12 Feb 2015

Another Post on Government Debt, but Krugman Made Me Do It

Debt, Shameless Self-Promotion 3 Comments

An excerpt:

To illustrate the situation, permit me a silly analogy. Imagine you saw the following debate among economists:

KRUGMAN: People are always yelping about the dangers of guns, but so long as people wear bulletproof vests, they can’t possible be hurt by gunfire.

ROWE and MURPHY: What the heck is he talking about?! Imagine a guy wearing a bulletproof vest, and someone else walks up and shoots him in the head. Uh, try again Krugman.

LANDSBURG and CALLAHAN: Well Krugman is right, if you think about it. A gunshot to the head doesn’t necessarily harm someone; we can imagine a guy with a scorpion on his head, and the bullet just nicks him while taking out the scorpion. Furthermore, we can achieve the same result of killing a man with head trauma by, say, smacking his temple with a hammer. So Rowe and Murphy are wrong to think that gunfire per se causes death from head injury.

KRUGMAN: Like I’ve been saying for years, nobody understands guns. Let me say it slowly, everyone: If you’re wearing a bulletproof vest, a bullet can’t hurt you.

LANDSBURG and CALLAHAN. Beautiful, Paul. Preach it brother.

Again, I realize the above is a bit silly, but then again I can’t believe Krugman is still getting away with titling posts, “We Owe It to Ourselves.”

3 Responses to “Another Post on Government Debt, but Krugman Made Me Do It”

  1. Yancey Ward says:

    Krugman knows what he is doing. He knows all government borrowing is essentially a voluntary/involuntary tax paid at some point in the future by the last holder/s of the debt, but he can’t come right out and say that. So he constructs these narratives about how government borrowing is just a net zero overall through the “owing to ourselves” meme, or he skates right up the edge and tells you that government debt is different from private sector debt since the government never really ever pays it off- it just borrows more to pay the old debt and interest.

    Here is the thing- governments can finance themselves 100% via taxation. The only reason governments borrow is because it doesn’t look like a tax in the present.

    • Cosmo Kramer says:

      “Here is the thing- governments can finance themselves 100% via taxation. The only reason governments borrow is because it doesn’t look like a tax in the present.”

      It is a net creation of financial assets through spending.

      If I hold the debt security, then I chose to exchange my highly liquid dollars for some of lower liquidity (+risk free interest rate). I would argue that there is a big difference between government spending and interest payments to holders of the bonds. Although for there to be more bonds in the first place means that the government spent on silly projects or detonated some bombs overseas.

  2. Major.Freedom says:

    Yeah, I always chuckle when I see the argument that if the outcome Z can be brought about by either cause X or cause Y, that this somehow suggests that cause X cannot ever be a cause for Z.

    In other words, we’re supposed to believe that if outcome Z occurs, then the only possible cause must be a unique cause.

    It is absurd. Yet that is what we are constantly told with the debt burden problem. “Debt can’t be a burden because we can replicate the same outcome with taxation instead.”

Leave a Reply