Three sides to every story

Have you ever imagined yourself as the hero in a story where, against all odds, you take on the villains to save the world? Feels good doesn't it?

Politics provides an opportunity to take part in such a story. The villains consist of those that conspire to thwart your team's noble cause, either by their actions or their indifference.

For conservatives, the battle is between civilization and barbarism. Conservative themes that fit this narrative include terrorism, socialism and moral issues like abortion.

For progressives, the struggle is for oppressed or marginalized groups and include concerns such as inequality, racism and corporate power.

For libertarians, the conflict is coercion against liberty, particularly with respect to the role of government in the lives of individuals and communities, such as the extent of trade regulations, taxes and legislated personal morality.

Any political issue can be described in terms of these axes.[1] For example, illegal immigrants can be regarded as experiencing oppression, importing barbarism, or seeking freedom depending on the chosen framing narrative. In a particular election cycle, the party that tells the most persuasive story around the political issues of the day will win the election. It is not the facts and policies themselves that matter for winning the vote but, instead, how those facts and policies are framed.

In the upcoming US election, Donald Trump's slogan is "Make America Great Again". This fits particularly well with the civilization/barbarism narrative and taps into people's sense that things aren't so great right now. It also makes it easy for anyone to create their own vision for what America's greatness means. It's a difficult slogan for Democrats to attack. So they instead need to challenge Trump's credibility for delivering on it.

Hillary Clinton's slogan is "Stronger Together". This strikes a solidarity chord with progressives. But it doesn't speak to people's aspirations or struggles. So Clinton's challenge is to find a message that emotionally resonates with people.[2]

Libertarian candidate Gary Johnson's slogan is "Live Free". This fits the libertarian narrative. But, as with Clinton's slogan, it will miss the mark with most voters. Libertarians need to inspire independents who are not enamored by either of the major party candidates. So how would freedom lead to a more civilized, safe and just society or improve their day-to-day lives?

Terrorist threats and economic hardship feed into Trump's story that there are systemic problems that only he, the uncompromising Washington outsider, can solve. Unless his opponents create a persuasive alternative story, Trump wins in November.

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[1] See Arnold Kling's Tribal Politics in the 21st Century.

[2] See Scott Adam's Battle of the Campaign Slogans.

One trillion dollars!

You may be able to just make out a person in the bottom left corner of the image standing next to 10,000 double-stacked standard pallets each holding a million $100 bills. That's what one trillion dollars looks like.

Humans have trouble intuitively conceptualizing large numbers. A billion or a trillion can seem incomprehensibly large when you only have ten fingers. This means that any analysis involving large figures will often just confuse us rather than inform us. So, for example, when we hear that the public debt of the United States is $12 trillion, or the deficit is almost $1 trillion, it sounds both overwhelming and unsustainable. And maybe it is. But drawing that conclusion without knowing the yearly GDP figures or the historical record is unjustified.

So I thought I'd show two charts that help provide a basis for drawing conclusions. Both charts provide information as percentages instead of large dollar amounts which makes any analysis easier to understand.



US public debt as a percentage of GDP

The first chart shows the US public debt as a percentage of GDP. While the debt continually increases (and is therefore larger than it ever has been), GDP also increases and is currently $17 trillion. The current US public debt as a percentage of GDP is 73% and the 1945 high was 113%.

For comparison, the UK public debt stands at 76% of GDP with a 1947 figure of 238%. Japan's public debt is currently 220% of GDP.



US federal deficit as a percentage of GDP

The second chart shows the US federal deficit as a percentage of GDP. The current US deficit is $680 million - about 4.1% of GDP. It was $1.4 trillion in 2009 or about 10% of GDP.

The US deficit was 30% of GDP in 1945.

 

A brief guide to US monetary policy

When demand for goods is falling (such as during a recession), a central bank can respond by lowering the short-term interest rate. This results in more borrowing and spending and higher employment. Stocks go up, investment increases, the dollar goes down and exports go up. Good times!

However a special problem with the 2008 global economic crisis was that interest rates in areas like the US and Europe were close to 0%. Unable to reduce short-term rates further, the Federal Reserve has resorted to unconventional monetary policy to reduce long term interest rates. The Fed achieves this by declaring that it will keep short-term rates low, which helps lower bond yields. And it also buys bonds on the open market which further lowers bond yields.

For example, with Quantitative Easing, the Fed credits its own account (the digital equivalent of printing money) and then uses that money to purchase government bonds on the open market from financial firms such as banks and insurance companies. This procedure increases the price of the bonds which makes them a less attractive investment. The money that firms make from the bond sales can then be invested in other companies or lent to individuals, usually at a lower interest rate to attract borrowers.

Once the US economy is in good shape, the Fed will tighten (decrease) the money supply to prevent high inflation. It will do this by selling the originally purchased bonds and then debiting its account (thus destroying the money it originally created).