Now Washington's Record Interest Payments on Debt is Trump's Fault Too

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6 MIN READ - A government budget dispatch from the Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff.
Selected budget statistics for reference purposes:

Tax revenues (not inflation adjusted):

Reagan tax cut, 1981-1989: $599 billion to $991 billion (+65.4%)
Obama tax hike, 2013-2017: $2.78 trillion to $3.32 trillion (+19.4%)
Trump tax cut: 2017-2022: $3.32 trillion to $4.897 trillion (+47.7%)

Government spending (not inflation adjusted):

Reagan and Democratic Congress, 1981-1989: $678 billion to $1.144 trillion (+68.7%)
Obama and Republican Congress, 2013-2017: $3.45 trillion to $3.98 trillion (+15.4%)
Trump/Biden and mix of Republican and Democratic Congresses, 2017-2022: $3.98 trillion to $6.27 trillion (+57.5%)

(reference links at end of article)

Now that the U.S. Treasury is shelling out more to pay interest on the national debt than for military defense a new round of blame-gaming has commenced with liberals once again blaming Trump. This time the culprit is Trump’s 2017 tax cuts which the Left characterizes as “giveaways to the rich,” a “giveaway” referring to the IRS forcibly taking away a little less than it has in previous years.

Blaming tax cuts for massive deficits and debt is nothing new for the Left. They love to blame the national debt on Ronald Reagan’s 1980’s tax cuts and George W. Bush’s 2001 tax cuts. According to them, every shortfall in the Treasury's bottom line should be blamed on giant revenue holes brought about by an evil tax break, and if only we had left tax rates the same or better yet raised them there would be no deficit and no debt.

So just how bad was the revenue shortfall resulting from Trump’s tax reform?

From fiscal year 2017 (the year Trump signed the tax bill) to the end of FY2022, federal tax revenues rose from $3.32 trillion to $4.897 trillion, an increase of 47.5% which outstrips both inflation and nominal GDP.

That’s quite a revenue boost for a tax cut that allegedly starved the IRS for money.

But wait, when confronted with these numbers liberals will retort (and I have literally seen these responses) that “well, tax revenues would have been MUCH HIGHER had Trump not cut taxes.”

Of course we can’t go back to 2017 and replay history with a tax increase, but we can look at the fiscal effects of the last federal tax hike—under Barack Obama.

In the waning weeks of 2012 Obama, who had just secured his re-election, was able to win his version of an expiration of the George W. Bush era tax cuts: allowing them to expire for wealthy taxpayers only. Hence the Left got what it has always coveted: a tax hike on the rich while sparing the middle and working classes (they only got stuck with 200% higher health insurance premiums a year later when Obamacare went into full effect).

The result? From FY2013 to FY2017 tax revenues rose from $2.78 trillion to $3.32 trillion or +19.4% in four years.

Of course that was only through four years compared to five years after the Trump tax cuts, so on a compounded annualized basis the post-Trump tax cuts revenue benefit was +8.08% versus +4.53% for Obama.

But wait, inflation has been higher in the post-Trump years, especially in late 2021 and 2022.

That’s quite true, and if we adjust for CPI the annualized increases in federal revenue narrow with Trump still beating Obama with +3.6% real annualized gains versus +3.2%.

But not only did Obama’s tax hikes produce inferior revenue gains to Trump’s tax cuts, Trump had the added handicap of the Covid pandemic and state governments shutting down the economy—with unemployment soaring to 14%—while Obama had no crisis whatsoever in the 2013-2017 period, the closest being the 2008 financial crisis which by then was just a five-year old memory.

Obama’s tax hikes also led to slower economic growth—average real GDP growth of +2.37% from 2013 to 2017 versus +2.65% since 2017. Once again, Trump’s GDP performance was kneecapped by Covid, like every other country in the world, and still produced superior results.

The same can be said about the Reagan tax cuts. Far from starving the federal government for money, tax revenues under Reagan’s eight years soared from $599 billion to $991 billion or up 65.4%.

Of course you never hear any of these numbers from the Left—including from the press... but I repeat myself—just the broad accusations that “Trump’s tax cut ballooned the deficit!”

SPENDING

More importantly, here’s the part the Left never discusses when it comes to debt and deficits: the contribution made by overall government spending.

As we just mentioned, in the five years since Trump’s tax cuts federal tax revenues increased by 47.5%. What we haven’t mentioned yet is that during the same period government spending expanded at a much faster rate of +57.5% ($3.98 trillion to $6.27 trillion).

One could argue that higher spending is due to Covid-related measures, but the pandemic ended two years ago and there’s no reason the federal government should be spending $6.27 trillion today.

One could also argue that Ukraine is the cause for such elevated spending, but total Ukraine outlays have so far been $113 billion over more than a year and a half or the equivalent of $71 billion per year. Strike that out and 2022 federal spending falls from $6.27 trillion to $6.20 trillion, a reduction of 1.1%.

Also since 2017 total federal defense spending has risen by 36.0% ($599 billion to $815 billion) while what accountants call “entitlement” spending has risen by 53.2% ($2.899 trillion to $4.440 trillion).

While a 53.2% increase is definitely greater than a 36.0% increase, the real difference lies in the gap between the actual dollar figures: $815 billion for defense versus $4.440 trillion for human priorities, 5.2 times larger.

And although it’s a smaller budget item, energy and environmental spending has risen the fastest of all, up 89.2% which is to be expected with all the cash the Biden administration has thrown at green programs.

So clearly the problem with the debt, the deficit, and the giant interest payments of 2023 is not rooted in tax cuts, for federal revenue is up 47.5% since Trump signed them into law. Instead, as is nearly always the case, Congress has found a way to spend $1.22 for every new $1 of tax revenue.

POSTSCRIPT: OBAMA AND REAGAN

Incidentally the same spending math applies to budgets during the Reagan and Obama years, although as diametric opposites.

Although tax revenues soared by 65.4% after Reagan’s tax cuts, federal spending rose even faster, up 68.7% from $678 billion to $1.144 trillion. The reason? The opposition Democratic Party had full control of Congress for six of Reagan’s eight years and control of the House for the remaining two years.

And liberals love to blame 1980's spending on defense. Well in 1981 defense spending was less than half of “entitlement” spending at $157 billion to $362 billion. By 1989 defense spending was a bit more than half that of “entitlement” spending at $303 billion to $569 billion.

Interesting change since the 1980’s: entitlement spending used to be double that of defense. In 2023 it’s over five times defense spending.

In Obama’s case we have the reverse situation. Government revenues rose by 19.4% in the four years after his tax hike on the wealthy—liberals praising the tax hike for a shrinking deficit.

But during those same four years federal spending slowed to a meager gain of only 15.4%. Reason? The GOP controlled all of Congress during two of those years and controlled the House during the other two. They forced fiscal discipline on Obama which liberals and the press slammed Republicans for at the time. Remember the press and Democrats slamming sequestration and government "shutdowns?"

Today they praise the same deficit reduction the GOP Congress forced and try to credit Obama for it.

So in conclusion the mathematical correlation between high deficits or low deficits is consistent with government spending patterns, not revenues. Whenever you see deficits balloon, you find massive government spending growth outstripping revenue gains that themselves even outstrip inflation and GDP. Whenever you see deficits narrow you see government spending growth constrained, always by a GOP Congress which is usually fighting with a Democratic president.
=====
(from the Economics Correspondent) Economic data reference links:

Federal tax revenues and spending/outlays by fiscal year (White House)
https://www.whitehouse.gov/wp-content/uploads/2023/03/hist01z1_fy2024.xlsx

Spending by defense and entitlement superfunctions (White House)
https://www.whitehouse.gov/wp-content/uploads/2023/03/hist03z1_fy2024.xlsx

Real GDP by year (St. Louis Federal Reserve)
https://fred.stlouisfed.org/series/GDPC1

CPI level by year (St. Louis Federal Reserve)
https://fred.stlouisfed.org/series/CPIAUCSL

A Political and Economic History of China, Part 5: The Song and Southern Song Dynasties

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7 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff continues marching through imperial Chinese history, this time chronicling history’s first paper inflation during the Song dynasty (960-1279).

1142: China is split in two by the Jurchen Jin and Southern
Song dynasties with the Mongols waiting in the wings

In the last article we discussed the long, violent, painful decline and ultimate end of the Tang dynasty (618-907).

As the Tang disintegrated into civil war and rebellion, power shifted away from the ineffectual capital towards its regional generals. China became divided among provincial warlords, many of whom proclaimed themselves imperial sovereigns, effectively splitting the country into competing kingdoms.

The next 53 years are known as the “Five Dynasties, Ten Kingdoms period,” and the Correspondent will skim over this episode of disunity other than mention of one of its later emperors who reunited China yet again.

Zhao Kuangyin, a military governor serving in the Later Zhou dynasty—one of the “Five Dynasties”—managed to seize his own kingdom’s throne in 960 and proclaimed the new Song dynasty, the last dynasty ever established by internal coup d’etat.

Zhao assumed the title of Emperor Taizu and over the next sixteen years he annexed neighboring kingdoms, a few by military conquest but most through dealmaking. As he assimilated more and more territory Taizu, himself a former general, wisely diminished the political influence of the military and handed administration of the state to a civilian bureaucracy. Officials were recruited and promoted by civil service examination and merit instead of military rank or aristocratic birthright. These reforms are considered crucial to explaining the future success of the Song.

The Song soon ascended to one of China’s true “golden ages.” As the Correspondent wrote in a previous column, a consensus of historians consider the Tang dynasty the greatest of China’s golden ages, but the Song did well enough that there’s a dark horse case, in theory at least, for the Song to claim “greatest golden age” title.

Some of the Song’s accomplishments include the first-ever military application of gunpowder, the expansion of woodblock printing and invention of movable-type printing, a doubling of population in 100 years, and other advances in art, literature, philosophy, science and mathematics.

From an economic standpoint the Song produced the world’s first predominantly monetary economy and, with increased Silk Road trading routes and advances in transportation, China was transformed into a wide consumer economy where for the first time citizens were producing large surpluses not so much for their own use, but for sale in distant markets. During its peak Song China was the largest and most sophisticated economy in the world.

HYPERINFLATION

However the Economics Correspondent wants to focus on what he considers more perilous aspects of the Song: monetary missteps, partial alien conquest, rebirth and renaissance, and final downfall.

The previous Tang dynasty had discovered the concept of paper money, and in its last century Tang officials began printing notes for commercial purposes. However, as Tang notes were always redeemable in copper coin the dynasty didn’t get around to producing high inflation before its end.

The Song got a head start given that paper money was already a known element in the 10th century. In 970 the Song government started printing its own banknotes, also redeemable in coin or other commodities like salt and tea. Since the notes were backed by physical goods the Song still avoided inflation for nearly a century and over that period the value of its notes remained near par with coinage—due not only to their redeemability, but also because they were accepted by the government for tax payments.

Things changed dramatically in the 1060’s. The emperor Shenzong’s influential prime minister Wang Anshi—who was also a bureaucratic philosopher and economist—started to rely less on paper money’s commodity backing and more on its compulsory acceptance for tax payments to hold its value and he ordered a sharp increase in the production of sovereign notes.

Wang was also the 11th century Song’s combination of Bernie Sanders and Hillary Clinton, launching a modern day-sounding set of reforms known as the “New Policies” (nearly a namesake to Vladimir Lenin's "New Economic Policy") by which the government...

”…massively increased taxation on large landholders, used credit and progressive taxation to redistribute landholdings, nationalized the commanding heights of the economy (tea, salt, wine), promoted paper currency over copper coins, and outlawed copper mining. He provided direct loans to peasants, monetized taxes and the corvée to bypass landlords and local authorities… …and pursued an aggressive foreign policy, increasing spending on the military and invading both the Champa Empire to the south (in modern Vietnam) and the Jurchen to the north.” 

-Economist Peter St. Onge

Historian Mary Nourse summarizes Wang’s policy views as follows: "The state should take the entire management of commerce, industry, and agriculture into its own hands, with a view to succoring the working classes and preventing them from being ground into the dust by the rich” and "to manage wealth the ruler should see public and private [wealth] as a single whole."

But as any present-day economic reader other than Janet Yellen could have predicted, Wang’s convictions in the liability-free printing press were quickly shaken. By 1076 Song paper currency was trading at a discount to coin in the marketplace and in 1107 the central government’s banknotes were only accepted at 10 percent of their face value, ushering in world history’s “first recorded monetary crisis attributed to the overprinting of money.” (Goetzmann and Koll, 2005)

Many economists not only consider the late 1000’s period the world’s first bona fide paper hyperinflation, they also record that the monetary crisis sufficiently weakened the Song economy to induce its conquest by outside invasion. For example, while the population of the Song doubled during its first century, it stalled and began declining after Wang’s policies were imposed.

THE JIN-SONG SPLIT

Throughout this period the Song maintained a fragile “frenemy” alliance with the Manchurian Jurchen tribes stretching from modern-day eastern Mongolia to Chinese Manchuria. However in 1115 several Jurchen tribes rebelled against their Song-allied leaders and eventually established their own “Jin dynasty” of the north.

In 1125 the Jurchen Jin attacked Song China.

The Song, already suffering from high inflation, further accelerated its printing presses to pay for military operations against the invading Jin. The combination of an already weakened economy and more inflation atop the old inflation crippled the Song which lost its imperial capital only two years later. The Jurchens took the emperor Qinzong, many members of his family, and many imperial court officials hostage and sent them to Harbin (remote Manchuria near the Russian border) where they were stripped of titles and publicly humiliated—although Qinzong lived another 34 years as a poor and destitute peasant subject of Jin.

The Jin pushed the Chinese Song dynasty down to the Yangtze river where Song generals countered and regained some territory. Ultimately a truce was settled in 1142, dividing China into the Jurchen Jin dynasty north of the Huai river and the Chinese Southern Song dynasty south of the river. By treaty the Song also paid annual tribute making it effectively a vassal state.

The Jurchens, who numbered about 1 million with 100,000 soldiers, had defeated a nation of 100 million with 1 million soldiers—the equivalent of Barbados successfully defeating the United States and taking all territory east of the Mississippi River. Most historians blame the Song government’s mismanagement of its own economy and hyperinflation for such a lopsided defeat.

Based on the date the Jurchens captured the Song capital, 1127 marks the official beginning of the Southern Song dynasty (1127-1279) while the Jin dynasty’s official reign is dated 1115 (when the Jurchens overthrew their overlords) to 1234 which we’ll explain in a moment.

The Jin reveled in their victories and chose the city of Zhongdu (later renamed Beijing) as their capital, the first time Beijing would serve as capital of a Chinese dynasty. Over the next several decades the Jin and Southern Song eyed one another suspiciously. The Song launched some ineffective attacks but otherwise went about its business and briefly enjoyed a new renaissance.

THE MONGOLS

The Jin’s victory would only last 70 years for it soon had a bigger problem on its hands from the northwest: the rising power of Genghis Khan and the Mongols who declared war in 1211 and invaded. The Jin asked their Southern Song enemies for help, warning that after they were swallowed up the Mongols would come after the Song next.

But the Song adopted an “enemy of my enemy is my friend” approach and refused to help the Jin, even allying itself with the Mongols who they helped supply. The Mongols completed their conquest of the Jin, ending that dynasty in 1234.

One year later the son of the late Genghis Khan turned on the Southern Song, just as the Jin had predicted, and invaded although the Song proved harder to conquer.

But once again the Song helped an external enemy with its over-reliance on the printing press. The Southern Song Xiaozong emperor had already banned competing private currencies in 1162 and eventually established a government paper money monopoly by 1190. The succeeding emperor Ningzong’s (1194-1224) chancellor resurrected the Wang Anshi-inspired “New Policies” (even recycling the name) printing more paper money leading to another hyperinflation.

For what it’s worth western history is also replete with government technocrats proclaiming that heavy reliance on the printing press “will be different and more enlightened this time,” but this kind of monetary insanity—repeating the same inflation mistake and expecting a different result—clearly got its start in Song China.

Weakened by worsening government finances, internal corruption, and rampant inflation, Song officials and generals defected to the Mongols and the Southern Song fell to Genghis Khan’s grandson—the great Kublai Khan—after decades of war. Once again the larger and more populous Chinese dynasty was overrun by a smaller force—in this case about 600,000 Mongols although the latter had admittedly commandeered the resources of the former Jin dynasty to aid in its conquest.

Historians mark 1279 as the official end of the Southern Song and beginning of the Mongol Yuan dynasty (pronounced yu-ehn, but combined as one spoken syllable) and the Correspondent will write in more detail about the Yuan in another column.

However the story of the Song’s birth (960), the Jin invasion and division of China (1127) and final conquest of the Southern Song by the Mongols (1279) explains the somewhat confusing dates defining the imperial chronology of the period. In general the Song dynasty is often defined as 960-1279 while at other times a more accurate timeline records the Song ruling from 960 to 1127 and the Southern Song from 1127 to 1279.

Czech Reporters Covering San Francisco APEC Summit Robbed at Gunpoint

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The Cautious Optimism Correspondent for Economic Affairs is pleased to report events at the San Francisco APEC summit are progressing exactly as anticipated with no surprises so far.

Read "Czech journalists covering Asian summit in San Francisco are robbed at gunpoint" from NBC News at:

https://www.nbcnews.com/news/us-news/czech-journalists-covering-apec-san-francisco-robbed-gunpoint-rcna125092

San Francisco APEC: A Tale of Two Sanitizations, or "Commies Gonna Commie" in any Century

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6 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff submits recent events in his home of San Francisco as an excellent example of history repeating itself.

San Francisco Mayor London Breed kicking off Potemkin
Village preparations for APEC summit visiting dignitaries

SAN FRANCISCO #1

After decades of being plagued by an ugly homelessness problem of its own creation, this week San Francisco city government is aggressively clearing tents and drug-addicted vagrants from many sections of downtown.

Namely, those blocks that will be visible to next week’s APEC summit international delegates.

From the Los Angeles Times:

”Fresh paint. Street cleanings. Homeless sweeps. Colorful art. Workers… beautified the city, days before politicians, executives and journalists from around the world descend on San Francisco for the Asia-Pacific Economic Cooperation conference… APEC is made up of 21 member economies, including the U.S., China, Japan, Russia and Canada.”

”Blocks away from the Moscone Center, where the summit's main events will be held, Christie Palominos sorted through her belongings… ‘They’re clearing out the homeless people because they don’t want them to see this,’ she said.”

Read free version of L.A. Times story at:

https://www.yahoo.com/news/theyre-clearing-homeless-people-san-202319014.html

SOVIET UKRAINE #1

From Robert Conquest’s “The Harvest of Sorrow,” the first comprehensive western account of the Holodomor famine:

”Edouard Herriot, the French Radical leader, twice premier of his country, was in the USSR in August and September 1933… A visitor to Kiev describes the preparations for Herriot. The day before his arrival the population was required to work from 2 a.m. cleaning the streets and decorating the houses. Food-distribution centres were closed. Queues were prohibited. Homeless children, beggars, and starving people disappeared…. The streets were washed, the hotel he was to stay in was refurbished, with new carpets and furniture and new uniforms for the staff. And similarly in Kharkov….”

”Certain villages were set aside to show to foreigners. These were ‘model’ collectives — for example ‘Red Star’ in the Kharkov Province, where all the peasants were picked Communists and Komsomols. These were well housed and well fed…”

”One witness describes the preparations made to receive Herriot at the collective farm ‘October Revolution’ in Brovary, near Kiev: ‘A special meeting of the regional party organization was held in Kiev for the purpose of transforming this collective farm into a ‘Potemkin village’…It was thoroughly scrubbed and cleaned, all communists, komsomols and activists having been mobilized for the job. Furniture from the regional theatre in Brovary was brought, and the clubrooms beautifully appointed with it. Curtains and drapes were brought from Kiev, also tablecloths. One wing was turned into a dining-hall, the tables of which were covered with new cloths and decorated with flowers… Some steers and hogs were slaughtered to provide plenty of meat. A supply of beer was also brought in. All the corpses and starving peasants were removed from the highways in the surrounding countryside and the peasants were forbidden to leave their houses…’

‘…A mass meeting of collective farm workers was called, and they were told that a motion picture would be made of collective farm life, and for this purpose this particular farm had been chosen by a film-studio from Odessa... Those who were picked by a special committee were given new outfits brought from Kiev: shoes, socks, suits, hats, handkerchiefs. Women received new dresses. The whole masquerade was directed by a delegate of the Kiev party district organization, Sharapov, and a man named Denisenko was his deputy…'

'The organizers decided that it would be best for M. Herriot to meet the collective farm workers while they were seated at tables, eating a good meal. The next day, when Herriot was due to arrive, now welldressed workers were seated in the dining-hall, and served a hearty meal. They were eating huge chunks of meat, washing it down with beer or lemonade, and were making short work of it. The director, who was nervous, called upon the people to eat slowly, so that the honoured guest, Herriot, would see them at their tables… The people begged to be allowed to keep the clothes and shoes, promising to work or pay for them, but to no avail. Everything had to be given back and returned to Kiev, to the stores from which it had been borrowed.’”

Read Robert Conquest's "Harvest of Sorrow" online free at:

https://diasporiana.org.ua/wp-content/uploads/books/13564/file.pdf

SAN FRANCISCO #2

From the L.A. Times: 

”San Francisco Mayor London Breed said in a press conference Thursday that the tattered urban images people see on social media about San Francisco capture a snapshot in time in certain neighborhoods, ignoring the rest of the picturesque city. ‘I see a lot of beauty all over San Francisco…,’ she said. ‘My hope is that people will have the opportunity to experience San Francisco for themselves and tell the whole story.’”

”Later in the day, Breed and Gov. Gavin Newsom unveiled a new plant nursery and education center in the Soma neighborhood. Newsom, who met China's president last month, said before a big event like the APEC summit everything’s got to 'get dialed up' just like when people clean up their house before they have visitors.”

”’This place is beloved and its best days are in front of it, not behind it,’ he said. ‘And all those doomsdayers. All those negative folks. You know what? They haven’t offered anything.’”

SOVIET UKRAINE #2

From Conquest:

“When the famine became widely reported in the USA and a Congressman, Herman Kopelmann of Connecticut, drew official Soviet attention to it, he received the following answer from Foreign Commissar Litvinov:”

“‘l am in receipt of your letter of the 14th instant and thank you for drawing my attention to the Ukrainian pamphlet. There is any amount of such pamphlets full of lies circulated by the counter-revolutionary organizations abroad who specialize in work of this kind. There is nothing left for them to do but spread false information and forge documents.’”

”The Soviet Embassy in Washington also claimed that the Ukraine’s population had increased over the Five Year Plan period by 2% per annum, and that it had the lowest death rate of any Soviet republic!"

”…Stalin had a profound understanding of the possibilities of what Hitler approvingly calls the Big Lie. He knew that even though the truth may be readily available, the deceiver need not give up. He saw that flat denial on the one hand, and the injection into the pool of information of a corpus of positive falsehood on the other, were sufficient to confuse the issue for the passively uninstructed foreign audience, and to induce acceptance of the Stalinist version by those actively seeking to be deceived. The Famine was the first major instance of the exercise of this technique of influencing world opinion…”

”[Roman] Terekhov, First Secretary of the Kharkov Provincial Commitee, told Stalin that famine was raging, and asked for grain to be sent in. By an odd anomaly, Terekhov was one of the few Ukrainian apparatchiks to survive the Yezhov terror a few years later, and was able to recount the story in Pravda in Khrushchev’s time."

"Stalin’s retort to his frank remarks was, ‘We have been told that you, Comrade Terekhov, are a good speaker; it seems that you are a good storyteller, you've made up such a fable about famine, thinking to frighten us, but it won’t work. Wouldn’t it be better for you to leave the post of provincial committee secretary and the Ukrainian Central Committee and join the Writers’ Union? Then you can write your fables and fools will read them.’”

A Political and Economic History of China, Part 4: The Violent Fall of the Tang Dynasty

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6 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff continues his series on Chinese history detailing the violent and lengthy decline of the golden age Tang dynasty.

Tang General An Lushan (703-757)

For CO readers who may have missed the earlier columns on the Qin, Han, and Tang dynasties, we’ll take a momentary time out to tabulate a simplified list of China’s dynasties starting at 475BC.

Warring States period: 475BC–221BC
Qin dynasty*: 221BC–206BC
Han dynasty*: 206BC–220AD
Three Kingdoms, Two Jins, Northern and Southern dynasties, and Sui periods: 220-618
Tang dynasty*: 618-907
Five Dynasties and Ten Kingdoms period: 907-960
Song dynasty (sometimes referred to as the Northern Song)*: 960-1127
Southern Song dynasty: 1127-1279
Yuan dynasty*: 1279-1368
Ming dynasty*: 1368-1644
Qing dynasty*: 1644-1911

*denotes dynasty ruling a unified China

As the Correspondent has mentioned already it’s somewhat of an injustice to write only a column or even two for an entire dynasty since there’s so much more that happens during the course of two or three centuries. He’ll try to make up for it with the last and, in his opinion, most interesting and important dynasty of all: the Qing (pronounced Ching). For the Qing the Correspondent will probably post as many articles than all the others combined… before moving on to Republican China, Nationalist China, and finally Communist China.

Returning to the Tang dynasty the Correspondent thought he would move right on to the Song dynasty, but the story of the Tang’s collapse is turbulent enough that he devotes this column entirely to the end of the Tang, complete with civil wars, corruption, power struggles, coups d’etat, and executions.

AN LUSHAN

The Tang dynasty was severely weakened by an earthshaking insurrection: the An Lushan rebellion named after the general who led it. An Lushan was a central Asian of Turkic descent who rose to become a highly effective Tang general and favorite of the Emperor Xuanzong. Xuanzong rewarded An with an elaborate house, military command of every region north of the capital, and considerable influence within the imperial court.

In other words the emperor made the mistake of giving An Lushan too much power and influence.

Given that there was very little military presence guarding the capital city and much discontent in the north with the Tang, An Lushan attempted to seize power for himself, sending his armies south where they quickly captured the capital after which he proclaimed the new Yan dynasty.

The emperor fled further inland to modern day Sichuan province where, protected by the rugged geography surrounding the regional basin, his armies reassembled.

The Tang’s efforts to regain control of the empire were also aided by infighting within An’s new government itself. Just a few years later An was murdered by his own son, who in turn was murdered by a general loyal to An Lushan, who in turn was murdered by his own (the loyal general’s) son. In less than six years An Lushan’s new Yan dynasty had burned through four emperors, the first three murdered by ambitious internal rivals.

Eventually imperial Tang forces regained control of the battlefield and many Yan generals, disillusioned with repeated coups and political assassinations, and seeing the writing on the wall, defected and the rebellion collapsed in 763.

The An Lushan rebellion is considered one of the bloodiest civil wars in history. Records make it difficult to narrow the death toll, although a widely circulated number is 36 million which was one-sixth of the world’s population in 763. However that number is derived from Tang records tallying the reduction in registered taxpayers which many historians argue would be expected in all the civil chaos. With citizens fleeing their home cities and the Tang and Yan governments unable to track the location of every taxpayer in the turmoil of an eight-year civil war, a figure of 36 million is highly suspect.

An attempted correction adjusting for tax collection errors arrives at a more modest and believable number of 13 million dead, yet even that was still 6% of the world’s population in 763. Today 6% of the world's population would translate to 500 million dead.

A good modern comparison would be World War II with estimates of 60-75 million dead. That’s a lower share of world population, just 2.6% to 3.3% in 1945, but what’s truly notable is the An Lushan was not a world war and its larger relative death toll was amassed within a single country.

There is another historic rebellion during the 19th century, the Taiping rebellion, that is estimated to have killed 20-30 million Chinese by its end in 1865. The Taiping claims the highest absolute body count of any civil war in history and third largest of any human conflict after only World War I and II, but as a share of world population it falls far short of the An Lushan rebellion at only 1.5%-2.3%.

Note: the Economics Correspondent will write at greater length about the longer and, in his opinion, more interesting Taiping Rebellion when he gets to the Qing dynasty.

HUANG CHAO

Although the Tang dynasty was able to finally suppress the An Lushan rebellion at great cost, it never fully recovered its original glory. There were attempts by a handful of emperors to rebuild China and some progress was made, particularly by the Xianzong emperor (r. 805-820). However Xianzong’s successors weren’t as interested in governing and allowed the ever-conniving palace eunuchs to gain too much control of the empire’s power apparatus.

The Emperor Wenzong tried to overthrow the eunuchs in 835 but his plot failed. In a demonstration of how much power they had amassed the eunuchs ordered an open, public execution of nearly all the emperor’s political allies and Wenzong was made a puppet head of state. For many decades after the government was controlled by eunuchs who dictated who would sit on the throne, the emperors wielding only symbolic power.

Another large rebellion took place (the Huang Chao) in 874 when its commander of the same name took the capital and even advanced into the south of China where he massacred Arab, Persian, Muslim, Christian, and Jewish merchants. Old records (which also may not be reliable) claim Huang Chao killed 8 million people, but after ten years the rebellion was again suppressed. However the sheer destruction inflicted upon the country was so enormous that the Tang was effectively, if not officially finished.

Multiple generals with regional commands had fought to suppress the Huang Chao and, in the process, Tang power moved away from the center towards military fiefdoms. These regional warlords then fought among both themselves and the eunuchs over who would become the next emperor, starting with the powerful general Zhu Wen. 

Zhu forced the official emperor to move out of the capital. He then assassinated the emperor and placed the emperor’s son on the throne as a puppet. He also assassinated all of the son’s brothers, the empress dowager, and many of the late emperor’s loyal officials to eliminate any rivals for power.

Once what was left of the imperial court had settled into accepting Zhu as regent he deposed the boy emperor and took the throne for himself, poisoning the young ex-emperor a year later. Zhu proclaimed the new Later Liang dynasty which marked the official end of the Tang dynasty in 907. However, with so many regional warlords exercising effective power over their respective territories China fell into the so-called “Five Dynasties and Ten Kingdoms” period of disunity.

In a pattern that would repeat itself with the later Ming and Qing dynasties, the empire’s decay and process of its collapse was long and painful. From the outbreak of the An Lushan rebellion to the Tang’s final collapse a protracted 152 years passed during which the common people and country as a whole suffered while emperors, generals, and eunuchs lived in opulence and feuded over power.

Lasting from 907 to 960, the Five Dynasties and Ten Kingdoms period would be the last time imperial China was fragmented into multiple, chaotic fiefdoms although there would be one more episode where China was split into two (the Jurchen Jin and Southern Song dynasties: 1127-1279). With only that single exception, the dynasties moving forward will take on a simpler, more uniform appearance and transition from one unified Chinese regime to another between the years 960 and 1911, or nearly a millennium.

A Political and Economic History of China, Part 3: The Tang Dynasty

Click here to read the original Cautious Optimism Facebook post with comments

7 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff last discussed the Chinese Han dynasty (206 BC – 220 AD) and the entry into northwest Xinjiang. This week we’ll discuss the Han’s fall and the later Tang dynasty.

Tang Empress Wu Zetian

Cautious Rockers who wish to go back and read the Economics Correspondent's previous entries on the Qin dynasty (221 BC-206 BC) and the first emperor of a unified China, or the Han dynasty and its initiation of Chinese expansion into northwest Xinjiang, can find links in the comments section.

FALL OF THE HAN

After enjoying one of China’s handful of “golden ages,” the Han dynasty began to weaken in the 2nd century. In a narrative that would go on to repeat itself with future dynasties corrupt palace eunuchs gained too much political influence, in this case surrounding the boy emperor Ling and securing his favor.

When a plague devastated the country in the 170’s, the boy emperor raised taxes on the already overburdened peasants who in turn gravitated towards a faith healer named Zhang Jue. Zhang eventually led the great Yellow Turban Rebellion which was put down by the army, but the violent and costly process of suppression fragmented the empire with regional warlords drawing power away from the capital.

Later when the adult Emperor Ling died his teenage son was declared emperor by the empress dowager whose brother, in turn, moved against the eunuchs to reduce their hold on the power apparatus. The eunuchs lured the empress dowager's brother into the capital where they assassinated him, at which point imperial troops seized the palace and killed two thousand eunuchs. In the chaos that ensued a general seized power from the teenage emperor and tried to install his own puppet boy emperor, but that plot failed when the general was killed by his own bodyguard. Soon warlords were fighting warlords and the Han collapsed in 220.

As the Correspondent mentioned in the last column, the Han was brought down by problems that would repeatedly topple future dynasties: in this case corrupt eunuchs, central and regional power struggles, court intrigue, a plague, and internal rebellions.

After the Han dynasty fell China split into three kingdoms in what’s appropriately enough named the “Three Kingdoms Period” (Wei, Shu, and Wu), a 260-year period of Chinese disunity. The “nationsonline” website provides a good short synopsis:

”An era of disunity, when three kingdoms Wei, Shu, and Wu were competing for control of China. As a result of the disintegration of the society, constant foreign incursions, and alien reign throughout the North, many fundamental changes occurred in China during this period. The Confucian system that had ordered society was in ruins, and the growing influence of Taoism and the importation of Buddhism worked profound changes everywhere.”

Although there is so much that can be said about the Three Kingdoms Period the Correspondent is going to skip over the transitory period leading up to the Tang dynasty, and also skip another chaotic period after the Tang; because he’s in a bit of a hurry to get to the Song dynasty, after which the last thousand or so years of Chinese history is more orderly: a string of wholly unified dynasties transitioning from one to another before ending with the pivotal Qing dynasty.

The Qing (pronounced "ching") beginning in 1644 and surviving all the way to 1911, was so consequential in the development of modern China that the Correspondent will likely post more articles on that era than all the other dynasties combined.

THE TANG

The Chinese map becomes considerably less complicated with the founding of the Tang dynasty in 618.

The preceding and short lived Sui dynasty (581-618) collapsed when its last emperor burned through a treasure on his lavish and palatial lifestyle and embarked on multiple wars of expansion, ending with a disastrous campaign into Korea which led to internal rebellions and his own assassination.

One of his officials rose to power and established the Tang dynasty in 618 (pronounced “tahng”).

In his past study of Chinese history the Economics Correspondent repeatedly read the Tang was *the* golden age of Chinese golden ages. Prosperity, art, culture, poetry, and territory all reached contemporary pinnacles although two later dynasties’ borders would extend further. During the Tang the Chinese empire became the most populous in the world and its capital, Chang’an (modern day Xi’an) was the most populous city on earth.

Also some of the Correspondent’s Chinese family members have expressed the same sentiment about the Tang being the greatest dynasty of them all—for what that’s worth.

Incidentally while China’s population growth from 50 million to 80 million during the three centuries of the Tang is impressive, it’s worth putting into more recent historical perspective. By comparison, after centuries of growing its population by only 3% every hundred years, Great Britain’s headcount more than doubled during the first century of the Industrial Revolution.

But back to the Tang, one evening over dinner the Correspondent heard a dissenting opinion from an academic acquaintance of his from San Jose State University. This professor was reading a book on the economy of the later Song dynasty from which he concluded the Song was *the* golden age. When asked about the alternative Tang he was adamant that the true golden age of Chinese history was during the Song. Hence now it’s less clear what the golden age of Chinese golden ages really is although several Internet sources agree with what the Correspondent has seen in so many history books: it’s the Tang.

Regardless, some of the notable achievements of the Tang include the inventions of:

-Gunpowder

-Porcelain

-Compass navigation

-Wood block printing

-The first mechanical clock

-Water-powered air conditioning

-Paper money

Many more advances are recorded in law, architecture, medicine, and literature.

While paper money didn’t appear in the West until the late Renaissance, it was being used over eight centuries earlier in 8th century Tang China. Traveling merchants wishing to lighten their load would deposit their coins with a local government office in exchange for promissory paper notes. When the merchants arrived at their destination, often the capital city, they would redeem the notes at another government office and from there conduct their business using heavier, fungible coinage.

The money came to be known by Tang Chinese as “flying cash” since, unlike metallic coins, it flew in the air when the wind blew.

By 812 AD the Tang government declared paper notes a valid means of general exchange and shortly thereafter began printing them for its own revenue purposes, initiating the concept of the monetary economy. Since the notes were redeemable in coin the Tang never got around to generating hyperinflation, but had the dynasty not fallen just 95 years later it may have eventually discovered the extractive properties of fiat money.

But not to worry, future dynasties would more than make up for the Tang’s purported discipline when abuse of the printing press would create hyperinflations during virtually all the ensuing dynasties and even Chiang Kai-Shek’s Nationalist government.

And if we jump forward for just a moment to the Mongol Yuan Dynasty (1279-1368), Italian merchant Marco Polo took detailed notes of how the great Kublai Khan made use of paper money, bringing the novel idea back to Italy although it took a few more centuries for European banks to begin issuing hand-to-hand paper currency. Nevertheless, to its credit or blame, the invention of paper money ultimately lies with the Tang dynasty.

WU ZETIAN

One other notable curiosity of the Tang dynasty is the only female ruler to officially assume the Chinese imperial throne.

Although Chinese history records other women who have controlled de facto imperial power, in all those cases the emperor’s throne has still been officially occupied by a male child sovereign, an ill husband, or in the case of Han dynasty Empress Lu, an adult son with no interest in affairs of the state.

Empress Wu Zetian is the sole exception and she remains famous in China even today, her likeness appearing in countless Chinese movies and soap operas.

Wu Zetian (pronounced "Woo dzuh teeyan”) was first empress consort of the Tang emperor Gaozong and enjoyed an elevated position due to the birth of her two sons, each of whom would become emperors decades later. Even in her early days as empress consort Wu was ideological and gained influence in court affairs, but her elevation to power was greatly assisted by the emperor Gaozong himself who suffered a stroke in 660. 

Gaozong survived but his health would deteriorate slowly over the course of twenty-three years, during which time Wu assumed more and more responsibilities of state administration on his behalf. Gaozong’s long illness and deterioration provided the perfect set of circumstances for Wu to gradually achieve full power.

When the emperor died in 683 Wu’s eldest son occupied the throne, but using her considerable power she had him deposed for attempting to govern independently and appointed her younger and underage son as emperor which she used as rationale to assume the regency. By 690 she broke away from the Tang system and founded the short-lived Zhou dynasty as empress regnant (i.e. official head of state, not just emperor’s consort of empress dowager/mother). 

Although she already had effectively ruled China for many years prior, Wu legally held the throne for fifteen years until, in 705, the aging and ailing empress was overthrown by her eldest son in a coup that restored both the Tang and his own emperorship.

She died shortly afterwards.

As for Wu’s legacy as head of state, she’s regarded not only as cruel, vindictive, cunning, and ruthless, but also as a highly effective administrator who was largely responsible for the Tang’s rise to golden age status. Under Wu China’s territory expanded, government corruption was reduced, a cultural renaissance took place, and the Tang grew into a genuine world power. A short quote from historians Cotterell and Cotterell sums up Wu’s reign pretty nicely:

”Though she was ruthless towards her enemies, the period of her ascendancy was a good one for China. Government was sound, no rebellions occurred, abuses in the army and administration were stamped out and Korea was annexed, an achievement no previous Chinese had ever managed."

Next installment we’ll work our way into the Song (960-1279) and Southern Song (1127-1279) dynasties.

MMT Objections to MMT Objectors

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6 MINUTE READ - A Modern Monetary Theory/MMT update and exchange from the Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff.

Now that Modern Monetary Theory (MMT) has been discredited by the 2021-2023 inflation that many of its proponents said wouldn’t happen for a very long time if the central bank printed vast amounts of money to pay for:

-the Green New Deal
-free college for all
-socialized medicine
-government jobs guarantee program
-universal basic income
-free child care and day care
-racial reparations
-complete rebuild of public infrastructure

…it seems like a good time to combine several online exchanges the Cautious Optimism Economics Correspondent has had with MMT’s enthusiasts, most of whom are very sure of themselves after reading a few blog entries by Stephanie Kelton or Warren Mosler.

Note: The Correspondent has actually had these conversations with MMT’ers and takes pain to present their arguments accurately. There are no straw men here. They routinely say these things, so you'll get a partial picture of what MMT promises its followers.

=====

1) MMT disciple: MMT is not a “theory.” It’s a description of how our monetary economy actually works. None of the other economic schools understand the monetary system. Government deficits are a good thing. Every time the government spends a dollar more than it collects in taxes, the Federal Reserve makes a keystroke entry that creates a new dollar of money into existence which the economy cannot survive without. MMT opponents don’t understand our economy cannot exist without government deficits to create money.

Economics Correspondent: Deficit spending does not “create” money. The central bank creates base money (reserves) when it buys securities in open market operations, and the private banking system multiplies reserves into greater demand deposit balances through lending—all longstanding standard textbook stuff.

2) MMT disciple: No, those textbooks and academics don’t understand the monetary system. I’m telling you when the government spends money that it hasn’t first collected in taxes, it mails an overdraft check to a recipient who deposits it at his bank. The Fed then uses a computer keystroke to credit his private bank with dollars and new money is created into existence. Under our current system there is no limit to how much Congress can spend and deficit spending is literally what creates the money we rely on to run our modern economy. It's simple accounting.

Economics Correspondent: You left out the other half of the transaction accounting. Namely… when the Fed credits the recipient of the government’s check at his bank’s reserve account, the central bank must also necessarily debit the Treasury’s account at the Fed—named the  Treasury General Account or TGA—by the same amount. The dollar credited at the private bank is offset by the dollar debited from the Treasury. One dollar in reserves is simply transferred from the Treasury’s account to the private bank’s account. No new money is created, and when the TGA balance reaches zero the government can no longer spend without either taxing or borrowing first. The Treasury has also been forbidden by law from running an overdraft at all since 1981.

3) MMT disciple: That’s not true.

Economics Correspondent: No, it absolutely is true, but to make this simple why don’t you just show me the government accounting that proves your case? Find me anywhere in the U.S. Treasury’s daily, weekly, or monthly statements of operations the deficit spending offset accounting item for “new money created for the Treasury by Federal Reserve.”

4) MMT disciple: I don’t care what you say, it’s still not true.

Economics Correspondent: Does that mean you haven’t found any Treasury financial statements to prove it?

5) MMT disciple: I don’t need accounting. The Fed’s creation of new money from deficit spending is a tautology that needs no proving.

Economics Correspondent: OK don’t just take my word for it then. How about monetary economist George Selgin who writes:

“[MMT economist Stephanie Kelton] unaccountably forgets to mention that, to complete the clearing transaction in question, the Fed must also debit the Treasury’s own account, known as the Treasury General Account, or TGA, for short. What difference does this make? …it means that there is, after all, a practical limit to how much Congress can spend, and that limit really isn’t all that different from those faced by ordinary households or businesses: when the rest of us write checks, our banks also end up debiting our checking accounts by corresponding amounts as the checks are returned to them for payment. That matters because at some point, if we spend too much, our bank balances will be depleted, and our checks will start bouncing...."

"...although most bank depositors enjoy certain overdraft privileges, and the Fed once granted similar privileges to the Treasury, in 1981 Congress itself permanently eliminated the Treasury’s overdraft privileges. Consequently, if Congress is to avoid running out of money, it can’t write checks in amounts exceeding the balances in its TGA account."

6) MMT disciple: Whoever George Selgin is, if he’s not an MMT economist then he doesn’t understand how the monetary system really works. Regardless of what you say, the reality is whenever Congress deficit spends it creates new money through the Fed system. When Congress runs a surplus it destroys money that the economy needs. Critics of deficits are unsophisticated and don’t realize the government’s deficit is the private sector’s savings.

Economics Correspondent: OK then, let’s check that “money from deficits” claim against real world observation.

The last year and a half Congress spent far more than it collected in taxes, running a deficit of $2.2 trillion. According to MMT the money supply should have expanded by $2.2 trillion, but it has actually fallen by over a trillion dollars (link at https://fred.stlouisfed.org/graph/?g=19RcK). So, where do I find all the new money that these huge deficits are supposed to be creating?

7) MMT disciple: You’re measuring the money supply by M2. I’m referring to the monetary base (currency plus reserves) which is what the Fed really controls.

Economics Correspondent: OK, the monetary base has fallen too: by over half a trillion dollars (link at https://fred.stlouisfed.org/graph/?g=19Rcx). That’s a big difference from rising by $2.2 trillion. So again, where is all the new base money and reserves these government deficits have created?

8.) MMT disciple: Well the U.S. runs a trade deficit which drains money out of the system. That’s where it’s going.

Economics Correspondent: In late 2023 the trade deficit is at a three year low. 

Furthermore, if we go back to the late 1990’s the government was running a small surplus and the U.S. was also running a trade deficit. Since MMT alleges both “drain money from the economy” the money supply should have unquestionably contracted. But the money supply and monetary base did the opposite—M2 expanded by +20.1% and the monetary base by +22.9% from 1998 through 2000 (links below).

https://fred.stlouisfed.org/graph/?g=19RmB

https://fred.stlouisfed.org/graph/?g=19Rmr

Once again as conventional monetary economics states, Federal Reserve monetary policy and open market operations grow and contract the money supply, not government deficits.

9) MMT disciple: Well the money supply is contracting today because private banks are cutting back on lending and reducing demand deposit balances.

Economics Correspondent: That’s not a new insight. All economic schools, not just MMT, understand that when banks cut back on lending M1 and M2 are more likely to fall. 

Remember you also just said the broad M2 money supply doesn’t matter, only the monetary base which bank lending doesn't impact, only Fed operations. Well the monetary base has fallen by over half a trillion dollars at a time when MMT argues deficits are supposed to have printed 2.2 trillion new dollars in reserves. That hasn’t happened.

10) MMT disciple: You don’t understand how the economy works. Sovereign money doesn’t behave like a household. The government never has to worry about running out of money. We can deficit spend to finance a Green New Deal, universal basic income, a jobs guarantee program, universal healthcare, free college tuition, free daycare for working parents, and racial reparations. The government doesn’t have to worry about how to pay its bills because it is the monopoly issuer of its own currency.

Economics Correspondent: The government has barely even started spending on any of those massive programs and we’ve already suffered from runaway inflation. So no, Congress can’t pay for some socialist utopia using the printing press. And the fact remains unchanged that the government has run huge deficits the last 18 months yet every measure of money, including those you accept one moment and don’t accept the next, have all fallen. Those trillions of deficits have not inflated the monetary base, reserves, M1, or M2, all of which have fallen due to the Fed’s well-established monetary policy decisions.

<end of combined discussions>

Conclusion? MMT is just the latest in a long history of something for nothing fads, like another promise of the perpetual motion machine—with an electric cord under the tablecloth.

”There’s nothing new that’s true and nothing true that’s new in Modern Monetary Theory.”

-George Selgin