2) That is the only reason I care about it. If you don’t have some feel for tax credits and deductions you actually will be led astray in your economic analysis.

4) Can’t be true because we are monetarily sovereign. That is we have a floating currency and the rest of the world decides just how much we can afford. On an objective basis accross several key indicators it seems like the case for being able to afford it is stronger than ever. (i.e. low interest rates and high imports) (Krugman’s points on the IS-LM curve and the zero bound in the short run, et al.) I don’t believe there is much to the “sustainability’ dogma on the grounds that you are making the argument. In terms of the affordability/sustainability component the part I can’t understand is why exactly we can afford it. But the market clearly says we can! I had been hopeing that somehow those who talked about “american exceptionalism” knew the ends and outs of global macro, and just why we were much different from Greece, and why we didn’t want to become like Europe and give up monetary sovereignty. Only now of course the unsustainability crowd is saying they want to be like Germany, minus sensible corporate and labor law. Of course you realize that for one country to be a net exporter another has to be a net importer? (hint: we are a net importer, therefore the world is saying we can afford to persue any policy that creates debt denominated in our own currency.)

5) That is relatively insane. Jokes about that cause 7, and would accelerate the trend.

6) This sounds bad. I also doubt it as a trend. Think of the products you create and the products you buy. How many of those are the product of the self-employed? Did you buy a painting from an artist? Did you bake cookies for a bake sale? Almost nothing we produce or consume is a product of the self-employed. If you mean that business is going to downsize the low alpha high risk elements and basically outsource these to the self-employed, well that is why it sounds bad. business will “privatize” the low margin activities, which might allow higher profits, but in the end will just result in more bankrupcies amond these self-employed, thus in effect socializing the loss. But more clarification on 6 is needed.

In terms of more clarification being needed I sort of wish Mitt Romney had been a bit more specific on exactly what he was thinking in terms of unfair trade.

In my opinion if you really want to combat the deficit, you have to tackle trade policy.

On reason to move to Krugman is that he talks about Germany, Japan and global macro. Also any policy that is really “unsustainable” is at heart really Malthusian. That it a lot of ecological arguments talk about unsustainability, those are good arguments. But this fiscal cliff, budget talk unsustainability is bad econ. You might say that something is unsustainable if it makes sense on economic grounds, but involves a mechanical/engineering process that consumes more energy than it produces. That sort of unsustainability I understand. But I don’t understand your unsustainability in #4. Maybe you are catholic and Malthus is heresy, so you have to backdoor a check on growth, without laying out a sustainable “unsustainability” argument. I don’t actually understand the “birth derth” argument within the larger framework of economic sustainability (in the very long run).

If deficits didn’t matter and you wanted to end the birth derth you could give a 250k refundable tax credit per child born. Don’t try to act serious and suggest something tiny as a stimulus and claim it won’t work(of course it won’t) Of course given the fact that this would be quite stimulative, we would certainly have to raise taxes eventually to ward off inflation, and this would certainly end up punishing those who weren’t nudged into having children but choose careers instead. You could try to fund it on an estate tax. As Baby boomers die they fund a baby boom (perhaps a bit too cute).

In any case if what you are really saying is that deficits are unsustainable, then you have to look at the root causes of such deficits. You can’t solve deficits by cutting spending. Spending is basically set in stone(law), so it is very hard to cut non-discretionary spending. Even if you did cut spending you wouldn’t necessarily reduce the deficit, especially in this environment.

The root cause of the deficit is probably the crash in home prices (which also leads to a birth dearth) which is also caused by growing income inequality, which is caused by increased efficiency from non hicks neutral technological change. The rich are getting richer, folks want to get rich, they must save, they must obey Eistein’s rule of compound interest being the strongest force in the universe. Ergo also fewer children. In any case there is a strong marginal propensity to save. If there is a strong marginal propensity to save that money must come from somewhere, it can either be returned to the U.S. from exports or it can come from deficit spending. That is if the consumer falls off and saves then deficit spending goes up, unless the U.S. runs a trade surplus(i.e. folks want american goods more than they want american dollars).

Of course currently the rest of the world wants U.S. dollars more than it wants american goods. This in my view is grounds for an unsustainability argument if I can question the almighty “market”!

But so long as the rest of the world wants american dollars and we are trapped in the zero bound and we have an ageing population that needs (and plenty of young college graduates that want employment in the medical/nursing fields) we should robustly increase if not maintain entitlement spending (i.e. it is not broke, but there are plenty of under-employed lawyers who are willing to sell any reform).

So basically given income distribution inequality, the middle class needs money+jobs more than kids, so there is a very high propensity to save, which means the U.S. government is going to run a deficit (if the middle class is going to achieve its savings objectives). Potentially the middle class could achieve its savings objectives without a budget deficit, if we ran a large enough trade surplus. (but which nation is going to run the trade deficit? in the case of the U.S. which nation(s), which foreign currency is trusted enough to accumulate?)

If you really want to ballance the budget what you need to do is get the middle class(all consumers actually) in a position where its marginal propensity to save is around zero and the trade deficit is around zero.

I don’t know how you can give the middle class enough savings such that they will want to have more children and also spend everything they earn. Maybe the 250k refundable child credit? But then what if they just buy more cheap goods from China?

As rediculous as this may sound to you guys, (and I for one am not sure the deficit is the problem you think it is). The best policy for getting the budget ballanced is to actually cap imports, or to solve the trade ballance.

So maybe the Ballanced Trade Restoration Act of 2006 should have been considered.

http://thomas.loc.gov/cgi-bin/bdquery/z?d109:s.03899:

It basically creates import certificates. The idea is partially backed by Warren Buffet. I am not saying it is better than Ricardo, but you are already rejecting the market by saying that it is wrong about the sustainability of large deficits and entitlement programs given low rates of inflation and international demand for the U.S. dollar. (you need so much more work on #4) If in fact our deficit spending is unsustainable then we should do what we can to stop a large cause of it, namely our free trade addiction.

Once you ballance trade you actually get a situation where if the private sector runs a surplus the federal government runs a deficit and vice versa.

The absolutely insane thing about this and why I believe in american exceptionalism is that there is no prescedent for the United States of America, no nation has ever been able to run such large and persistant trade deficits. Of course it is possible that theorists in the old days were constrained by examples taken from practical considerations. A ship owner wasn’t leaving port without cargo. Trade was a tangible thing for a tangible thing. Buffet also thinks this is unsustainable.

But what exactly is the official republican macroeconomic argument supporting the contention that #4 is unsustainable.

That’s not nearly true, and it risks treating this situation like a temporary problem with a cause that has already been dealt with, but it’s a relatively non-threatening opening.