18 thoughts on “Goodie”

  1. Not for nothing Rand. The democrats obscene spending spree is providing the fuel needed to vote them out. If the new guys are any better, it was money well spent. What’s a couple trillion if we can get some semblance of a fiscal future established? It is a long shot, I know, but it is just possible that this ends well.

  2. The Broken Window Fallacy Principle can help us out of this mess once again: WWIII will wipe-out all those debts — seriously, it’s going to be like “Cash for Clunkers” on steroids!

  3. Under current management we’re more likely to sell the “right” to provide defense for, say, South Korea for a trillion in debt forgiveness.

  4. …what a bunch of alarmists. Don’t you know Obama has it all well in hand? His father told him how to handle it. First you set the tax rate to 100%… then everybody gets in a queue…

    Baldilocks has a discussion of it to which I link.

  5. Teachers and firefighters don’t do much to stimulate the economy. It is great that some of them kept their jobs because of the stimulus but paying a rent or mortgage and buying groceries isn’t going to have profound impacts.

    Keeping road crews working is also nice but carpenters and cabinet makers are not trained for making roads. A job in the “construction” industry does not mean a person can do any job related to construction.

    Then there is the danger of a construction bubble. What happens when the road projects are all over?

  8. No-one really needs to tell me that I don’t understand economics.. but why is national debt important?

    All the cool countries are doing it, look at this list:

    https://www.cia.gov/library/publications/the-world-factbook/rankorder/2079rank.html

    It seems to me that world power == external debt.. and that makes perfect sense doesn’t it? I mean, it’s not the weak kids in the schoolyard who take the other kids lunch money.

    So, explain to me, why would you ever argue that your government should reduce the national debt? Shouldn’t you be arguing that the government not pay so much of it back all the time?

  9. why would you ever argue that your government should reduce the national debt?

    Debt by itself is not bad. The only question is if what we trade for debt is worth it. Which means you must consider the time value of money.

    We go in debt to win a war because losing a war has a very high cost.

    Other uses of debt have to be considered a lot more carefully.

    It seems to me that world power equals external debt.

    That would be false. World power is a combination of things all of which require a strong and diverse economy. Having a strong economy means more people are willing to loan you money thinking you are a safe bet. Not quite the same thing.

    What has people up in arms is that we are growing our debt without a compensation worthy of it. We are adding drag to the economy without lift. We are jumping off a cliff without an airfoil. The view may be fine for a while but eventually the ground catches up with us. This happens when debt becomes a failed ponzi scheme.

  10. All the cool countries are doing it, look at this list:

    Ok, I looked at the list. I see a bunch of declining powers in that list. Further we need to consider the more relevant figure, the ratio of public debt to country GDP.

  11. “What has people up in arms is that we are growing our debt without a compensation worthy of it.”

    I.e., if the economy is growing on average at least as fast as the debt, then our discretionary income is growing. Would you rather have $10K in debt with a $20K income, or $500K in debt with $1M income?

    Prior to the mortgage meltdown, our debt was actually shrinking relative to GDP. The emergency funding to fix that became license to spend wildly on items which will do nothing to increase our income down the road. Quite the opposite, it only delays and aggravates the day of reckoning.

    Moderate deficits are manageable and even desirable. But, these Obama deficits are entirely unsustainable. The old saw was that debt did not matter because we were only borrowing from ourselves. But, as of 2007, 25% of our debt was owed to foreigners, and the percentage is surely higher now. That means that, in the future, we will have to divert more and more of our resources out of country to service our obligations.

  12. Eventually, if our insane profligacy continues, investors will demand higher returns to buy our bonds, at which point we will be obligating more and more of our future production to external parties. At some point, the whole process becomes unstable, and economic collapse is the ultimate result.

    A couple of decades ago, I had a discussion with someone over General Motors crappy cars. His claim was that GM was so huge and profitable that it would take a hundred years for it to fail, even if it kept on its present course. I demurred, observing that catastrophes often unfold rapidly after they reach a tipping point. I am not particularly happy that I proved to be correct.

    The US, too, is not so large and powerful that it cannot also fail.

  13. I wonder what the deficit numbers for 2008 would look like if they added back the TARP funds that had been repaid with interest over the last two years.

  14. The US, too, is not so large and powerful that it cannot also fail.

    Exactly the type of thing people argue against right up til the moment it happens… and some continue even afterward.

    I wonder what the new normal will be? We already have a higher percentage under the poverty level now than ever before according to an article I just read.

  15. Ok, here’s a more relevant table. It’s public debt, valued in the country’s own currency in 2009 estimate. Public debt is only part of total debt. The US, for example, has 53% of its GDP in public debt. For 2009, I gather total debt was more like 90%. Here, the “cool countries” (of decent size, I’m skipping the tiny guys) on the top of the list are Zimbabwe, Japan, Lebanon, Jamaica, Italy, Greece, Singapore, Iceland, Sudan, and Belgium. The US is well down on that list at 47th place. But that was in 2009.

    According to Wikipedia, the respective public debt is now roughly 67% of GDP. If none of the other countries increased their debt per GDP (which most of the other countries probably didn’t do), that would put the US somewhere around 23rd on the list. That’s a huge jump.

    Wikipedia also projects a further trillion dollar rise in public debt for FY 2011 in combination with economic growth. If the economic growth doesn’t jump as much as expected (which I think likely, perhaps even a minor double dip recession), we could see in addition to higher debt/GDP ratio, lower revenue collection. Spending might grow too (depending partially on whether Dems keep control of the House and how much the lame duck Congress spends, I suppose). I think GDP/debt percentage in the low to mid 70’s is pretty likely. That probably won’t be enough to put the US in the top 20 countries by debt per GDP, but I wouldn’t be surprised to see it happen by the end of Obama’s term in FY 2012.

  16. I don’t care about the financial effects of government borrowing so much as the political effects. When government borrows to run its programs instead of using tax money, the voters come to believe it’s possible to vote in a Free Lunch. Hey, all this cool stuff that sounds very desirable — more money for the schools, prisons, health care, pie in the sky — can be had without raising taxes! Yippee!

    The end result is a profound corruption of the political process, a failure both high and low to understand economics, and, when it eventually doesn’t work, a profound cynicism about government in general which leads, not to the individual liberty-loving ideals of Jefferson and Madison, but rather to the pouty angry longing for the Strong Man to set things straight, make the damn trains run on time, et cetera.

    Speaking of “the failed policies of the past,” I wonder if any of those academics in power remember their history — remember that borrowing from rich people is exactly how government financed their spending for most of post-Roman history, and that one of the new democratizing initiatives of the nations founded in the 1700s and 1800s, including ours, was the notion that governments should be funded by broad-based taxes, so that its paymasters were the very citizens it ought to be serving.

  17. Couple of points:

    1. The idea that total debt outstanding in a given country outstrips cash on hand or even annual income is not alarming. If it were, we’d be outraged by anyone with decent credit making $50,000 a year with $20,000 in the bank purchasing a $200,000 home. I defy you to show me a lender who doesn’t consider this a reasonable route of finance. This is no a trivial point; conservative and libertarian dissonance where we pit microeconomic credit against macroeconomic debt reflects an apathy towards finance–particularly the >$1 quadrillion line of credit that is overall market cap–that only benefits liberals and their more dubious arguments. This leads us naturally to:

    2. $14 trillion in debt held by the public is on its face disgusting. This would be like a family earning $50,000 a year having half of its equivalent of its annual income in revolving debt to people who offer them no tangible asset or service in exchange at any given time (the entitlements, in proportion with its contribution to a given deficit). More importantly, the sheer size of it means that debt financing now requires a continuing cost to make creditors whole that exceeds the productive output of entire sectors of industry that employ up to millions of people. This, the opportunity cost argument, is the one conservatives and libertarians should be making to the American people.

  18. It reminds me of a friend that wanted to give his brother-in-law a low monthly payment on the purchase of a building. The problem was the payment was lower than the interest so rather than ever owning the building he owed more with each passing month.

    If we get to the point where the financing of the debt is greater than GDP (or whatever term they’re using these days) isn’t that game over?

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