David B. Shemano suggests that "public debt" approaching 100% of GDP
is a problem.
It really shouldn't be called the "public debt," since it's a matter
of the government ("the public sector") owing money to the "public"
(i.e., people outside the government).
In those terms, we can turn the statement around: is it a "problem"
that the people outside of the government hold so many of what might
be the safest assets on earth (US Treasury bills, notes, and bonds)
that it approximates 100% of current production? After all, one thing
that kept the US economy from plummeting back into Depression after
World War II was that the broadly-defined middle class had wealth for
the time in US history. This was before the rise of middle-class home
ownership. Instead, it was a matter of people holding a bunch of War
Bonds, so that they didn't cut spending much as the economy sank.
By the way, after World War II, the government's debt exceeded 100% of
GDP but many people now point to the 1950s and 1960s as the "Golden
Age" of economic growth. Somehow the economy wasn't pulled down by all
that debt. Maybe people should study economics to find out why.
Of course, it's the _distribution_ of the ownership of the
government's debt that is a problem. Most of the government's debt is
owed to rich people. As some congresscritter once said, we used to tax
the rich, but now we borrow from them -- and pay them interest. The
rise of those interest payments mean that either taxes have to be
raised or programs cut in order to allow some sort of budget balance
(or to keep government debt from rising relative to GDP). Of course,
the rise of the government debt to rich folks reinforces the general
trend toward greater inequality of incomes and wealth since the 1970s.
And maybe half of the US government's debt is owed to people outside
of the country. Just as with private debt to the rest of the world,
this means that the US has to produce extra GDP in order to pay the
interest on the external debt. This doesn't seem to be a big problem,
however, since the US GDP is so large.
David also responds to David Graeber
Graeber: >> "1. The U.S. government can charge its employer (the
taxpayer) pretty much anything it wants to."<<
> Other than democracy, human nature and public choice theory tell us that the
> people are willing to borrow and spend but not tax themselves, so no, the US
> government cannot collect whatever taxes it wants.<
One thing I've found out over the years is that appeals to "human
nature" are usually a form of obfuscation, since the concept is seldom
defined. But here, in contrast, that concept _is_ defined, since David
invokes so-called Public Choice theory. (This is the the ML
politically-motivated version of the use of economics to describe
politics introduced by James Buchanan, Gordon Tullock, _et al_, not
the more sophisticated theories of Arrow and others.) In the PC
theory, people are assumed to be narrow-minded, short-sighted, and
greedy, so that democratic politics _always_ produces bad results.
(Somehow, according to PC theory, this kind of mentality doesn't
produce bad results in markets, but ignore that inconsistency here.)
Usually, invocations of "human nature" involve elitism and
paternalism, the negative image of "human nature" only applies to
those of us who are part of the unwashed masses. Here, in contrast,
this unflattering picture of humanity applies best to the GOPsters and
Teabaggers that David sympathizes with (if I understand his position
correctly). It is those folks who are totally dogmatic about not
raising taxes -- because that involves taxing themselves. It's those
folks who have formed the political base for Bush #2's reintroduction
of government deficits into US economic life, by pushing for tax cuts
for the rich and increased military spending. Since Reagan took office
back in 1981, it's been the GOP that's been the party of borrow and
spend (including tax expenditures). (Bush #1 was a minor exception,
leading to his being punished by his Party for reneging on his "no new
taxes" pledge.) It's the GOPsters and Teabaggers who have also blocked
increases in taxes which would solve California's fiscal crisis.
On the other hand, the DP has been pretty good at avoiding fitting
Public Choice theory's ugly image of human nature. The Clinton
administration raised taxes and eventually ran government surpluses
(events that are impossible according to Buchanan's theory, as i
understand it). Alan Greenspan, who also seems to fit with the PC
image of humanity, was alarmed and wanted to stop the decline of the
government's debt.
Obama's deficits, on the other hand, make sense. Some of them (maybe
half) are like the rising deficits at the end of #2's administration,
i.e., due to the collapse of the private sector into the Great
Recession (which automatically lowered tax revenues and boosted
transfer payments). The other deficits were part of an effort to save
private business's bacon via Keynesian stimulus. This was partly
successful, in that it prevented the Great Recession from becoming
much more serious. It wasn't enough, of course. But it made sense,
unlike the "help my rich friends" and "let's get revenge on Saddam"
policies of #2, which had no positive economic effect that I can see.
...
>> "3. When households owe money to other people, they can't just print it. The
>> government can. . . . The only real limit is the danger of inflation: If we
>> flood the economy with too many dollars, the dollar itself might begin to
>> lose its value. This is the scare story the deficit hawks always trundle
>> out. The irony is that at the moment we have exactly the opposite problem:
>> Not enough money is circulating, so the Fed right now is printing dollars
>> with reckless abandon."<<
> How does Graeber, or the Federal Reserve, "know" not enough money is
> circulating? [the prices of] Commodities from gold to oil to food have
> skyrocketed.<
Of course, that's not inflation in the meaning that economists attach
to the word. But no matter. The Fed has a lot of good measures of the
money supply and knows a lot about the limits on their rates of
increase to avoid true inflation. One of their better practices is to
look at the true inflation rate, especially the "core" rate, which
leaves out volatile prices to get some idea of the long-run
inflationary tendency. Though the core rate is up since the 2010, its
long-term trend has been downward since the 1970s. (It's no surprise,
of course, since the Fed and finance capital in general has been in
the policy-making saddle -- and they typically care much more about
inflation than about unemployment.)
> The Fed seems fixed on (1) housing prices and (2) job growth, because
>apparently the Fed is reliant on the position papers prepared by the National
>Association of Realtors and Homebuilders that the economy will collapse if we
>don't do everything to reignite the housing bubble, build homes people can't
>afford and ensure that people use their homes as ATMs. ... <
I don't think that the Fed is that concerned with those issues. It's
mostly a matter of the fact that the financial sector got itself into
Deepest Yoghurt by (1) successfully begging the Fed and other
regulators to let them do what they wanted to do and (2) pushing to
make sure that they were bailed out when things went wrong.
Unfortunately, the rest of us suffer when those financiers and
bankstas go broke in droves (cf. the Great Recession). So (along with
the TARP) the Fed has given a lot of loans to them (and has taken over
a lot of their toxic assets). They also are quite concerned about the
current refusal of banks to lend (cf. the ratio of excess reserves to
checkable deposits, which used to be one-tenth of 1% and is now 100%
or so).
There has some effort -- along with those of the elected politicians
-- to keep housing prices from falling too quickly (which was backed
not only by realtors and home-builders but also homeowners -- perhaps
even by a majority of the population). It makes some sense. With 401k
accounts in bad shape and home prices falling, a second recession is
encouraged (via the famous wealth effect). That kind of event seems
unduly unpleasant when official unemployment is about 9%. The concern
with job growth is valid. After all, giving into the screeching of the
inflation hawks in a period when inflation is minimal would make
people's lives much worse.
Usually the Fed subordinates its concern with full employment to that
of avoiding inflation. Today, with the job situation so dire and the
financial system still very wobbly, it makes sense even to the bankers
and bank-friendly economists -- those powerful non-elected politicians
-- at the Fed to care more about employment growth. (But I can't see
how anyone can see the Fed as "soft on inflation.")
--
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) -- Karl, paraphrasing Dante.
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