There has been a lot of
political hype lately about the U.S. national debt level. Once every four years,
the party out of power tries to convince us that we have some kind of debt crisis. This, of course, is nonsense. One of the best explanations as to why
it is nonsense was printed in an opinion piece in the June 24, 2012 Waterloo
Courier. This piece,
entitled Don’t Lose Any Sleep Over Debt,
was written by Fred Abraham, a professor of economics who teaches at the
University of Northern Iowa. Abraham points out that we have had a national
debt for over a century. No
administration has ever tried to pay it off—and, he says, none ever will. Of
course, each individual Treasury note will be paid off as it matures. But it
will be replaced by the issue of another note. (I’m sure that the reason that
Prof. Abraham is so certain that no administration will ever attempt to pay off
any part of the debt, is that to do so would be a disaster. The only way that
we could pay down any of this debt is by taking in more money, through
taxation, than we spend. But if deficit spending, i.e., spending more than we
tax, is how we get out of a recession, then wouldn’t the reverse put us into a
recession? Yes, of course it would.) Only twice since WWII has any president had a balanced budget--once
under Eisenhower, and once under Clinton.
And in both cases, the country immediately started to slide into a
recession, and heavy deficit spending was required to pull it out. And that’s why no one who understands
the economics of the situation is even slightly concerned about our continued,
inter-generational rollover of this debt. The same conservative bankers who complain that the
U.S. has a “debt crisis” are now purchasing U.S. Treasury bills so aggressively
that they often accept negative real interest rates. Yet once every four years,
candidates from the party out of power will pretend to be concerned
about our national debt level, because it is a convenient political issue. If
you want to get people in a panic about something, it helps to begin by waving
some astronomical numbers at them.
And any numbers concerning any aspect of the national economy are
suitably astronomical. They sadly
ask, how can we leave all this debt to our children? Well, the same way our
parents left it to us, and our grandparents left it to our parents. No previous
generation had to pay it off, nor will any subsequent generation.
While
the debt seems to continuously grow, so does the economy. The only important
number is the debt to GDP ratio, which could be kept pretty constant. When we have more growth and less
spending, the ratio goes one direction a bit. When we have less growth and more
spending, it goes the other. Over time, it averages out. But if we were really
worried about this ratio, then
we’d spend some serious stimulus money and get out of this recession.
that is completely ridiculous. Mexicans, Chinese and Arabs don't exist solely to pursue our interests, and unless you believe they do you'd have to be a retard to think that they will allow us to perpetually run a debt, let alone deficits. If you think that "sustainable deficit" is not a paradox, you're a retard. And just because your parents where pieces of shit who chose to pile you with debt is absolutely no excuse to be such a piece of shit yourself and pile said debt on to your children. "If all your friends jumped off a bridge, would you?".
ReplyDeleteAs to what you're saying about Debt:GDP, this measure only indicates how much debt a people can be expected to recover from, though it's not very meaningful without also knowing the interest rate on the debt. What is more meaningful is InterestCharges:GDP, because this actually tells you rather or not a debt is recoverable or if there will be a need to declare bankruptcy. Bankruptcy in a domestic setting may be something resolved in a court room with the bankruptee gets off pretty much unscathed, in an international setting it is typically met with decelerations of war. Further, even though GDP might be a good indicator of how deep of debt a people can recover from, it is not an indicator of quality of life! Cheap shit that breaks and is shipped from thousands of miles away is great for GDP, but it doesn't improve quality of life compared to quality durable goods or having good relations with your neighbors.
Oh, and growth isn't sustainable. Growth is the opposite of sustainable. Growth produces an exponential curve for resource consumption and will eventually require intergalactic colonization to be maintained and depending on the rate of growth will further demand faster than light travel which might not even be possible.
As far as why the US has been allowed to incur debts for as long as it has, that has a lot to do with the US Dollar being the currency of trade. Which goes back to the Brenton Woods Agreement. Also, for the record, the economy was good under both Clinton and Eisenhower, but was crappy under Ford and miserable under Carter. Ford had to deal with the aftermath of Nixon ending the convertibility of USD for gold, but was able to keep things decent until Carter came in spending and inflating like mad. This only ended when the Dollar became backed with oil, but the reason the dollar was able to become backed with oil was because the US was willing to sell weapons to those oil rich dictatorships that are in control of the oil.
Well Ike, I hardly know where to begin. A typesetter may have a typecase filled with perfectly legitimate letters, but the word he assembles may not necessarily add up to a coherent truth. You have sprinkled you peroration with a long list of facts which I do not deny, including a few facts that today's generation are mostly unaware of. Yet they do not actually make the case which I think you are trying to make.
ReplyDeleteBut first, do not make the mistake of believing that I'm claiming that there is no level of external debt that would destroy our economy. There is indeed such a level---but we haven't arrived there---nor are we headed there. There are two things which no country can do and still have a healthy economy: One is to try to maintain an unsustainable, systemic, external debt. The other is to have a balanced budget or a surplus. There are only two presidents who had a balanced budget, Eisenhower and Clinton. Both worked well for a while, but toward the end of each of these administration, the country slid into a recession. I got out of high school near the end of the Eisenhower years, and it was a disaster. People who already had jobs did ok, but for those trying to enter the job market, there were no openings. Then Kennedy got in and ran a modest deficit and things picked up. Unfortunately, Kennedy/Johnson also started an open-ended war, and did not raise taxes to pay for it, which forced the deficit up to an inflationary level . The same scenario was repeated in the Clinton/Bush2 years. If in either the Johnson years or the Bush2 years, if they had just spent enough to tip the balance from a slight surplus to a slight deficit, but not started any damn wars, the economy would have expanded without significant inflation, and the debt to GDP ratio would have remained constant or dropped.
I am often asked why a balanced budget would cause a recession. Keynes though that a deficit would cause expansion, and surplus would cause contraction, and a balanced budget would be stable. But there is a flaw. You need continual expansion to provide new jobs for new people. And even if there is no increase in population, some son of a bitch is always inventing some labor saving machine, and this will cause a layoff and depression unless there is continuous expansion. Do we have the resources for unlimited expansion? That depends on how you define expansion. The trick is to increase the GDP while decreasing the consumption of non-renewable resources. Example: Twenty years ago, I drove a Ford which got 21 mpg. My new For Focus gets 42 mpg. And my next Ford will probably be a plug-in hybrid. Iowa already gets 25% of its electric power from wind, and b y the time I buy another car, it may be 100%. When I was in the Army, they still had a few old computers that used vacuum tubes. When you solved a problem, it would dim the lights on the whole base. Today, I have a hand held calculator with more speed and power--that runs off a pen-light battery. More GDP does not always mean more resource consumption. As far as out debt level is concerned, remember that over 70% is owed internally, most of it by agencies of our own gov't. The rest is held by foreigners. This is the unfortunates result of the fact that our treasury bills, even at zero interest, are such an attractive investment that foreign governments prefer to buy them, rather than buying their own. The Chinese are not fools. If there were any doubt about the sustainability of our system, the Chinese would not have bet a trillion bucks on it.