Remember when everyone was supposed to bet higher short term rates?

Dec 31,2009.  Look at the Universal Economic Calculator. see how steep the curve was on that day? (You need to move the cursor back to that date).  Look at the curve today, much flatter.  That was a Kocherlakota Deflation, we should name the law after him!

What mechanism did the economy use to deflate the long end?  We used artificially short term rates accompanied by a Fiscal Stimulus with multipliers much less than one.  Policy makers had the math wrong, their math hit a zero which did not exist.  They keep the math wrong specifically so they can support the other lie about fiscal multipliers then artificially pump government debt.  Politics trumps Science in Economics.

Another way to say it is that Extend and Pretend is deflationary. Another name is Crowding Out.

Felix Salmon and Political Science!

HT Marginal Revolution

Felix wants to mix economics and politics:

"Given the government’s insatiable appetite for cash, it’s only natural that it would prefer to tax plutocrats, spending some of that money on poorer Americans, rather than move to a world where poorer Americans earn more (but still don’t pay that much in taxes), and the plutocrats earn less, depriving the national fisc of untold billions in revenue."

The equilibrium is here in what Felix says, the balance between smaller government and progressive taxes. The problem, once again, is the lack of precision, we can never get that close to the equilibrium.

By the way:
fisc n. The treasury of a kingdom or state.

Felix taught me a new word, I can still learn!