Occam's possibility

Real Time with Bill Maher, S19E10, 3/26/2021, with Brett Stephens, Caitlin Flanagan, Christopher Krebs.

In the monologue, Maher mentions the $3 trillion infrastructure spending proposed by President Biden. At the table he mentions it again. 

Brett Stephens replies three trillion is a lot of money. He makes reference to Brewster's Millions, where Richard Pryor's character "has to spend $30 million in thirty days, in order to inherit $300 million." Not sure what Stephens's point is, other than it's a lot of money.

Maher likes Biden's plan as "a Trojan horse for green energy".

In the New Rules part of the show, Maher says:

... looking at the economic factors right now, it feels like we're back in that head space that we'll never run out of cash as long as the Fed doesn't run out of ink.

He doesn't like the government spending. Still, he likes the Trojan horse for green energy.

I watch Real Time regularly. Maher is often very good, especially in the "New Rules". He is also often very wrong. For me, with my focus on the economy, Maher is often wrong about the economy.

He says things well. His line about running out of ink was good. But other than Maher's word choice, there is nothing new or interesting in what he said. It's the same old tiresome economic nonsense, dressed in a clown suit.

Here's the way our monetary system works: 

• The Fed loans money to banks so the banks can lend money to businesses and consumers. Businesses and consumers borrow. In addition, government borrows from people who have money that they don't need to spend. All this borrowing puts money in motion in the economy, and also creates a lot of debt.
• With all of that money in circular flow, there is money enough that debtors can grab some of it, pay off some debt, and reduce both the money and the debt in the economy.
• Some of the money in flow drops out of flow when people have a chance to save. Some drops out when we import stuff and pay for it. Economists say also that some money drops out of the flow when the government takes it in taxes. But you don't get to use that excuse if government spending is always in deficit.
• These changes to debt in the economy and money in flow happen repeatedly over many decades with no apparent problem. All the while, however, money is dropping out of flow, leaving more and more debt with no corresponding money that can be snatched from the flow and used to pay down debt. Over time it becomes more and more difficult to find the money to pay the bills. Of course we can always borrow more money if we need it. But that creates more debt. It does not solve the problem.
• Eventually, our bill-paying troubles grow severe enough that one unpaid debt can start a cascade of unpaid debts, and then you have a financial crisis.
  

That's how that all works. There's not really a problem that can be fixed by balancing the budget.

Graph #1

Hey, I don't like it either, the Federal debt going up so fast. But you know, I'm less prone to complain about the growth of debt than I am to say Graph #1 doesn't show the growth of debt. It shows the size of the Federal debt.

Graph #2 shows the growth that debt.

Graph #2

It's the same data, same graph as #1, except on #2 the vertical scale is a log scale, so the line takes a different shape and the graph shows growth instead of size.

#1 shows a lot of increase in the past 10 years. #2 shows increase but no acceleration (no curving upward) in the past 20 years. That's important. We're doing something wrong that makes debt increase, but at least we're not making it get worse faster. The line isn't curving upward.

Neither graph, by the way, shows how debt grew in response to covid. As of this writing, the data ends in 2019.

There are dangers that arise from our growing Federal debt. Most people who worry about it worry that it creates other problems for our economy, problems like inflation and crowding out. I'm sure there's a long list.

Such things are possible. But I would point out that a bigger problem is the "expectations" created by people who worry vigorously about the Federal debt. Worry about the Federal debt spreads because the worries are repeated so often. The growing worry can eventually create the problems that people fear. The same principle says inflation can be created by "inflation expectations" -- and economists warn of that one all the time. Debt expectations are just as real, but almost always ignored. That's troubling.

I prioritize the problems arising from Federal debt thus:

Low: Inflation, Crowding Out, Slow Growth, etc., caused by the debt.
Medium: The creation of expectations that lead to such problems.
High: The growing debt shows that we do not have control of the situation.

My strongest argument for containing the growth of Federal debt is simply to show that we can do it, to demonstrate that we have control of debt. Showing that we have control would solve the expectations problem.

Unfortunately, most people seem to think we know how to solve the debt problem, and we lack only the will to do it. That's nonsense. We've been trying to solve the debt problem since Reagan, without success. Forty years of failure. Forty years, maybe more. 

To make matters worse: The longer the Federal debt problem continues, the more people become committed to their debt solutions that don't work. Another word for that sort of extreme commitment is polarization.

 

In an old episode of Real Time (S17 E1, 18 Jan 2019), Maher said:

I don't really think there is a great need for new ideas because we've been around the same problems for decades. So we know what the ideas are. It's the political will to put them into play.

and John Kasich replied

I don't disagree with that.

I do. I disagree with Maher. His view is that "we've been around the same problems for decades" but we still haven't solved them, so we must not be trying hard enough. 

Maher does not see Occam's possibility: that our solutions don't work because we have the wrong solutions.

Maher and people like him -- most people -- think they know what the solution is. They do not. Nor do the people on the other side, the ones who say the Federal debt is not a problem and the government should spend whatever it takes to improve the economy. Those people want to put the upward curve into Graph #2. That's not a solution.

We misunderstand the economy. We do not know what the real problem is, and we're not trying to solve it. We're trying to solve the consequences arising from that problem. We do not understand that they are consequences. We do not wonder what problem they might be consequences of. The real problem remains, its consequences remain, and all our solutions come to naught.

Bill Maher's view -- we need to try harder -- is a commitment to failure. Maher is unwilling to re-evaluate things. He is unwilling to consider changing our problem-solving strategy. He only wants to try harder. He wants to continue using a strategy that has not worked for 40 years, and just try harder.

The trouble with Maher's approach to solving economic problems is that it is open-ended: As long as the problem is not solved, his solution is only to try harder. But if the problem you're trying to solve is a consequence of the real problem, you will never solve it. Because you cannot solve consequences.