The Flinchum File

Thoughtful Economic Analysis and Existential Opinions
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Economic Innovation?

There’s an old Latin proverb that said “necessity is the mother of invention.” Unfortunately, that provided very little comfort during 2011, as politicians wrestled with increasing our maximum debt ceiling, just like they’re still doing today. The last time I lost sleep about our economy was July 30th of that year. The next day, President Obama announced that the debt ceiling would be raised and financial Armageddon was avoided. That was a huge relief to investors, businesses, and everyday Americans! It also unleashed a surge in economic investigation and innovation.

Standard & Poor’s started the process by insulting America, when they lowered the credit rating of our nation — not because the U.S. was less credit-worthy, but because we were less governable. As long as there are non-moderate Republicans and non-moderate Democrats, that will remain true.

Plus, the “black box” fear of unknown things happening in unknown ways to unknown people set off a flurry original economic thinking. In addition to the fourteenth amendment, Treasury has the ability to issue trillion–dollar coins to be held on the balance sheet of the Fed, several other countries offered to set up emergency liquidity lines of credit to buy U.S. assets and other ideas, flushing more liquidity into our economy. There have been a myriad of economic and political tools developed since 2011! Some of that paperwork is already done.

One thing is certain: the out-of-power politicians will sue the in-power politicians to prevent them from doing ANYTHING AT ALL – good, bad, or . . . who cares? Too bad there’s no such thing as economic lawyers?

For me to lose sleep over the current debate on the debt ceiling, I would have to believe we have learned nothing about the black box and have not developed any models to deal with it. Econometrics is literally made for such problems.

Make no mistake: Failure to raise the debt ceiling is NOT good for our country, but it would have been far worse twelve years ago. We will survive . . . regardless!