This idea has been zooming around the geeconosphere. Krugman et al. keep telling us, with eyes rolling, that the Republicans (and even that poor ol’ hoodwinked Obama) are nuts when they say things like, “In tough times when families are tightening their belts, the government should do the same.”
Now this always troubled me, for the same reason that the MMT analysis seemed wrong: It makes a qualitative distinction between “public” and private, when there is nothing intrinsic to the analysis relying on that distinction.
For example, could Krugman et al. say with equal validity, “In times when men are tightening their belts, the only way to avoid depression is for women to run up the credit cards”? Or could they start a campaign, urging Google and Microsoft to go billions into debt? More generally, are Krugman et al. really saying, “If only everybody around the world would stop trying to pay down their debts, we’d be fine”?
(On this last point, the reason I ask is this: If some people in the private sector really do want to pay down their debts, while other people in the private sector don’t want their debt to increase correspondingly–and this is the ostensible problem, according to Krugman–then how does it “solve” this problem by having governments take on offsetting debt? To the extent that the people in the private sector realize they are responsible for paying the interest on the “public” debt, won’t they try to save even harder? I’m not invoking a full-blown Chicago-style Ricardian Equivalence argument, but I’ve never seen any of the “public debt is different from private debt” people even address this complication, which seems rather serious to me.)
Anyway, such were my musings up until now. Yet along comes Daniel Kuehn to shock me:
Yesterday afternoon I was doing something I usually avoid – listening to a lot of the Congressional debate on C-Span. Both sides were depressing because both were demanding deficit reduction…
One of the things that just about every Republican said was that “Washington needs to do what families do and not spend more than they take in”. It’s powerful rhetoric that is electoral gold. Getting tough on the deficit is good for politicians – analogizing it to family values is even better.
What’s bothersome is that no one challenged this view, which among economists is almost universally considered to be fallacious. Even those economists who don’t think deficit spending is good macroeconomic policy do not claim that government has to, on average, run a balanced budget. The people demanding austerity ultimately have a better stump speech than the people who understand public deficits and debt, and this is a problem.
So my question to readers is – what is a good, succinct way for politicians to communicate that (1.) public debt is different from private debt, (2.) it is not fiscally responsible to cut public debt during downturns, and (3.) we can run deficits from now until the Sun burns out and everything would be just fine, so long as their magnitude is manageable over long periods.
As I say, this shocked me. In the Ron Paul moneybomb interview I gave yesterday, I was trying to play fair with Keynesianism. When the host suggested that the theory was responsible for our massive government debt, I gently clarified that in textbook theory Keynesians want to run a balanced budget over the course of the business cycle. Yes, you’re supposed to run big deficits during recessions, but you’re supposed to pay them off during booms. But now I stand corrected by Daniel; I guess nice guys really do finish last.
And how do we deal with the part I’ve put in bold? Yes, we can indeed run deficits forever, so long as we cap total debt at a certain fraction of GDP. (If that sounds impossible to you, I do the math in this article.)
Yet again I ask: How is this different from a corporation? At what point will GE be forced to start reducing the total market value of its outstanding bonds?
Last thing: I heartily encourage Daniel & Friends to write a stump speech for Democrats, in which they make clear to voters that we should raise the debt ceiling now, because we plan on running deficits until the sun explodes. Really guys, I mean that with sincerity: Blast that message out there.