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Because the US economy is held up by a specific form of financial magic - world reserve currency.
Kinda blows my mind that the US is on a strongly antagonistic & isolationist streak in that context. Seems like a great way to turn the US economy (and prosperity) into a smoking crater
It’s one ingredient that does help prop up the US, but really similar fiscal means are available to countries that fulfil all these conditions: 1. Have their own central bank and currency, 2. Have flexible currency exchange rates and not peg to a commodity or other currency, and 3. Exclusively issue bonds in their own currency (that their own central bank exclusively issues).
Apart from the US several countries meet this threshold, including the UK, Canada, Australia, New Zealand and Japan. On the other hand, the Eurozone countries do not, and this helps some of the member states, but only at the expense of some of the others.
Those criteria you list make for independent monetary policy making. Not at all the same thing as world reserve currency.
You don’t see oil markets trading in New Zealand dollars. Or half the world holding large amounts of Aussie dollar in their forex reserves. Or a bunch of Canadian gov bonds. Or benchmark their rates against the US in reporting.
If the US prints more half the world carries the pain but US gets all the benefit. Lose reserve currency status and that so called exorbitant privilege goes up in smoke. Along with the financial system built on it
New Zealander here. Our stock market (businesses) are nothing like the US market. It isn't a relative size thing - there really is worse choice here.
Last I looked I recall 39% of the US stock market is owned by foreigners. Fair enough since say Apple revenue I'd say 60% from foreign sources.
The problem is (whether it's real or not) the majority of the US population feels the economic prosperity is being used against them.
You might say it's a PR problem, others might say it's an actual problem. Either way it's going away now.
The prosperity is going away. The inequality behind the feeling is not going away, it's getting worse.
The US (well Trump and his supporters) want to make American manufacturing competitive in foreign markets in order to draw more investment into new domestic manufacturing capacity.
A huge hurdle for American manufacturers is that their products simply cost too much, all else being equal, because the value of the dollar is too high.
So their plan is try and devalue the dollar while also keeping it the reserve currency. To put that another way, he wants countries that have invested in the dollar to take a hit on their investments while also getting their population to buy more American goods.
His negotiations will probably center around offering continuation of "America world police" services (people hate it, but governments love it) in exchange for following this path.
Whether or not this will work? Who knows, but at least that is the idea they have chosen.
Can you break down the isolationist streak for me?
The US government seems to want to intervene in every place it can, and doesn't look anything like say old school China or Japan. It seems like some people see anything short of maximally interventionist as isolationism, and I don't understand it.
> The crash itself: not super cinematic, said Smetters. No flashing red letters, no skull and crossbones, no lightning bolt, just a few words that make a macroeconomist’s blood run cold:
> Model not converging.
> “The model's trying to find what's called a fixed point where everything just adds up, everything's consistent, and it's not able to do that,” Smetters explained.
In other fields like physics or engineering, if your model (which is usually a partial differential equation etc) blows up it can mean one of three things:
1. Your code has a bug
2. Your numerical scheme is unstable
3. Your model is unphysical
Assuming the authors are competent we can rule out the first 2. Which brings us to the 3rd point; the article does not mention what the model is or what it assumes. Why should we assume that the economy is exploding and the model is right, instead of the opposite (economy is OK and the model is wrong)? Or even both or neither?
I am not even saying that the economy is doing well or anything, just putting my journal reviewer hat on.
Economists have no humility.
When the real-world disproves the models of a physicist, the physicist proclaims he has assumed some variables, or maybe the model doesn't apply at all. Newtonian physics, which is very real and constantly "proven" in the real world, doesn't work at a quantum level.
When the real-world disproves the models of an economist, the economist proclaims we must be living in an alternate reality.
How many variables are influencing the US economy right now? Trillions, I'd say, on the low end. Some aren't even measurable - like trust or happiness.
Did this economist track all these variables? Of course not. He assumed a value for 99% of them. He assumed so much he doesn't even know what he assumed.
I need to know way more about this model before taking it at face value that some economists got their math and software correct. Especially since the author talks it up like they came up with a unified model for the entire US financial system. Might as well use it to make billions with that precision.
You have to remember that macroeconomic research is so incredibly hard to do that it is closer to truth telling or philosophy than to actual science. I believe it's called "astrology, but with fancy graphs".
I'm not trying to be mean to economists, just reminding everybody how reliable macroeconomic claims are (try looking for the concepts 'confidence interval' and 'randomized controlled trials' in macroeconomic papers).
Economics seems more like a religion than science, with how much fundamental belief and perceptions seem to influence outcomes.
I cannot disagree more, having hand waved away economics for 20 years, actually learning it has totally transformed my world view into a dramatically clearer and far more functional one.
The pandemic era fiscal and monetary policy was pretty much a 5x speed (because of the scale of everything) display of economics at work, and understanding all the levers while they were pulled made it clear that no, economics is not bullshit, people just really don't like what economics has to say.
I've taken issue with economics being considered a science since my first econ class in high school.
It can be very useful for quantifying and comparing the past, but there's absolutely nothing scientific about the process and no matter how much modelling is done it can't reliably predict future outcomes.
And we have very rigorous models that confirm that that is true. Perception shapes the economy more than actual fundamentals, specially when predicting the future.
I’ll say that when I read business and economics it often feels like it is starting from the assumption that it is right and then trying to perform the language of science until you believe them.
Add to that the wild level to which economists seem to think their economics knowledge generalizes to telling other disciplines and I tend to approach with distrust.
Economic models that have strong empirically demonstrated predictive power are called finance, not economics, because any economic predictive model that actually works can be used to make money.
Yeah - but mainstream economics is far more a state religion than it is just-a-religion. The priesthood is superficially concerned with the welfare of the masses, theological consistency, etc. - but the actual priority is divining what words, doctrines, and predictions would best serve the interests of the wealthy and powerful, and regularly pronouncing those. And vehemently denouncing any heretics who get too interested in the actual welfare of the masses, or the track record of the priesthood's predictions, or other dirty truths.
So long as you have the right mindset, being a priest of a generously supported state religion is a very cushy job.
There are certainly a lot of apologetics.
That is why there is no nobelprize for economics. Only an Nobel Memorial Prize in Economic Sciences.
To be smothered in debts has nothing of spiritual.
Economics isn’t a science, it’s a social science
Correct. Success in modern market economics is 90% about determining the future sentiment of economists.
Macroecon, yes. Micro is actually very useful and has a good amount of predictive power.
There's some truth to this take but it's not nearly as bad as most people think.
Many people look at the economy and see that it is bad and so they think the economists must be bad at their job, but in many cases people in power simply don't listen to economists.
The best example of this in my opinion is land value tax.
Milton Friedman is an Nobel prize winner on the libertarian side who called lvt the best tax policy. Joseph Stieglitz is a Nobel prize winner who is a socialist who also advocated for lvt. A recent survey showed something like 83% of economists saying that lvt would significantly increase growth.
And yet zero countries have implemented an lvt rate that is much higher than inflation.
Good and smart policies do not need to be accepted by economists to be implemented. They need to be accepted by those in power and by the general population.
In my opinion, if anything we should have way more economists on the news talking about the economy than the political pundits that you typically see - not the other way around!
> Economics seems more like a religion than science […]
Science makes falsifiable statements that are then tested (per Popper). When QE started a group of folks made predictions:
> We believe the Federal Reserve’s large-scale asset purchase plan (so-called “quantitative easing”) should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.
* https://www.hoover.org/research/open-letter-ben-bernanke
Another group of folks (often label "Keynesian") made different predictions based on their model(s) / understanding of how things work.. One turned out correct and other incorrect in their predictions. Perhaps we should follow the models that accurately predicted things.
Governments / politicians run economic experiments every time there's a major policy rollout, and they do so based on what they predict will happen:
* https://en.wikipedia.org/wiki/Kansas_experiment
It is not the fault of the academic discipline itself if people ignore the results of the experiments for ideological reasons.
RFK Jr., the current US Secretary of HHS, is ignoring all the empirical evidence about vaccines (and even germ theory): is that the fault of biology?
Economics is kinda like weather prediction. Most people don't understand what economists are saying and they react based on what they think economists are saying. The same is true for things like rain predictions in that people don't understand what the prediction is, so when it doesn't rain people think "the weatherman is never right" when that isn't what the prediction was saying in the first place.
That said, economics is a mostly bunk "science".
This is the scariest part: “That will cause interest rates to rise. Within a decade, interest is going to be one third of all of your taxes, and in a couple decades, interest could be 80% of your taxes.” So I was curious and looked up the evolution of federal interest payments over time as a percentage of federal income, so I made a custom chart on the Fed's website: https://fred.stlouisfed.org/graph/?g=1KFPP#
We see that the percentage rose from about 12% in 2022 to about 21% today, a very sharp increase indeed, as the article points out. And the article's authors project it to rise to ~33% within a decade. But interestingly we see the percentage was historically quite high in the 80s (peaked at 29% in 1985) before decreasing through the 1990s and 2000s. So at least we have a precedent that it is possible for the US government to get a grip and manage to reduce the share of interest payments. How they did it, I don't know.
PS: when making this custom chart I wasn't quite sure what data series to take as federal income. There seems to be two options:
1. Federal Government Current Receipts, Billions of Dollars, Seasonally Adjusted Annual Rate (FGRECPT)
2. Federal government current tax receipts, Billions of Dollars, Seasonally Adjusted Annual Rate (W006RC1Q027SBEA)
I took the first. The chart has generally the same shape with #2 but I am not quite sure what the difference is. You can click the button "Edit Chart" to test various data series.
The US will likely go down the same path every other country has gone before with an unpayable debt burden: Just inflate it away. Which is bad for people with fixed-income investments in the US and across the globe, ie. mostly pensioners and people with lots of bonds in their retirement funds. And also likely bad for people with jobs who will face yet another cost of living crisis. If your money is in real estate, equities or gold you should be fine though.
US’s effective debt burden, debt * (interest rate - inflation)/GDP, isn’t particularly high right now. Unfortunately some politicians seem to have decided unlimited increases in debt are ok. That makes lenders concerned driving up rates.
It’s unstable because of how quickly interest rates can change. Right now the 3.375% interest on 37.1T of debt - ~2.7% inflation = an effective interest rate of ~0.675% well below long term GDP growth rate. But that 3.36% is a significant increase over even 1 year ago. If it grows to 5% without higher inflation things spiral fast. https://www.jec.senate.gov/public/vendor/_accounts/JEC-R/deb...
FTA: “The model's trying to find what's called a fixed point where everything just adds up, everything's consistent, and it's not able to do that,” Smetters explained.”
So, nothing crashed. The message simply is that this model doesn’t handle this case, so our (or that of this team of researchers) understanding of economics is incomplete.
That happens elsewhere, too, for example in Newtonian physics where the precession of Mercury deviates from what that model predicts (https://en.wikipedia.org/wiki/Tests_of_general_relativity#Pe...).
In neither case, that is reason to say the people involved are charlatans.
My experience of working with economists, is that they are very good at creating _explicative models_. Models that can explain what happened using past, present, and future data/insights.
But these are very rarely good _predictive models_, which is an entirely different field.
Economists also have a tendency to lack practitioner thinking, misunderstand or grossly average actor motives, and more generally like to model every actor as an optimization problem, which rarely reflect real world scenarios.
All in all, I'm not really putting any weight on what economists models could predict of the future, though I think they have value in explaining the dynamics of past events.
I think we should change the title to: economists need to improve their Fortran skills.
Someone probably typed % for percent, and the entire economy runs on modular arithmetic.
From Time magazine cover story, "Is the U.S. Going Broke?":
* https://content.time.com/time/covers/0,16641,19720313,00.htm...
From 1972.
Maybe this time it will matter?
It's not really clickbait per se, but to non-economists, saying "they made a model of the U.S. economy" may sound like they did a novel thing. Bear in mind that creating models of the economy is basically what macroeconomists do all the time.
Whenever I read about macroeconomics I remember the Phillips machine, the MONIAC (MOnetary National Income Analogue Computer):
I think this page has details about the model: https://budgetmodel.wharton.upenn.edu/our-model-0.
The headline is rather telling. It's really not the burn they think it is.
Economists have been predicting for years that the Japanese economy would crash due to "debt". Hasn't happened. So maybe, just maybe, the model being used by these economists is wrong, which implies that they do not understand--or are misrepresenting--how the economies of currency-issuing countries actually work. In any other scientific field this would be damaging to the branch of science involved. But not orthodox economics. It just keeps on keeping on.
One of the economists is Kent Smetters, who has been talking about the US federal debt since (at least) 2003:
* https://www.aei.org/research-products/book/fiscal-and-genera...
Maybe he's finally right twenty years later?
The implication is that the bugs in their code are the same as bugs in the economy which is false.
>Economists made a model of the U.S. economy. Our debt crashed the model
I remember this quite well.
1971 was a pretty rough year.
Kinda wild that the model just gave up when it hit current debt levels. Not because the math was off but because it assumes we’ll “fix things later” by default. That’s not a forecast, it’s blind hope baked into the system.
Feels like we’ve passed the point where debt is just a background worry. If the models can’t even handle where we’re at now, maybe the risks are way closer than we’d like to think.
Well don't dismiss blind hope :)
Want to screw with an Economist? Ask them for a model that can keep the Vatican afloat for a thousand years through empires/nations/banks/currencies collapsing.
If the model cannot handle when we are now, then it is a vad model.
Same for a model crashing.
Different thing is if it showed that repayment is inpossible.
The article mentions a ery important subject, but quality is low.
a good old fashioned war fixes debt problems
I feel it's kind of become a cliche trend now driven by the likes of Naval et al to shit on macroeconomics. While I never took the models I studied or created to be scientific, I always found them useful to frame the economic world we lived in. Even if those assumptions rarely predicted outcome or achieved repeatability.
I'm lazy, so ... over to the LLM:
This Hacker News thread expresses deep skepticism about macroeconomics, portraying it as unpredictable, overly influenced by perception, and possibly aligned with elite interests. While these critiques aren’t baseless—macroeconomic models often struggle with forecasting and can embed optimistic assumptions—they miss the broader point: macroeconomics remains essential and useful, especially when viewed as a tool rather than a crystal ball.
Arguing for the Usefulness of Economics (especially Macroeconomics):
It provides a framework to understand complex systems Macroeconomics helps us make sense of national and global phenomena—like inflation, unemployment, growth, and inequality. It gives policymakers and the public a structured way to evaluate cause and effect. Without it, decisions would be made blindly or based purely on ideology.
Policy decisions are informed by macroeconomic tools:
Central banks use economic models to set interest rates. Governments use them to forecast tax revenue, structure stimulus packages, and plan budgets. While models aren’t perfect, they are better than flying without instruments—especially in crises like the 2008 financial crash or the 2020 pandemic.
Imperfect models still guide effective responses
Critics rightly point out that models don’t always converge or predict turning points. But the weather forecast analogy applies: we don’t expect perfect predictions, yet forecasts still help us prepare. Similarly, macroeconomic insights helped avoid depression in 2008–09, guide inflation control today, and shape climate and industrial policy.
Economics evolves and improves:
Like any social science, macroeconomics adapts. New models increasingly incorporate behavioral insights, inequality, financial instability, and even ecological limits—areas previously overlooked. The discipline is far from static, and many economists are leading critics of outdated assumptions.
Bottom Line: Yes, macroeconomics has limits—especially when models are treated as gospel rather than guidance. But dismissing it entirely because of its imperfections is like discarding medicine because not every patient gets better. Used critically and responsibly, macroeconomics helps societies navigate complexity, make informed choices, and anticipate risks—even when the future remains uncertain.
BFD. Sounds like a bad model, bad data or numerical analysis bug(s)! Or a poor attempt to support a political view by invoking math and data. Oooohhh! Scary!
Every time I have a problem like this, I question and examine my assumptions, data and model until I find the cause.Why would he believe their model & data should do anything reasonable at all?
The hubris is pouring off this article and I don't know whether it is from the author of the marketplace.org article, the researcher Kent Smetters, some unknown peer-reviewed paper(s) or what???
The relevant part of the article:
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"They made a model of the entire U.S. economy, which required a lot of computing power. “This math problem was a big one,” Smetters said. “And the model computations are about 20,000 times bigger than our standard model.”
Smetters borrowed some computing help from Amazon and NASA and then he and his colleagues then fed the entire U.S. economy in all of its complicated glory into this mega-model. And the U.S. economy… could not compute.
“Their economic models crashed when trying to project out the economy over the long term,” said Jessica Riedl, an economist with the Manhattan Institute who studies the budget. “We cannot even model out a functioning long-term economy under current debt projections.”
The crash itself: not super cinematic, said Smetters. No flashing red letters, no skull and crossbones, no lightning bolt, just a few words that make a macroeconomist’s blood run cold:
Model not converging.
“The model's trying to find what's called a fixed point where everything just adds up, everything's consistent, and it's not able to do that,” Smetters explained.
In other words, if the debt keeps rising at its current rate and we just do not deal with it, even thousands of NASA and Amazon computers all working together cannot get the math to math.
“Really, it's a question of how far can we go before the bond market says, ‘I just don't believe that you're gonna pay us back,’” explained Smetters. "
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So they
1) Picked/built an economic model,
2) fed more data into the model than had been done before and
3) the model failed. So they then
4) drew hard conclusions about the US economy from the model's failure to converge! and
5) published (although I see no reference to a peer-reviewed article.)
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