Monday, January 2, 2012

Hint: A government is neither a family nor a business.

NYT: Nobody Understands Debt

money, money, money
Image via flickr user chensformers

There was a 'gotcha' post at Marginal Revolution which followed Krugman's first piece. Krugman then responded. I'm sure there's lots of econoflame throwing in the comments of all three pieces but, back to the title of my post, I'm not so much concerned with how Krugman has talked about debt over the years and whether or not economists are lousy at predicting things as much as I am with glib, facile, and misleading analogies about debt and deficit spending.

From the first linked post:
... Washington isn't just confused about the short run; it's also confused about the long run. For while debt can be a problem, the way our politicians and pundits think about debt is all wrong, and exaggerates the problem's size. 
Deficit-worriers portray a future in which we're impoverished by the need to pay back money we've been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments. 
This is, however, a really bad analogy in at least two ways. 
First, families have to pay back their debt. Governments don't - all they need to do is ensure that debt grows more slowly than their tax base. [Emphasis mine.] The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation. 
Second - and this is the point almost nobody seems to get - an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.
Spending should be responsible. For instance, we should not be spending billions upon billions of dollars on foreign wars that have gained us, near as I can tell, next-to-nothing. We should not be spending money propping up client states run by genocidal monsters anywhere, ever. We should be investing in our education and infrastructure so we get the benefit of the money we spend. These things should be obvious to even the most craven dimwit.

The height of irresponsibility is to continue spending unwisely while refusing to collect the taxes to pay for that wasteful spending. Want to build bridges, schools, an efficient energy grid, rail networks, and things we can actually use to be productive? By all means, borrow to do what we can't pay for out-of-pocket. Want to pick a side in a nasty regional conflict and throw good money after bad supporting one group of crooks as they seek to exterminate another? It's a horrible idea, but if you can't be stopped, at least have the decency to tax your millionaires and billionaires to pay for the mess you're getting the rest of us into.

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