Chait stains: On offsets for new spending

I should have been an economist, as I have deigned to comprehend economics a lot in my adulthood. It’s fascinating to me.

I guess unlike many conservatives, I got past the notion that with the next borrowed dollar spent, we move a dollar closer to crashing our currency and the necessity for punitive taxation. It don’t work quite that way…. probably.

To pick some round numbers…. The size of the US economy is what, $15 trillion annually? Actually it’s probably bigger, ya figure. I’ll say $20 trillion. Federal budget is $4 trillion. Annual borrowing is now $500 billion. Personal income taxes are what, less than $2 trillion?

That’s all detailed to understand some notions of scale. Say the US economy is like the global climate ecosystem, and government give and take is like the Gulf Stream running through it. Not inconsequential, but superficially small-ish within its larger universe.

And government borrowing has become something more abstract than mere debt to be recouped against future earnings of ‘our grandchildren’. In the age of QE government borrowing is fiat money. It’s churned through a few Federal Reserve processes so that we can tell ourselves it’s not fiat money, but it is. It nets out as a bit of new money floated against the larger body of assets and currency in the economy. That there are bonds paid on is kind of an insignificant side note.  Pay that with fiat money too.

That’s inflationary, right? Next up, wheel barrels of money to buy loaves of bread? Not in these moderate amounts apparently. It probably does degrade the currency, and it might be measurable. To the extent it does, it’s really just a tax imposed in another way. But it’s not been practically noticeable enough to be alarming. Thus, the fiat money continues to be dispensed on various expenditures because it’s ostensibly something of a freebie what with the government not having to tax this money into its coffers.

So yes, Coburn is un-seriously penny-ante when he gets concerned about offsetting $225 million. Chait would say the unseriouness is to focus on small expenditures and their offsetting cuts rather than the larger entitlement costs and necessary payfors. I would say Chait’s is also an absurd premise, as we’ve been funding the entitlement payfors using fiat money, and have found it works provided it stays within certain parameters and doesn’t get near to upsetting a somewhat balanced economic ecosystem.

As a non-economist, I don’t have great confidence my perspective there doesn’t wither when critiqued by someone more learned. But I will say, if Coburn is unserious for worrying about his spending offsets, then Chait and the Democrats are equally unserious when they worry about their revenue payfors. In recent years their proposals have ranged from raising rates on the rich a few percentage points to the more insipid, like abolishing corporate jet expense deductions. Point being, these proposals raise a small amount of tax dollars or alternately a vanishingly small amount of dollars, and are not a serious response to the entitlement budget or even a handful of line items in any given year.

I would say, a pox on both houses for being silly, and that Chait is wrong for focusing ire singularly on Coborn. And he is wrong. But fact is, these absurd little line item discussions are a proxy for the larger argument we have about what we spend and how we spend it.  And that’s quite fine to have that discussion in that way.


3 thoughts on “Chait stains: On offsets for new spending

  1. pm1956

    I did not think that this was one of Chait’s best articles, but I thought that he really did not highlight what i thought was the real point:

    Coburn was being consistent with GOP ideology–that if you want to spend $$, you need an offset. The GOP critics of Coburn (who shut him down) were willing to forgo the offsets because this was funding for Israel, and Israel trumps (in GOP ideology) budget deficits.

    Chait should have really belabored this point, showing that the GOP is not serious about offsets when they have a higher priority (Israel in this case). Similarly, the Dems are not serious about offsets when it conflicts with their priorities–and, I think, the Dems rank offsets at the bottom of thier list of priorities.

    And that was Chait’s real point–that offsets really are foolish at this point in time. The deficit is a non-issue, in economic terms, as is federal spending. Neither is out of control in any realistic sense of the word, and the GOP is blatantly political and opportunistic when they bang on those drums (deficits and spending were higher under Reagan and both Bush’s than under Obama, etc.)

    As for fiat money, all money is fiat money. There is no such thing as “natural” money. All money is an artificial means of exchange that work only so long as they continue to be accepted by those who use it.

    Finally, there is absolutely no evidence whatsoever that quantitative easing has caused inflation. Frankly, I think that a little higher rate of inflation would be good for the economy.

    1. Erik Petersen Post author

      That’s all fair – I agree.

      I guess I allude to the idea that if you have a fairly harmonious balance of assets to currency, it’s the new money that’s ‘fiat money’. But I get the technical point you make, and had not contemplated the totality there of that definition..

      I don’t think I like the idea of inflation, but I accept it as somewhat inevitable. Though in modernity here there also seem to be some formidable macro factors that mitigate it. Shoot, gas is $3.30, that’s pretty cheap.


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