieves. One defeats evil with a wand, the other takes to a raft to right a social wrong. Both orphans took over the world of English-language children’s literature, but their stories unfold in noticeably different ways.
The small island of Great Britain is an undisputed powerhouse of children’s bestsellers: The Wind in the Willows,Alice in Wonderland, Winnie-the-Pooh, Peter Pan, The Hobbit, James and the Giant Peach, Harry Potter, and The Lion, the Witch, and the Wardrobe. Significantly, all are fantasies. Meanwhile, the United States, also a major player in the field of children’s classics, deals much less in magic. Stories like Little House in the Big Woods, The Call of the Wild, Charlotte’s Web, The Yearling, Little Women, and The Adventures of Tom Sawyer are more notable for their realistic portraits of day-to-day life in the towns and farmlands on the growing frontier. If British children gathered in the glow of the kitchen hearth to hear stories about magic swords and talking bears, American children sat at their mother’s knee listening to tales larded with moral messages about a world where life was hard, obedience emphasized, and Christian morality valued. Each style has its virtues, but the British approach undoubtedly yields the kinds of stories that appeal to the furthest reaches of children’s imagination.