You Understand It's All Going To Collapse, Right?

So what's your plan?

From The Daily Economy, April 29:

Even ‘Invincible’ Superheroes Face Tradeoffs
Politicians and voters can’t move forward while they cling to their respective fantasy worlds, where nothing must be sacrificed.

The third season of critically-acclaimed superhero show Invincible is all about economics.

Okay, yes, epic battles between superpowered people dominate scene after scene, but the recently concluded season also emphasizes the importance of pragmatic trade-offs. We would be wise to take this lesson seriously.

Invincible follows teenager Mark Grayson, who discovers he has superpowers and becomes the titular hero. In a society beset by myriad worldly and otherworldly threats, Mark establishes a moral code for himself so he doesn’t stray from the kind of hero he wants to be.

The third season centered on Mark confronting the practical limitations of that strict moral code. His refusal to kill dangerous people, or work with anyone he considers ethically compromised, ends up hurting those he swore to protect. Cecil Stedman, the pragmatic head of the Global Defense Agency, knew Mark’s absolutism was unworkable. “We can be the good guys,” he said to a colleague, “or the guys that save the world. We can’t be both.”

In other words, Mark had to learn the danger of the nirvana fallacy. Politicians and voters would be wise to learn it, too.

The Nirvana Fallacy
Everyone wants to save the world while being the “good guy.” The sentiment is an enduring fixture of our best stories and in these comforting tales, the heroes win in spite of (or because of) their closely-held beliefs. In fantasy, we can have everything we want without having to make any annoying compromises.

Economist Harold Demsetz named such fallacious thinking the nirvana fallacy. Perpetrators of this fallacy compare the inevitably flawed real world to an imagined but impossible alternative. Finding the real world irredeemably wanting, they reject practical reform while people suffer (or they pursue perfection with disastrous consequences).

The nirvana fallacy saturates politics because it’s cheap for voters to believe that their cherished fantasies are attainable. We can achieve our perfect world just by slaying the Bad Guys and doing the Good Thing, like a comic book superhero — uncompromising and victorious. In the battle between fantasy and fact, fantasy wins. Society loses.

The Fantasy of an Easily Balanced Budget

Take the ballooning federal debt, a problem COVID-era spending and rising interest rates exacerbated. Both parties cling to their respective fantasies.

Republicans’ fantasy answer is cutting waste, fraud, and abuse. Solving America’s existential threat simply requires getting rid of things everyone hates, especially, as it turns out, things Republicans hate.

Too bad the numbers don’t work. If the Department of Government Efficiency somehow cut spending by half a trillion, three-quarters of the deficit would remain untouched. And half a trillion is hopeful: the DOGE counter at US Debt Clock tracks the organization’s goals, not accomplishments. At the time of this writing, DOGE is optimistically about $110 billion shy of its mark. Cutting “wasteful” spending is not a realistic solution.

Democrats’ favorite fiction is no less ridiculous: just tax the greedy rich. But balancing the budget this way would require taxing the rich at over 100 percent. No one even paid those super-high rates of the 1950s — at 90+ percent marginal tax rate, the incentive to avoid and evade taxes was too high to result in any revenue gains. It’s an unworkable strategy.

Wealth taxes would not do the job, either. A two-percent wealth tax on the top 0.1 percent would yield roughly $500 billion — far short of what’s needed, and that is before factoring in the incentive effects which would be strong (there’s good reason why countries that adopt a wealth tax tend to repeal it). Add in the legal challenges and it’s clear this solution is just a fantasy.

Balancing the budget requires some combination of much higher taxes on the middle-class and entitlement reform; neither will happen. If they thought about the deficit at all, Presidents indulged in the same fantasy that the budget could be balanced without doing anything unpopular....

....MUCH MORE

Of course the overarching problem for speculators was encapsulated by an extremely wealthy man as I was pitching him the intricacies of some convoluted financial operation:

Look, what I need to know is:

What's the upside

What's the downside

What's the time frame.  

Best guess on time frame is ten years. Meaning:

“When the music stops, in terms of liquidity, things will be complicated. 

But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”
    - Citigroup CEO Chuck Prince, July 9, 2007

Several months later the liquidity "music" ends, Bear Stearns fails, Lehman bankruptcy follows and entire financial system nearly collapses.