Krugman: “The deficit doesn’t matter”
Well, apparently there is at least one thing that former Vice President Dick Cheney and Nobel Prize winning economist (and unofficial White House adviser) Paul Krugman have in common. They both feel the same way about deficits – they don’t matter.
On yesterday’s This Week with George Stephanopoulos, Krugman made what sounded like an off-hand remark, one that almost didn’t even seem worth saying as it was so obvious to everyone in the room (except maybe George Will).
From the ABC transript:
Important political fact, which is that whatever you would do with the deficit, the public won’t notice. In 1996, a majority of Republicans thought that the deficit had increased under Clinton, even though we had in fact been on an incredible run. So no, I mean, the deficit doesn’t matter. The economy matters. And that’s why somehow or other, Obama has got to get jobs being created.
Yes, I know. The national debt is now over $12 trillion, not the $11.5 trillion as depicted above. No one really seems to care – $11 trillion, $12 trillion, $20 trillion?
It’s only money.
Tim Iacono is a retired software engineer and writes the financial blog “The Mess That Greenspan Made” which chronicles the many and varied after-effects of the Greenspan term at the Federal Reserve. Tim is also the founder of the investment website “Iacono Research” that provides weekly updates to subscribers on the economy, natural resources, and financial markets.
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November 30th, 2009 at 1:12 pm
I contend that deficits might not matter but debt does matter…A big difference?
http://mgiannini.blogspot.com/2009/11/rich-countries-bond-defaults-or-debt.html
November 30th, 2009 at 1:16 pm
But they mattered for consumers and Wall Street — their deficits lead to disaster.
Why doesn’t this apply to sovereign deficits?
November 30th, 2009 at 1:16 pm
And when our currency collapses as a result of high deficits, Krugman (and Obama) will say: “It was Bush’s fault.”
November 30th, 2009 at 1:17 pm
Krugman has become a shameful buffoon.
November 30th, 2009 at 1:22 pm
Deficits aren’t real, they were just made up to scare us into frugality, because liberals hates them some bankers. We’re actually running positive account balances — public and private.
November 30th, 2009 at 1:23 pm
Everything is about politics and power. Once we accept that, then everything makes perfect sense.
November 30th, 2009 at 1:31 pm
Deficits are one of those things that don’t matter…until they do. And when they do matter – look out.
The problem with Krugman’s line of thinking is that the serviceability of our debt needs to compound exponentially ALONG WITH the debt itself. IOW, if our debt is going parabolic, our ability to service it (our nominal GDP) needs to as well. Instead – we have the opposite. Real productivity is flat to declining WITH a parabolically skyrocketing debt. It’s a clear recipe for default.
Krugman wants us to throw a hail mary pass into the end-zone. If it’s incomplete, we’re screwed and will have to endure a massive restructuring of standards of living, government and our monetary systems.
November 30th, 2009 at 1:32 pm
So no, I mean, the deficit doesn’t matter. The economy matters. And that’s why somehow or other, Obama has got to get jobs being created.
In the context of; Are we still at risk of experiencing an economic collapse?, if Krugman believes that such a risk is still a present danger, then his statement is valid. Because the consequences of allowing a 1930s style collapse to occur would likely result in even worse deficits and long term economic suffering than that which will come from additional temporary deficit spending today.
Although the “somehow or other” is frustrating if it means creating temporary jobs that will not contribute to long term economic growth and that will disappear once the subsidies go away.
Why not invest in removing all bottlenecks on the Interstate Highway System to save time and gas, increase efficiency and lower costs for a bevy of companies such as UPS, Fed Ex, US Postal Svc. , truckers, every plumber and electrician, etc.?
November 30th, 2009 at 1:38 pm
Krugman was saying that deficits don’t matter at the ballot box.
He does think that deficits matter in general, and also that we are not in an awful spot regarding our current deficit and debt levels.
http://krugman.blogs.nytimes.com/2009/11/30/the-dogbert-theory-of-the-debt/
November 30th, 2009 at 1:38 pm
It’s all okay with me, as long as I never have to pay for any of it.
November 30th, 2009 at 1:40 pm
@Marcus: LOL. That should be the country’s new official motto.
November 30th, 2009 at 1:41 pm
At this point, I’ll take the Hail Mary.
November 30th, 2009 at 1:49 pm
all these economists are so full of shit-
has anyone considered some period of contraction and unemployment is required to reduce unsustainable debt loads- failures and bankrupticies, writeoffs and writedowns-
yeah- the USG can jump in and slop shit up all they want- but it will only lengthen the process that is happening as we speak-
“deficits don’t matter”- is the refrain- because they have the mistaken impression that the USG can right the ship if they just spend enough-
yeah i know- sounds stupid doesn’t it
November 30th, 2009 at 1:53 pm
Bobby2
Yeah, sure, why not. Screw those grandchildren, and theirs. It’s all about us, right now, despite what we did to get here. Oh the immorality of it all.
November 30th, 2009 at 1:54 pm
@Onlooker: Repeat after me: “It’s all okay with me, as long as I never have to pay for any of it.” There. Feel better?
November 30th, 2009 at 2:01 pm
What’s more scary than the deficit is the fact that the mentalities have not changed, we’re right back where we were pre-recession.
November 30th, 2009 at 2:05 pm
Worth reading:
=================
An Empire at Risk
We won the cold war and weathered 9/11. But now economic weakness is endangering our global power.
By Niall Ferguson | NEWSWEEK
Published Nov 28, 2009
From the magazine issue dated Dec 7, 2009
Call it the fractal geometry of fiscal crisis. If you fly across the Atlantic on a clear day, you can look down and see the same phenomenon but on four entirely different scales. At one extreme there is tiny Iceland. Then there is little Ireland, followed by medium-size Britain. They’re all a good deal smaller than the mighty United States. But in each case the economic crisis has taken the same form: a massive banking crisis, followed by an equally massive fiscal crisis as the government stepped in to bail out the private financial system.
Size matters, of course. For the smaller countries, the financial losses arising from this crisis are a great deal larger in relation to their gross domestic product than they are for the United States. Yet the stakes are higher in the American case. In the great scheme of things–let’s be frank–it does not matter much if Iceland teeters on the brink of fiscal collapse, or Ireland, for that matter. The locals suffer, but the world goes on much as usual.
But if the United States succumbs to a fiscal crisis, as an increasing number of economic experts fear it may, then the entire balance of global economic power could shift. Military experts talk as if the president’s decision about whether to send an additional 40,000 troops to Afghanistan is a make-or-break moment. In reality, his indecision about the deficit could matter much more for the country’s long-term national security. Call the United States what you like–superpower, hegemon, or empire–but its ability to manage its finances is closely tied to its ability to remain the predominant global military power. Here’s why.
The disciples of John Maynard Keynes argue that increasing the federal debt by roughly a third was necessary to avoid Depression 2.0. Well, maybe, though some would say the benefits of fiscal stimulus have been oversold and that the magic multiplier (which is supposed to transform $1 of government spending into a lot more than $1 of aggregate demand) is trivially small.
….
http://www.newsweek.com/id/224694
November 30th, 2009 at 2:25 pm
Deficits don’t matter…………. to whom? (or is it who?)
November 30th, 2009 at 2:28 pm
Krugman is right–politically, deficits don’t matter.
Clinton moved heaven and earth to instill fiscal responsibility, got rid of the deficit, started paying down the debt…and SNL made fun of Al Gore’s “lockbox” on TV.
It’s not just voters. Every conservative since Reagan has run up the debt spectacularly, and yet the Republicans bring out a “tax and spend” song and dance every time Democrats–the party of paygo and deficit reduction–take office. The media gleefully repeats the mantra of the Banana Republicans, whining miserably that in the middle of a crushing recession, the government isn’t doing enough to pay off the debts that were incurred by their party’s profligate stupidity.
It’s like they only notice deficits when Democrats are in office, then they magically disappear when they leave office. For goodness’ sake, Bush’s only major health initiative was entirely deficit funded, and it’s projected to cost a trillion dollars over the next 10 years!
The beltway economic thinking is if you’re a Republican, you can spend as much as you want and as long as you don’t raise taxes to actually pay for any of it and you make a few symbolic cuts to programs used by politically weak people, it’s not worth mentioning the deficit. But if you’re a Democrat, you not only have to do the fiscally responsible thing of finding the money to pay for your spending, but you also have to shoulder the blame of not paying off the debt your predecessors ran up fast enough–even though every respectable economist agrees it would be inviting a depression to cut back federal spending or to raise taxes right now. Oh, and there has to be constant handwringing about the deficit.
It’s insane.
November 30th, 2009 at 2:28 pm
Heads — Obama wins (government takeover in stages)
Tails — Obama wins (government takeover in crisis)
Any questions?
November 30th, 2009 at 2:32 pm
Krugman is right–politically, deficits don’t matter.
I thought there were polls recently showing declining consumer and business confidence based on concerns about government deficits.
November 30th, 2009 at 2:35 pm
Every conservative since Reagan has run up the debt spectacularly, and yet the Republicans bring out a “tax and spend” song and dance every time Democrats–the party of paygo and deficit reduction–take office.
Well then they’re really not conservatives then. At least they’re not fiscal conservatives.
They can say whatever they want. What they do determines what they are.
There has been no fiscal or economic conservatism in this country since at least the 1960s.
November 30th, 2009 at 2:40 pm
What matters?
The continuing advance of technology.
If deficits are required to keep the innovation machine going, then so be it.
Yes, it is only money, and as we know, money is a plastic, elastic artifice. Destroyed lives, families, and societies are real and take easy precendence.
We’ve long since passed the point of no return; we are never going to pay the money back, so public policy ought to be full employment and maximum technological development.
November 30th, 2009 at 2:49 pm
It is sort of stupid to discuss if deficits matter, and its a testament to the 30 second “Foxification” of public debate. The question should be whether it, at the current time, is more problematic to reduce public debt by method X than to expand it for pupose Y. It is always a lot easier to pay down debt in an expanding economy that is taking down unemployment numbers, than in a stagnant economy with huge social costs from large unemployment. There is no doubt that stopping a down-spiral in the economy is worth a lot of extra debt, the question is how much more can be defended by what kind of job expansion. If we run up more debt to create jobs, we also need a clear plan of how and at what unemployment levels, we will start paying it back by what specific combination of tax increases and spending cuts. Other countries have worked their way out of substantially larger national debt (as % of GDP) but none have done so without raising taxes. How about having an adult discussion – oh I forgot Fox. Well then inflation it is ;-)
November 30th, 2009 at 2:54 pm
Krugman keeps saying we don’t see any indications of people not wanting our debt so we shouldn’t worry about it. By the time you see indications it is too late. We are in a position where we must continuously roll our debt and depend on the kindness of strangers. You want to be prudent with your deficit so you can limit the damage should a friend turn into an enemy and choose to wage economic war on us. Or possibly if our friends can no longer buy our debt due to economic constraints.
Krugman keeps pointing out that Japan is running a debt to gdp ratio higher than us and not having a problem recycling its debt. I’d point out that doing so hasn’t helped Japan’s economic malaise. Just because you can do something doesn’t mean you should.
November 30th, 2009 at 2:55 pm
It doesn’t matter about deficits but it matters how they are financed. If our deficits are owned by Americans , american corporations and the Fed, the money and the interest on it stays in the US . This results in a creation of wealth and can be used to finance US industries or to be used by retirees. The interest paid on the debt owned by the Fed has no effect.
We are financing our deficits, trade and fiscal, by selling bonds to foreigners who now have the ability to use our currency to compete ,with us, for foreign natural resources or to build their industries. Ain’t free trade great, our jobs went to China , Japan and India and we got crap that ended up in the trash dump. But we are the world’s superpower, at least for a little bit longer.
November 30th, 2009 at 2:59 pm
First off we need to stop confusing deficits and national debt, they are not the same. Secondly we need to not view government debts the same way we treat private debts. They most certainly are not the same. Individuals are constrained by the amount of income they have to service an amount of debt. Govts have no income so they service debt by crediting someones reserve account. When a govt takes on more debt (issues a bond) that is a DEFLATIONARY action. Someone is taking money and deciding not to spend but to take the govts offer of interest.
Really Krugman is right and he is wrong. The level of the deficit is not as important as what the deficit is being used for. If it is funding a war and simply recapitalizing banks so they MIGHT lend its not very effective. If it actually goes to unemployed people so they do something useful/necessary and then they are able to pay down their private debt and become a consumer again, then that is money well spent. I think Krugman knows the difference between useful spending and stupid spending. Cheney didn’t.
November 30th, 2009 at 3:14 pm
Eff Demand
What does this mean?
———————————————————————————————————————————
Krugman keeps saying we don’t see any indications of people not wanting our debt so we shouldn’t worry about it. By the time you see indications it is too late. We are in a position where we must continuously roll our debt and depend on the kindness of strangers.
———————————————————————————————————————————
As I understand it, people “wanting our debt” is not the proper way to understand the actual financial operation that takes place. China (or whoever) has US dollars that they get from selling us stuff (that we want btw) and they turn around and use the US$ to purchase a bond because they do not want to spend our US$ on US goods.
They are net savers for now. They also might buy some other US finnacial asset but the transaction is completely voluntary and is desired by both parties. No harm, no foul, nothing to pay back.
So, if tomorrow they decided not to use that cash to purchase a financial asset or US bond (stop wanting our debt)but instead buy a product made in the US or by a US company (about the only thing they can buy with US$), we would get an immediate stimulus to our economy. Our current account deficit would shrink, our national debt would shrink and our GDP would rise (and Fox would have nothing to bitch about).
This is my understanding of these things please correct me if I’m wrong.
November 30th, 2009 at 3:14 pm
Its not the deficits that matter but a lack of a clear exit plan if deficit spending doesn’t resolve the current situation. Trying to spend yourself rich can end badly if capital isn’t allocated well.
November 30th, 2009 at 3:18 pm
Its not the deficits that matter to the public but a unclear or deficient exit plan if increased deficit spending doesn’t resolve the current situation. Trying to spend yourself rich can end badly if capital isn’t allocated well.
November 30th, 2009 at 3:25 pm
Our problem now is debt at every level.
Personal, mortgage, corporate, national, international.
We borrowed, leveraged, cheated, lied, and borrowed and leveraged again.
Debt matters.
November 30th, 2009 at 3:27 pm
A deficit less than the growth rate of the economy is contractionary and should be avoided at times like these. It is only something to worry about when you have nothing better to worry about, and we have plenty.
November 30th, 2009 at 3:51 pm
Lord
It might even be more accurately stated; A deficit less than the potential growth rate of the economy is contractionary.
We have so many idle resources right now (workers) that we need to stimulate them. Once they are stimulated and participating there will be competition for some goods that are scarce (oil!!!) which will cause the price of those scarce things to rise. Thats why we need to invest wisely in some unscarce things (solar, wind, tidal energy)
We have to remove oil as the driving energy force to our world or everything that depends on oil (which is pretty much everything) will skyrocket.
That will be hyperinflation when our prime energy source is scarce.
November 30th, 2009 at 4:12 pm
The one thing that people seem most afraid of is also the least likely to happen. China is stuck as long as they depend on exporting their things to us. If they start selling US treasuries they either have to buy other US assets or products, or sell US $ and allow their own currency to get stronger. Even if they decided to take their money out of US they could not just sell a trillion dollars worth of treasuries in a few days (there are no byers with that kind of cash laying around), so as they sold the the first 50 billion, the dollar would fall, and the value of their remaining 950 billion would be reduced, etc. etc. On top of that their putting a lot of treasuries on the market would mean that the value of treasuries would fall drastically and give them a huge loss also on that front. They would take a huge loss of their $ assets if they pulled out – it would hurt them a lot more than it would hurt us. So yes they are stuck.
November 30th, 2009 at 5:09 pm
Tax & Spend is better than Borrow & Buy but it still won’t reduce our debt. But as BR has wisely pointed out, big changes are already afoot with American consumers most of which are positive…
November 30th, 2009 at 5:18 pm
I can run a deficit in my household for a long time, but I will eat into my savings. If I have no savings left, I can go into debt. What we have done in the US is totally blow through savings, rack up huge debt and are still running deficits. Somebody is letting us do this and it can continue until they don’t allow it anymore. It’s out of our hands (scary in its own right). The problem with Krugman (and I saw the program) I believe is that he is just looking at government debt and spending and concluding that:
1. As a % of GDP, the deficit has been higher in the past
2. As a % of GDP, the debt was higher after WWII and we survived and other countries are much worse and they haven’t blown up yet.
His fatal flaw, and the reason he is so wrong, is he is not considering the total of debt…consumer, private and government. Looking at the whole patient, we need the paddles immediately.
November 30th, 2009 at 5:38 pm
@gbgasser: You’re wrong. Like many of the senior citizens that they seem to represent, Fox News will still find something to bitch about. :)
@DeDude: I agree. The China scare is growing old. To expand upon your point, China only holds a small fraction more of our debt than Japan, yet you never hear about Japan. Besides the reasons you mention, the problem with this dollar-dump scenario is that Japan and the EU would never be foolish enough to cut off their nose to spite their face, and it would be political suicide for China. Rumors are already abound that China is overproducing because the US isn’t buying enough. To destroy their trade relationship with the US overnight would only compound the problem and probably lead to the ruling Communist Party (who nowadays cares much more about “ruling Party” than the “Communist” part) being forced out, which is the last thing they want. They won’t sell these goods to their own people either. If history is a guide, poorer and busier they keep the people, the longer they’ll stay in unquestionable control (selling too many of the luxury products they produce to their own population will only accelerate the demise of single party rule – populations with free time and money start to ask questions). They’re only holding on by a thread as it is (since there’s officially no religion, the silly communists don’t anoint themselves God). The fact that the Communist Chinese are still in control is a bit of a miracle, but is mostly based on the fact that they’re no longer very good communists. A sudden collapse of world trade could trigger a revolution there. Single party rule can only last so long in a country as developed as China. They know it, and so they are going to manipulate things the best they can to preserve the party’s prosperity and power in both the short and long term. Slow and steady wins the race.
But China’s end game is obvious. Someday down the road (there are signs this is already starting), they want to take these dollars and buy into US industry or expand their own industries into the US (and also Africa, where labor is cheap and dollars are highly desirable). This is like Japan did with the US and other Asian nations, respectively. The more dollars they can collect now, the quicker they can make that happen. There’s no incentive to dump dollars now or ever. They want to invest them. The US has vast resources and an educated population. Betting on the US’s demise is a fool’s game. In the long run, China wants to turn Africa into the next China, so they can be the next Japan or US. China has every incentive to keep playing along and controlling the pace of this development to ensure the members of the communist party stay on top either politically or economically. Right now they’re still pretending to be the defenders of equality, but once that gig’s up, they want to be able to switch to being the baron’s of industry. Dumping dollars accomplishes neither goal. It’s much smarter to build industry with government dollars, then privatize it and put yourself in control. As the saying goes, if you can’t beat ‘em, join ‘em.
November 30th, 2009 at 5:57 pm
As much as I hate to say it, I think that we’re heading for a global black swan with an 8,000 mile wingspan. There are so many flaws and cracks, it is impossible to mend. The physics of what we have created with overconsumption, and overleverage, evidences unstoppable momentum. Krugman has become another talking head….bloviating with all the rest about the Titanic deck chair arrangements.
Gird thy loins.
November 30th, 2009 at 6:10 pm
Niall Ferguson has it correct. Deficits matter most in the context of political and economic hegemony. The US can continue its fiscal depravity so long as it can project power across the globe. Once it can no longer borrow money to buy warships and pay sailors and keep its nuclear weapons properly maintained, then deficits will matter greatly. By then, though, it will be too late to do much about them, except to literally “bite the bullet”, even if we don’t have any.
November 30th, 2009 at 6:11 pm
“The deficit doesn’t matter”–Well then, full speed ahead. Isn’t that $60T due the boomers a debt which is owed? Which when not paid, is added to the deficit? I’m so confused these days…
November 30th, 2009 at 6:48 pm
dougc Says at 2:55 pm
“It doesn’t matter about deficits but it matters how they are financed” … you got it in 8 lines
gbgasser Says at 3:14 pm
“So, if tomorrow they decided not to use that cash to purchase a financial asset or US bond (stop wanting our debt) but instead buy a product made in the US or *by a US company*” … * that’s what’s been going down around here but it hasn’t been China … the US map in the thread above /10 states have the majority of Fortune500 .. I’ve been seeing more and more factories flying flags of the CEOs fatherland … whats Hawaii worth … keep the mainland intact?
Brendan Says at 5:38pm “If history is a guide, poorer and busier they keep the people, the longer they’ll stay in unquestionable control” … sounds familiar .. thing is the modern world needs countrymen with brains more than brawn …
Brendan goes on “Single party rule can only last so long in a country as developed as China” … hum .. you digress into chest thumping on a countries method that has endured 100x longer that the USA … I am beginning to wonder if the Revolutionary War was only a battle … the fly on the wall whispers the Queen said thank you for conquering that wild territory .. (I don’t know yet if I believe it)
November 30th, 2009 at 7:22 pm
I love that saying, “if something can go on forever, it won’t.”
Krugman has an overly optimistic view of America’s ability to service debt. Those debt interest payments can only come from the taxpayers, and we know two things for sure about taxpayers: their incomes have not gone up in this decade, and the highest-paid are retiring as the baby boom retires and makes the employed base smaller. Krugman can compare debt payments to hypothetical-government-inflated-GDP all he wants but the real story is comparing those debt payments to the taxpayers’ ability to pay.
The second thing Krugman overlooks is that the United States has the perfect opportunity to refinance its entire debt at 30 year treasury bond rates which are at their historic lows. Yet Treasury chooses not to. Why?
November 30th, 2009 at 7:29 pm
Another place that Krugman goes wrong used his blind assumption that the economy can be saddled with this level of debt without a significant drag on the economy. $15 trillion of debt at 5% interest equals $750 billion or $7,500 per household. And he expects that households will continue to spend the same amount each year on consumer goods? Krugman is no longer an economist. He has become a political cheerleader.
November 30th, 2009 at 7:33 pm
Krugman is right. Politically, the deficit doesn’t matter….for Republicans.
Anyone remember the fallout over Bush doubling the debt? And how it was the #1 campaign issue in 2008?
me neither.
November 30th, 2009 at 7:55 pm
Control of the government is the best path to prosperity. The brain dislikes not being in control over the body. Eat it Kudlow.3456789012345678901234567890
November 30th, 2009 at 9:56 pm
“DOWD: Politically in the end, politically in the end, the deficit doesn’t matter, if the economy is growing and jobs are being created. It matters when the economy is bad. So if the deficit continues to grow and the economy stays bad, Republicans and the American public can say, we’ve messed up. The government isn’t doing what it should (ph). Look at the deficit. Look at this. This is the problem. So if the economy started to grow and we had a deficit, then I think politically, he’s fine with that.
(CROSSTALK)
KRUGMAN: Important political fact, which is that whatever you would do with the deficit, the public won’t notice. In 1996, a majority of Republicans thought that the deficit had increased under Clinton, even though we had in fact…
ROBERTS: Balanced the budget.
KRUGMAN: … been on an incredible run. So no, I mean, the deficit doesn’t matter. The economy matters. And that’s why somehow or other, Obama has got to get jobs being created. ”
It appears that great king rat and a few other commenters were correct about Krugman’s comments having been pulled from a political discussion. Sadly, it appears that most BP readers are as easily manipulated as the readers of the more political blogs. Come on, it’s the oldest trick in the book — comments in the middle of a panel discussion can easily be blown out of proportion and taken out of context. Here’s a tip, before you have a cow, look up the actual transcript and see if the offending comment is sandwiched between (crosstalk)s.
December 1st, 2009 at 3:01 am
When was the last time Krugman presented an accurate position . . . and what was that position?
December 1st, 2009 at 7:59 am
I am amused by the debate among ivory-tower economists on the one hand (like Krugman and others) who claim that deficits, debt and the declining dollar do not matter, and those who claim that they do matter. The answer of course is that they are both right, except that they do not realize that the correct answer depends on the timing. NOW is the time to support the economy, and this cannot be done without deficits, debt and, AS A RESULT, a declining dollar. WHEN this will have been accomplished, then it will be the time to take care of deficits and debt, and this will strengthen the dollar. BECAUSE ALL THREE DO MATTER A LOT !
December 1st, 2009 at 8:19 am
Krugman says the debt matters – just not right now. Timing is everything, like comedy.
December 1st, 2009 at 2:37 pm
pkpetro
You are correct. All those things matter. What is NOT true is that a lower deficit is BETTER than higher one, by definition. Deficits do not ever HAVE to be paid down, it will go down as the economy grows, people spend more and the govt has to fill in less and less aggregate demand.Deficits matter but one must accurately state what they are measuring. The deficit does not measure how much we OWE to anyone. It does NOT riddle our children with anything to “pay back”. It simply accounts for new financial assets in the private sector that were not there before.
In order to lower the deficit we must TAKE financial assets away from the private sector. Who wants to give up something they currently have just to lower the deficit?
Now we can, and many argue we should, stop issuing debt for all our spending…….JUST SPEND.
http://neweconomicperspectives.blogspot.com/2009/11/memo-to-congress-dont-increase.html
Very good article.
The value of the dollar will not necessarily be negatively affected by our deficit. Look at Japan the last 10 yrs and how strong its currency is. There debt to GDP ratio is massive, growth is slow but the Yuan still holds a pretty good RELATIVE value.
So all those do matter but they may not matter in the way many people perceive them to matter.
December 1st, 2009 at 6:20 pm
Listen to gbgasser. He (she?) seems to understand the economy far better than the debt hawks.
Mr. Krugman and Mr. Cheney were wrong when they said, “Deficits don’t matter. Deficits do matter. They are necessary for economic growth.
Reducing the federal deficit reduces money growth in the private sector and does nothing for the federal government, which creates spending money ad hoc.
At any rate, deficits could be eliminated tomorrow. Deficits result from borrowing. The federal government borrows by creating T-securities out of thin air, then selling them for money it created earlier. It just as prudently could create money out of thin air and dispense with the T-security steps, which have been economically obsolete since 1971, the end of the gold standard.
Rodger Malcolm Mitchell
December 3rd, 2009 at 9:37 am
The deficit does not matter the way neocons say it does, but «the deficit» is very important for the finantial live-style. While there is deficit and a large public debt there is a way to make money without doing nothing.
The abundance of public debt has allowed and fostered a life-style that isn’t based on work, isn’t based on risk, isn’t based on finantial intermediation. Public debt allows banks not to have to lend money to entrepreneurs. Public debt is an alternative to lending money to finance economic growt: new plants, business development and all those weird things that entrepreneurs and workers do like running plants, cultivate the land or make «things». Public debt allows a whole economy to expect revenue from «capital» even if that capital isn’t producing nothing. Literally «nothing».
When I think of it this way I wonder why don’t neocons love a good deficit. Perhaps this is the missing link between the neo-conservative rethoric of the balanced budget and the neo-conservative practice of record deficits.
December 3rd, 2009 at 10:42 am
Spitzer writes “The abundance of public debt has allowed and fostered a life-style that isn’t based on work, isn’t based on risk, isn’t based on financial intermediation.” … yepper … a business plan that lives on interest payments and repossession re-re-resale
wash rinse repeat
January 25th, 2010 at 10:24 am
[...] shouldn’t prioritize reducing a budget deficit during economic crisis (a position held by multiple Nobel Prize-winning economists,) or this is going to end up being another shining moment in [...]