Putting ourselves an our children further in debt, notes Timothy Dalrymple, is not the way to help the poor:
One of the great difficulties of this issue, for Christians, is that the morality of spending and debt has been so thoroughly demagogued that it’s impossible to advocate cuts in government spending without being accused of hatred for the poor and needy. A group calling itself the “Circle of Protection” recently promoted a statement on “Why We Need to Protect Programs for the Poor.” But we don’t need to protect the programs. We need to protect the poor. Indeed, sometimes we need to protect the poor from the programs. Too many anti-poverty programs are beneficial for the politicians that pass them, and veritable boondoggles for the government bureaucracy that administers them, but they actually serve to rob the poor of their dignity and their initiative, they undermine the family structures that help the poor build prosperous lives, and ultimately mire the poor in poverty for generations. Does anyone actually believe that the welfare state has served the poor well?
See also: Values and Capitalism
August 4th, 2011 | 9:27 am
A very common sense approach — which means that it won’t be followed by the politicians. They are addicts, and their drug of choice is other people’s money. They really don’t give a damn about how these accumulating debts will effect the country 20 or 30 years from now. Their only concern is staying in office and keeping power. This goes for both parties and all “ideologies.”
Of course the Catholic bishops are on the side of the economically ignorant and are willing to walk arm in arm with those who are unwilling to rethink how the poor have become the chattel slaves of the government programs that claim to help them.
August 4th, 2011 | 10:15 am
The two largest welfare programs are not seen as welfare by the majority of Social Security and Medicare recipients. The recipients have been taught, and believe, that they have paid (indeed, invested) their payroll taxes into the system all their working lives, and now they want to be paid back. But these two programs, along with defense spending, take up most of the government’s budget. Many recipients do not understand that Social Security bonds,when redeemed, must be paid back with either federal tax dollars or money borrowed from somewhere else. They also do not understand that, the longer they live, the more likely it is that they will be paid more than they ever paid into the system, even when one considers a higher rate of return on the investment. The actual rate of return on the bonds is very low, of course.
Other programs for the poor — subsidized housing, the free or reduced school lunch program, Social Security disability, SSI, WIC, SNAP, unemployment insurance, etc. — pale in expenditure comparison to Social Security and Medicare. Only Medicaid comes close to those kinds of revenue expenditure. While these are often what people consider welfare when they think of welfare, eliminating these programs would not save the taxpayers much money.
Oh, ha, ha, I forgot the other big welfare program: public schooling. Most people do not consider it welfare, but it is. Since most of a given population in any area does not have school-aged children, but their real estate taxes and sales taxes and other taxes they pay go to public schools, it is a form of income redistribution. You may as well throw in federally subsidized student loans and grants and other college-funding programs.
When people talk about the Good Samaritan, the role of the innkeeper often is left out. If you and I see someone injured on the side of the road, we either call the police and rescue squad, or we take the person to the hospital. We are called a Good Samaritan. But what if you had to pay the person’s hospital bills and recovery bills? Well, that’s another story, isn’t it, in this day and age? Whom would Jesus indebt? If you take the parable of the Good Samaritan and apply it to today’s advanced medical and litigious society, you, my friend. Jesus would indebt you.
August 4th, 2011 | 11:27 am
It seems to me the whole focus on the debt and taxes is misguided. Neither, in an of itself, is bad. The argument is often made that the federal government should handle its finances just like any American family. That is basically nonsense, but it should be pointed out that even if it’s true, part of the American dream is owning your own home, and how many people pay cash for a home? People take out mortgages, which means going into debt for 15 to 30 years.
It seems to me the real question, which nobody is asking, is What do the American people want, and how much are they willing to pay for it. On Meet the Press this past Sunday I saw a very conservative Republican, Raul Labrador, agreeing that the American people were sending mixed messages to the government. Here’s the exchange:
Given this, who is representing the American people? It seems to me that somehow voters must be given the choice of what they want and be forced to make a decision. Do they want spending cuts and less from government, or do they want more from government and higher taxes.
Yes, of course, you can’t go on accumulating debt forever, and there are problems to be solved. But I don’t think any party has the guts to lay out before the American people the realistic choices that they have and demand that the American people make those choices.
August 4th, 2011 | 3:33 pm
Debt always must equal assets. If we leave our children ‘in debt’ then we also leave them ‘in asset’. A $1,000 bond today represents $1,000 that someone or something did not spend on consumption and represents $1,000 in consumption that someone will get in 30 years. Granted I’m sure many of us will still be alive in 30 years, all things going well, but let’s just say for the sake of argument we will all be dead but ‘children’ of today will be adults who will take control of that asset.
So ‘our children’ are no in debt. The most you can say is that some children tomorrow will be burdened by today’s debt, others will be enriched by it.
August 4th, 2011 | 3:42 pm
More troubling than the meager amounts we spend on the poor is the welfare we give to the wealthy. Perhaps it is those programs that should be re-examined, so that the dignity of the wealthy isn’t undermined and that their family structures can be repaired. Perhaps their work ethic could be improved, as well.
August 4th, 2011 | 4:15 pm
Boonton Debt always must equal assets.
No it doesn’t. Where in the world did you get that idea? If that were true creditors would never have to worry about debtors filing bankruptcy since their loan was secure.
A $1,000 bond today represents $1,000 that someone or something did not spend on consumption and represents $1,000 in consumption that someone will get in 30 years.
That’s completely wrong. A $1,000 bond today represents $1,000 that someone or something didspend on consumption today. The debt ceiling had to be raised so that we could borrow money to pay for things like interest on current debt, social security, pay for soldiers, etc. That is consumption that is not carried forward 30 years.
August 4th, 2011 | 5:12 pm
Jaime wrote:
They really don’t give a damn about how these accumulating debts will effect the country 20 or 30 years from now. Their only concern is staying in office and keeping power.
Never mind that the right wing repeats this claim day and night, one wonders how you could possibly know it was true even if it were. Chances are that most politicians are decent people/sinners just like the rest of us, and no worse.
August 4th, 2011 | 6:38 pm
“Chances are that most politicians are decent people/sinners just like the rest of us, and no worse.”
Their sins can cause widespread harm, not just to them and their immediate family, which is a very good argument for limiting their power.
August 4th, 2011 | 8:53 pm
I agree that corporate welfare is just as corrupting as individual welfare. Archers Daniel Midland and General Electric need to be taken off the dole. No subsidies for turning corn into low power fuel or for making wind turbines that no one would buy without Federal subsidies and state requirements that utility companies buy their high cost power. There are all sorts of tax credits to companies that need to be taken off the books.
And subsidies to home buyers versus renters ought to be retired too; we just need to do it gradually so people can adjust. In the meantime, penalizing people who work when they are eligible to receive Social Security is unfair, when those who are rich enough to have investment income are not penalized at all.
August 5th, 2011 | 6:20 am
Joe
No it doesn’t. Where in the world did you get that idea? If that were true creditors would never have to worry about debtors filing bankruptcy since their loan was secure.
No debt can ever be created unless an asset is created. Your owe me $100. That’s $100 debt to you, $100 asset to me. A world of zero debt is by definition a world of zero savings. Savings, which most of us think of as good in all cases, and debt, which we tend to think of as bad in all cases, are two sides of the same coin.
Yes you may file bankruptcy instead of paying me my $100. My asset then disappears, but then so does your debt.
That’s completely wrong. A $1,000 bond today represents $1,000 that someone or something didspend on consumption today.
Well possibly, the bond proceeds might have went to buy an asset which is technically not consumption but investment…. But the fact is that $1000 bond represents both. The person or entity that purchased the bond in order to loan $1000 to the gov’t had to forgoe consumption. Likewise whoever owns the bond as it matures gains consumption power.
August 5th, 2011 | 8:10 am
Brian English wrote:
Their sins can cause widespread harm, not just to them and their immediate family, which is a very good argument for limiting their power.
It’s a good argument for democratic government with internal checks and balances. But anyone with power can do harm, and that’s a good argument for government.
August 5th, 2011 | 9:01 am
A recent letter sent by a group of Catholic theologians to congressman Boehner argued that his focus upon reducing the debt and the size of government amounts to a sinful neglect of the poor. I consider it a scandal, albeit of a lesser sort that some we have had, that the aging cadre of boomer activists that dominates the Church’s “social justice” discussions consistently ignores the vast act of inter-generational theft that is driving the looming debt apocalypse. These Renfields –as I call them– have abandoned an authentic prophetic stance for a shameless ideological alliance with a governing class for which the state is god. Some day the price will be paid, but not by them.
August 5th, 2011 | 9:23 am
A quote from Davis Goldman over on the Spengler’s Forum:
“I don’t think there’s too much government debt. There isn’t enough government debt. How do I know that? People keep buying it. The 10-year Treasury’s at 2.4% and the 2-year is at 27 basis points.”
August 5th, 2011 | 9:59 am
These Renfields –as I call them– have abandoned an authentic prophetic stance for a shameless ideological alliance with a governing class for which the state is god
What is an authentic prophetic stance, too let the needy suffer so that our grandkids can be comfortable? The burden we’re placing on future generations needs to be considered obviously, but it has to be balanced by present day needs. Language like “for whom the state is god” is ad hominem and so sweeping as to be wildly inaccurate.
August 5th, 2011 | 10:13 am
“What is an authentic prophetic stance?” One less selective in its indignation, that preaches the Gospel in season and out of season. But I concede that it is wrong to characterize our governing class as worshipers of the state. They worship, rather, the petty, short-sighted little gods they see in the mirror.
August 5th, 2011 | 10:25 am
“It’s a good argument for democratic government with internal checks and balances. But anyone with power can do harm, and that’s a good argument for government.”
Part of a system of checks and balances is not allowing the federal government to get so large that it permeates every aspect of life. Such a system is inherently inefficient and costly.
August 5th, 2011 | 10:27 am
I concede that it is wrong to characterize our governing class as worshipers of the state. They worship, rather, the petty, short-sighted little gods they see in the mirror.
Yep, the beliefs of your political enemies can be explained by their sin. Which is just what they say about you. But what the Bible teaches is that we’re all sinners, and unless and until the Religious Right in the political arena becomes characterized by people who take their own sin as seriously as that of their opponents, it will continue to have a witness against and not for Christ.
August 5th, 2011 | 10:30 am
“No debt can ever be created unless an asset is created. Your owe me $100. That’s $100 debt to you, $100 asset to me.”
If the debt created by the US government is an asset to the Chinese government, how is that a good thing for the US taxpayers who eventually have to pay back the debt?
August 5th, 2011 | 10:35 am
“What is an authentic prophetic stance, too let the needy suffer so that our grandkids can be comfortable? The burden we’re placing on future generations needs to be considered obviously, but it has to be balanced by present day needs.”
What did the “needy” do before 1965? This idea that we have to choose between crushing future generations under unsustainable debt and the poor and elderly dying in the streets is nonsense.
And getting back to the point of this post, the idea that Christianity compels support of these types of programs is reprehensible.
August 5th, 2011 | 10:43 am
Boonton No debt can ever be created unless an asset is created. Your owe me $100. That’s $100 debt to you, $100 asset to me.
Yes, in accounting that is true. A $100 debt on someone’s books becomes a $100 asset on another person’s balance sheet. But that does not mean, as you said, that someone 30 years from now will be able to use that $100 asset. That asset most likely will be used up within a year.
For example, if a company were to take a 30 year loan out to buy printer paper, it isn’t likely that the paper will be around in 30 years when the loan has to be paid off.
***A world of zero debt is by definition a world of zero savings.***
Oh vey. That’s not true at all. If I save $10 how does that put someone $10 in debt.
***Savings, which most of us think of as good in all cases, and debt, which we tend to think of as bad in all cases, are two sides of the same coin.***
Holy cow, that’s not right at all. I think you are confusing credit (i.e., capital that can be loaned) with savings.
***The person or entity that purchased the bond in order to loan $1000 to the gov’t had to forgoe consumption. ***
Correct, that is called investment capital.
***Likewise whoever owns the bond as it matures gains consumption power.***
True, but the person who has to pay off the bond (i.e., our grandkids) lose consumption power. That is why it is not right to treat sovereign debt as a pyramid scheme in which we keep consuming today (in not investment activities) and passing the bill on to future generations.
August 5th, 2011 | 10:44 am
If the debt created by the US government is an asset to the Chinese government, how is that a good thing for the US taxpayers who eventually have to pay back the debt?
In abstract its not. In reality its much messier. What does a Chinese bank do with $1000? Right now it has two choices:
1. Buy US goods and services.
2. Buy something else that’s sold in US dollars.
#1 is actually a positive for taxpayers in the US. #2….well what’s sold in US dollars? Well there’s real estate, stock, businesses, and such. But if you’re a Chinese bank you’re probably trying to find a home not for millions of US dollars, not even billions but tens to hundreds of billions. The only thing you can practically buy is US debt.
So with this in mind, its not exactly very clear whose children really are ‘in debt’ due to US debt.
August 5th, 2011 | 10:51 am
Boonton So with this in mind, its not exactly very clear whose children really are ‘in debt’ due to US debt.
No, it’s very clear: the children who who have to pay off the debt are children who will have to pay U.S. taxes—i.e., American children.
Why in the world do you think that China buying more of our debt does not indebt our own children? It’s not like Chinese children are going to pay our debt for us. Chinese children will most likely just buy more U.S. debt that will have to be paid off by future American children.
August 5th, 2011 | 11:05 am
For example, if a company were to take a 30 year loan out to buy printer paper, it isn’t likely that the paper will be around in 30 years when the loan has to be paid off.
Depends on the asset. Consider the Hudson tunnel that connects NJ to NY. It carries nearly 100,000 vehicles a day and was built in 1927. Are we ‘paying it off’ today or reaping fantastic benefits today because 84 years ago our forefather’s forgone other types of consumption to build it?
Its cost to build was $48M. Today it would probably cost about $10B to build it from scratch. So let’s just pretend that in 1927 it was built with 87 yr bonds and today we must pay it back. OK we, the great grandchildren, of that generation have this ‘debt’ on our back. But who are we writing the check too? We aren’t beaming dollars back in time to those who actually died building it or to the wealthy peole of the ear who brought the bonds. It’s whoever owns the bonds these days which could be a Chinese bank, your 401K, a pension fund or a dusty bond certificate in your mother’s attic. In other words, we ‘the children’ are indebt, but also in asset. Resolving the debt simply moves around consumption power today. If for some reason we decide to default on the debt then today’s children will pay $48M less in taxes and have that added consuming power….but other children of today will have $48M less because the bonds they inherited from their great grandparents are now worthless.
Oh vey. That’s not true at all. If I save $10 how does that put someone $10 in debt.
Technically if you put $10 in a zero interest checking account the bank is in debt to you. Even if the bank simply holds the money and doesn’t loan it out.
You may find it surprising, but even if you save by stashing money under a rock you can’t do so without creating a type of debt. Saving is only possible when a society produces more than it can consume in a time period. Savings cannot be done without also creating debt.
True, but the person who has to pay off the bond (i.e., our grandkids) lose consumption power. That is why it is not right to treat sovereign debt as a pyramid scheme in which we keep consuming today (in not investment activities) and passing the bill on to future generations.
It’s not right to treat it like that because it isn’t. It can’t be. Unless you have a time machine that let’s you go forward and snatch your grandkids’s video games, McDonald’s happy meals, Starbucks lattes or whatever else they will have in the future you can’t consume today on their bill. You forget that just as someone tomorrow has to loose to pay the debt, someone else has to gain to receive payment of the debt. Or if the debt is not paid, someone who would have lost doesn’t and someone who would have gained won’t.
August 5th, 2011 | 11:07 am
Brian,
I don’t think Christianity compels one ideological stance or the other. What it compels us to is to care enough to take such stances. We can argue about the best way to help the poor, but not about whether we should be helping them.
And what did they do before 1965? Perhaps you should read Michael Harrington’s “The Other America.” Think about malnutrition and and lack of medical care.
August 5th, 2011 | 11:24 am
“Yep, the beliefs of your political enemies can be explained by their sin. ” No, not their beliefs; their actions: they have mortgaged the future of younger people and of those who aren’t even born yet. Strain at all the gnats you want, this is a real crime on a vast scale, the consequences of which have yet to be fully realized (euthanasia, anyone?), but which consequences current entitlement beneficiaries have made every effort to escape, abetted by the politicians they have empowered to engineer this crime.
August 5th, 2011 | 12:21 pm
Mike,
it’s hardly straining at gnats to point out that Christ died for your crimes too, and that you and much of the Religious Right would rather talk about somebody else’s. God created in love, and you can’t understand people unless you’re willing to love them, and that includes being willing to credit them with good intentions sometimes.
August 5th, 2011 | 2:31 pm
Booton is obviously right.
Whenever the bonds mature, the bond-holders still only have two choices of what to do with the proceeds – use them to buy goods or services from the US, or buy new US bonds
Your grandchildren benefit either way, because the money they pay out in debt repayment comes straight back to them one way or the other, either as payment for goods and services or as fresh loans
August 5th, 2011 | 2:42 pm
Michael PS Booton is obviously right.
No, as any economist—whether liberal or conservative—can tell you, Boonton is obviously wrong.
Whenever the bonds mature, the bond-holders still only have two choices of what to do with the proceeds – use them to buy goods or services from the US, or buy new US bonds
That’s not their only two options. For example, if the bonds held by China mature they can reinvest that money into their own country, buy bonds from other countries, etc.
Your grandchildren benefit either way, because the money they pay out in debt repayment comes straight back to them one way or the other, either as payment for goods and services or as fresh loans
No, no, no it doesn’t. This isn’t even a conservative/liberal issue. This is simply a basic economic one.
Consider that your parent dies and leaves you with a $100,000 in credit card debt. Would you say that it was good that they left you the debt since by paying it you’ll be putting money into the economy that you’ll eventually get back? Of course not. If you didn’t have to use the money to pay off old debt you could use it for current consumption or investment. Thinking that you benefit from spending money on old debt is a variation of the broken-windows fallacy.
But let’s look at the sentence you wrote. You say that the “grandchildren benefit” if they pay off a (old) debt that is then turned into a “fresh loan” (new debt). How is that a benefit? If I pay off a $10,000 loan and then turn around and take out another $10,000 loan I am not better off than when I started. In fact, I could be worse off if the interest rate on the new loan is higher.
August 5th, 2011 | 3:01 pm
indebt our own children? It’s not like Chinese children are going to pay our debt for us. Chinese children will most likely just buy more U.S. debt that will have to be paid off by future American children.
Leaving aside the fact that this is actually a pretty nifty deal….we consume more, our children consume more, etc. etc. all because Chinese inexplicable would rather work to give us products than enjoy them themselves!
But let me ask a more subtle question. Where’s your current debt burden? I mean the US has made massive expenditures in the past. Examples: World War I, II, Korea, the Space Program, the Cold War, Vietnam, the buildup under Reagan etc. Yet never has anyone really said “gee taxes are high because we have to pay off X” where X was something that happened even just 5 years ago. For example, when in the 1950′s can you point to some horrible tax burden being imposed to pay off WWII’s debts?
Yet look at this chart http://www.usgovernmentspending.com/federal_debt_chart.html
From 1940 till the end of WWII debt jumped from maybe 50% to over 125% of GDP….then it fell dramatically since then. But the 50′s are recalled as a period of relative prosperity…not the era of ‘the great repayment’. Odd isn’t it?
The answer is that the debt of WWII was an accounting fiction. We ‘paid for’ WWII not in the years after WWII but in WWII itself. Instead of building new cars, GM and Ford built jeeps and tanks. Instead of starting the Interstate highway system 20 years early, the US built aircraft carriers. Instead of having thousands of researchers spread out among numerous tiny industries, they were grouped together to crack codes and build the first atomic bomb.
The accounting debt rearranged consumption after the war. Families that brought a lot of war bonds during the war had more consumption possibilities in, say, 1960, than those that didn’t. But relatively speaking the WWII debt in 1960 was simply not a big deal because everyone’s economy was larger. Yes the family that stocked up on war bonds in 1943 could cash them in in 1957…..but there was plenty of economy to go around in 1957 so its not like ‘war bond hoarders’ lived in castles while everyone else had to live like serfs to ‘pay off the debt’.
What isn’t said in the debate about debt is that the only real ‘debt problem’ exists entirely in the future and nowhere else. If projections of expenses follow their projected path and so does revenue, then we will have a serious problem….or our children will….but here’s the thing, our debt today is totally irrelevant to it. If tomorrow the national debt was paid off but the projections all turn out to be right and not changed, we’d still veer off for diaster. This is often missed because one sees something like ‘X% of GDP today….X+3% of GDP in 2040′….which gives the misleading impression that 1% of today is 1% of tomorrow. A projected deficit of 5% of GDP in 2030 is simply a huge number relative to debt today.
August 5th, 2011 | 3:20 pm
“Michael PS Booton is obviously right.”
Good grief. Shouldn’t somebody tell the Greeks, the Irish, the Spanish, the Italians, the Portugese, etc., about this new breakthrough in economic theory? Apparently, they think this whole debt thing is a big deal.
August 5th, 2011 | 3:34 pm
Boonton Leaving aside the fact that this is actually a pretty nifty deal….we consume more, our children consume more, etc. etc. all because Chinese inexplicable would rather work to give us products than enjoy them themselves!
You don’t seem to grasp the fact that a “debt” is money that eventually has to be paid. It is a “pretty nifty deal” to use a credit card to get more consumption than I can currently afford today. But eventually that money has to be paid back.
But let me ask a more subtle question. Where’s your current debt burden?
About 20% of income taxes is used to pay on the interest of our debt. We aren’t even paying down the principle.
I mean the US has made massive expenditures in the past.
Yes, that’s why our national debt is $14.5 trillion dollars. That’s 14.5 million billion dollars that we owe.
Yet never has anyone really said “gee taxes are high because we have to pay off X” where X was something that happened even just 5 years ago.
Apparently, you’ve never heard of the Tea Party. That is pretty much exactly what they’ve been screaming about for the past few years.
For example, when in the 1950′s can you point to some horrible tax burden being imposed to pay off WWII’s debts?
You can’t, because the taxes were never raised high enough to cover the debt.
From 1940 till the end of WWII debt jumped from maybe 50% to over 125% of GDP….then it fell dramatically since then. But the 50′s are recalled as a period of relative prosperity…not the era of ‘the great repayment’. Odd isn’t it?
No, it isn’t odd. You really don’t understand this debt stuff, do you? I’m not being rude, it’s just apparent that you are unclear on what these basic terms mean.
The debt to GDP ratio means how much money did we owe in a given year compared to how much money the country made (GDP). If the debt to GDP is 50%, then it means we borrowed half as much money as we made. But here’s the deal: We didn’t pay that money off! It was rolled over into the future. The era of “relative prosperity” occurred because we were doing the equivalent as a nation to a family living off their credit cards. We’ve never even begun to pay on the principal of our debt, much less paid 50% of it in any given year.
The answer is that the debt of WWII was an accounting fiction. We ‘paid for’ WWII not in the years after WWII but in WWII itself.
Good grief, this is really frustrating. I know you like to play the contrarian and if I say “white” you say “black.” But you’re just making yourself look silly making claims that are so obviously absurd. We have a $14.5 trillion debt. When did that happen? Look at the chart you provided. Notice that we didn’t “pay for” WWII in the years after because the debt we accumulated in WWIIhas never been paid off.
What isn’t said in the debate about debt is that the only real ‘debt problem’ exists entirely in the future and nowhere else.
You’re going to make my head explode. You know why the debt problem only exists in the future and nowhere else? Because we have no possible way to even begin paying down the debt. During FY 2010, the federal government collected approximately $2.16 trillion in tax revenue. If every single dollar went toward the debt it would still take us almost 8 years to pay it off. That is why the problem “exists entirely in the future.” We have no means in the present to even address the yearly deficits, much less the national debt.
August 5th, 2011 | 4:28 pm
You don’t seem to grasp the fact that a “debt” is money that eventually has to be paid. It is a “pretty nifty deal” to use a credit card to get more consumption than I can currently afford today. But eventually that money has to be paid back.
I think it is misleading to compare government debt to credit-card debt, and it is misleading to compare a country to a family. Governments and businesses can invest borrowed money and achieve growth. We all admire a small businessman who runs into a rough patch, invests as much as he can in the business, including his life’s savings and a second mortgage on his house, and turns the business around. He is able (if he succeeds) to grow the business to the point where he can repay the debt in full and be very successful. If you are a government or a business, and you see an opportunity to borrow money cheaply to achieve growth, you are foolish not to. The fact that so many people are now willing to lend the United States huge sums of money for record-low interest rates indicates that they have plenty of confidence in getting paid back. Why are we so afraid we won’t be able to pay back debt? We need the government to invest money right now to spur economic growth. It is very cheap to borrow the money. It is foolish not to borrow it.
August 5th, 2011 | 5:01 pm
David Nickol Governments and businesses can invest borrowed money and achieve growth.
In theory, maybe. In reality, it rarely happens like that despite the faith of that liberals have in Keynesianism.
If you are a government or a business, and you see an opportunity to borrow money cheaply to achieve growth, you are foolish not to.
History shows that when a the debt to GDP ratio gets above 90% the country is in trouble. America is rich enough that we can run it up a bit higher. But we can sustain high levels of debt. We don’t have an exemption from the laws of economic reality.
The fact that so many people are now willing to lend the United States huge sums of money for record-low interest rates indicates that they have plenty of confidence in getting paid back.
For now, yes. But when do we plan to start paying down our debt? We can’t even agree to stop spending more than we take in, much less start paying down our back debt.
No one is saying that the economic apocalypse is happening tomorrow. But we can’t keep borrowing money at the same rate we do now for much longer. When even the liberal economists are admitting that it’s a problem you know its time to start worrying.
Why are we so afraid we won’t be able to pay back debt?
I’m not saying that you are afraid that we won’t pay back our debt. Like most Americans you’ll probably be dead (or at least really old) when the crisis comes. The ones that should be worried are our children. The reason they should be afraid is because in the last sixty years we haven’t even begun paying down our debt. We are barely just making payments on the interest.
We need the government to invest money right now to spur economic growth.
The government tried that. It didn’t work.
It is very cheap to borrow the money. It is foolish not to borrow it.
Is it really cheap to borrow money? No. Sure, it would be cheap if the interest rate didn’t go up before we paid it off. But the interest will increase much more before we ever even think about paying the debt. Again, this is a point that even liberals admit (see Ezra Klein’s blog today).
The reality is that we can’t spend our way out of a hole that was created partially by overspending in the first place.
August 5th, 2011 | 6:13 pm
“Governments and businesses can invest borrowed money and achieve growth.”
Government “growth “means nothing but more people on the public payroll, which means more tax money being siphoned into government payrolls. Businesses create prosperity, not the government.
“We need the government to invest money right now to spur economic growth.”
NO!!!!!!!!
August 6th, 2011 | 2:20 am
Look, no offense but you guys argue a lot of things from an ivory tower. Articles like that treat the poor as some rare endangered animal. Maybe one of Dian Fossey’s gorillas, who need to be protected and managed. Here’s a thought experiment. Take your current job, and imagine if they paid you $10 an hour. Do your budget based on that, with all current expenses. Then do it trying to find something that balances in the area where you live.
I guarantee you will worry less about “protecting you from the programs” and more about how can I survive? There’s a lot of fine economic theory ultimately centered around the middle class and up and their desire to not be taxed into oblivion, and very little about what the poor actually need. I think people need to be reminded of it, and factor that in to what programs are effective or needed too.
August 6th, 2011 | 5:39 am
The composition error here comes from bad reasoning by analogy….treating the economy or even the gov’t as though it was a single family or bank account leads to faulty conclusions.
Debt and savings are created on a one to one basis (although they may not equal in popular terms since we give different labels to different types of debt and different types of savings). You can’t have one without the other. Likewise debts ‘burden’ on the future becomes highly questionable.
To risk an analogy. If your son’s football coach gave his team a talk where he notes they won half of last years games but lost the other half and as a result have to do much better this year….you’d say quite sensible. If the director of the league announced that last year there were 50 games with 25 teams winning and 25 losing therefore the league needs to have more winning teams in order to give the fans what they want….you’d say he was a fool.
August 6th, 2011 | 2:07 pm
“That’s not their only two options. For example, if the bonds held by China mature they can reinvest that money into their own country, buy bonds from other countries, etc.”
Of course, the money may pass through a number of hands, before it returns to the only place that US Dollars can be spent or invested – the United States. That, of course, applies to both the capital and interest on the loans
The only reason the Greeks, the Irish, the Spanish, the Italians, the Portugese, &c have to worry is that they are paying in a currency they do not issue and control, that can be spent anywhere in the Eurozone. In their case, there is no guarantee the Euros they pay back will be spent or invested in Greece. In other words, they do not have the option of devaluation.
August 6th, 2011 | 3:04 pm
“Governments and businesses can invest borrowed money and achieve growth.”
Brian English,
I think it is important to try to separate ideology from economics. When I said the above, I wasn’t perfectly clear. I meant to say government spending of borrowed money can cause economic growth. (It may, or may not, cause the government to grow.) Obviously the government spending must be wisely done and correctly targeted. But is there anyone who seriously doubts that when businesses are not hiring, consumers are not spending, and unemployment is high, government spending cannot, at least in part, make the situation better?
The question at the moment is what to do now. It is not whether it is wrong for government to borrow and spend money. All governments, at every level, borrow and spend money and later repay the lenders. When Sarah Palin as mayor of Wasilla built a sports complex, she didn’t pay cash for it. Wasilla had a $20 million annual budget, and to finance the sports center (in addition to increasing sales taxes) Palin sought and received authority for a $14.7 million bond issue. In other words, in a city with an annual budget of $20 million, she borrowed and spent $14.7 million dollars. Is there anyone who seriously argues that municipal bonds are immoral?
Few Republicans objected when Reagan and Bush ran up the national debt to unprecedented levels. Obviously something must be done about long-term debt in the United States, but the answer is not for government never to borrow money or run deficits again. As I have argued before, I don’t think it is valid to equate family spending with government spending, but the typical family is perfectly willing to take out a mortgage and be in debt for 15 to 30 years for the sake of owning a house. Borrowing money to invest wisely is a fundamental aspect of sound economic activity.
August 6th, 2011 | 4:02 pm
“But is there anyone who seriously doubts that when businesses are not hiring, consumers are not spending, and unemployment is high, government spending cannot, at least in part, make the situation better?”
Yes, there are money people who seriously doubt that. What type of government spending do you think could make the situation better?
“Is there anyone who seriously argues that municipal bonds are immoral?”
It depends upon the financial status of the municipality and what the bonds are being issued for.
“Few Republicans objected when Reagan and Bush ran up the national debt to unprecedented levels.”
You can’t lump Reagan with Bush. Reagan had been promised spending cuts by Tip O’Neil that never happened.
As far as Bush goes, there were many Republicans outside of government who complained about his economic approach, and especially his unpaid for prescription drug entitlement. I know people are shocked by this, but many conservatives do not consider Bush to actually be a conservative.
“Borrowing money to invest wisely is a fundamental aspect of sound economic activity.”
Exactly, but borrowing money to pay-off political supporters and to fund entitlement Ponzi schemes is not a wise investment.
August 6th, 2011 | 4:44 pm
Where are those who decry government funding luxury programs and projects while the poor are left wanting? Nowhere to be found.
Example: California has spent $18 billion (with a “b”) on five water bonds that have been squandered on most open space acquisitions and landscaping in wealthy residential areas to buy votes from elite constituencies. Meanwhile the state Unemployment Insurance Fund is broke and Medi-Cal and family welfare have had to be cut back because the state does not have the money in its general fund to pay for them at previous levels. If the debt payments on the bonds for the luxury items (water and open space bonds, bonds for “luxury” affordable housing, and redundant stem cell research) was freed up, California would have the money to pay for its unemployed, medically needy, and needy families. But we never hear even as much as a peep from so-called “protectors” for the poor about how luxury public goods have crowded out essential welfare programs.
Read: http://www.calwatchdog.com/2010/12/14/ca-budget-filled-with-luxury-items/
August 6th, 2011 | 7:47 pm
Yes, there are money people who seriously doubt that. What type of government spending do you think could make the situation better?
There are those who doubt it but they do not deserve to be use the adverb ‘seriously’ unless they have a coherent explanation for why more spending doesn’t help resolve a period of insufficient spending, which is what this is.
In the meantime austerity and tight money in the face of a recession is failing everywhere it is tried around the globe.
You can’t lump Reagan with Bush. Reagan had been promised spending cuts by Tip O’Neil that never happened.
Yea ok.
August 6th, 2011 | 11:06 pm
I think it is misleading to compare government debt to credit-card debt, and it is misleading to compare a country to a family
I don’t.
(A family could borrow to achieve growth, too. Ultimately the problem remains the same: when the interest starts costing more than the borrowing entity can afford, a crisis ensues. And bankruptcy has consequences.)
Where are those who decry government funding luxury programs and projects while the poor are left wanting? Nowhere to be found.
The poor in America are not left wanting.
They are given money and services to cover their food, housing, medical costs, and more.
We need to reform poverty relief in America. Specifically: we need to stop giving things away for free, and instead we need to demand reciprocity.
The idea of the “safety net” was not supposed to mean a permanent underclass or a lifetime of free handouts. Freedom means being responsible for our own choices and our own condition. The freebies we are giving out are not “free”; we are giving them material goods but demanding they cripple themselves spiritually and psychologically as a precondition of receiving aid.
The safety net must be returned to what it was originally meant to be: a safeguard, to be used in time of crisis, not relied on permanently.
The poor are human beings, capable of achieving great things. They will be able to care for themselves once we stop enacting policies that punish initiative, break up families*, and demand passivity.
*families, btw, are linked to success – and their absence is linked to poverty. People with strong families or family-like networks are more likely to weather a crisis without falling down so low that one cannot get up again, and are more likely to have the sorts of opportunities needed to flourish. Government policies that discourage strong family ties in favor of fostering dependence on the government should not be viewed as “helping” the poor, but as exploiting them.
August 7th, 2011 | 5:41 am
Blake
Unlike a family, a government, unless it is locked into a monetary union, like the PIGS countries, can always create the money to pay its debts: for every one of its own interest-bearing bonds it purchases, it can issue the same number of bank notes, which are non-interest bearing.
A glance at the weekly reports of the Issue Department of the bank of England will show you precisely how this “quantitative easing” works: the Bank has increased its holding of government bonds and the note issue in tandem. This means, amongst other things, that foreign holders of government debt are being paid back in a depreciated currency. The currency is backed by the bonds and the government can issue both in unlimited quantities
August 7th, 2011 | 8:00 am
“There are those who doubt it but they do not deserve to be use the adverb ‘seriously’ unless they have a coherent explanation for why more spending doesn’t help resolve a period of insufficient spending, which is what this is.”
Individuals and businesses are not spending because of government spending, which they expect will eventually translate into higher taxes. Businesses are also not spending because of concerns about Obamacare and general regulation.
Beyond those factors, business executives, even Obama supporters like Steve Wynn and Dan Loeb, have reached the conclusion that this president has no idea what he is doing.
“In the meantime austerity and tight money in the face of a recession is failing everywhere it is tried around the globe.”
Rioting by the beneficiaries of absurd government benefit programs does not equal failure. You really think countries like Ireland, Greece, Italy and Portugal should be spending even more? I have a feeling the Germans are not going to go along with that.
“Yea ok.”
Come on; this was just discussed in various places recently because Obama was touting Reagan as an example of a president who raised taxes. Obama conveniently left out the spending cuts aspect.
Why is this so hard to believe when all sepnding bills have to originate in the House of Representatives and the president does not have a line item veto?
August 7th, 2011 | 9:27 am
History shows that when a the debt to GDP ratio gets above 90% the country is in trouble. America is rich enough that we can run it up a bit higher. But we can sustain high levels of debt. We don’t have an exemption from the laws of economic reality.
Japan is near 150%. The ratio shot near 150% after WWII yet the 1950′s were much more pleasent economically than the 1930′s, when we enjoyed a much lower ratio.
More importantly Joe, as you say we never paid off WWII yet the ratio dropped dramatically after it. A ratio is made up of a numerator and a denominator and both play a role. The best thing for the debt ratio would be a return to full employment as soon as possible.
Like most Americans you’ll probably be dead (or at least really old) when the crisis comes. The ones that should be worried are our children. The reason they should be afraid is because in the last sixty years we haven’t even begun paying down our debt.
Let’s make a note of this next time the subject of global warming comes up. WWII, not paid no crises. Korea, not paid no crises. Vietnam, not paid, no crises. Apollo Program, not paid, no crises. 80′s military build up, not paid no crises. In fact, technically even WWI has yet to be paid off I believe. But don’t worry the crises is coming so we must act in damaging ways right now. There’s termites in the house that will harm the foundation so you must let me take an axe to your center beam now!
Is it really cheap to borrow money? No. Sure, it would be cheap if the interest rate didn’t go up before we paid it off. But the interest will increase much more before we ever even think about paying the debt.
Not much of an insight given that the current short term rate is effectively 0%. Going out three years you can barely get 1/2 of a percent. Ten years is at 2.5%. Even 30 years is 3.8% The long term rates are the sum of what the market thinks short term rates will be over time. In other words if you kept buying 1 yr debt and rolling it over each year for 30 years, you should roughly make the same interest as if you brought a 30 year bond and held it for 30 years without any rolling over.
Interest rates probably will go up in the future, because it isn’t so easy for them to go down when they are near zero. There is probably no more stunning example of how manufactured this crises is than that. The best analogy I’ve heard is that this is akin to lecturing Noah that his messy house is a fire hazzard that he should address before finishing that silly ark.
August 7th, 2011 | 1:37 pm
Blake
Unlike a family, a government, unless it is locked into a monetary union, like the PIGS countries, can always create the money to pay its debts: for every one of its own interest-bearing bonds it purchases, it can issue the same number of bank notes, which are non-interest bearing.
http://en.wikipedia.org/wiki/Hyperinflation
August 7th, 2011 | 8:59 pm
That demonstrates a policy taken to extremes can kill. Yes its true, if you eat four pounds of aspirin you will probably end up doing a lot of damage. Logically, though, that tells you nothing about an aspirin a day.
The PIGS countries are indeed in trouble because they are locked in a currency union. Without the Euro they would issue their own currency and it would drop. When their currency drops their goods would become relatively cheaper thereby allowing their exports to increase. Their consumption would also fall, people forget but the flip side of the ‘more exports coin’ is that a country that exports more is essentially working harder to enjoy less consumption. Thereby allowing themselves to resolve their debt problems by lower costs and boosting income.
Ireland, Spain, Greece etc. are locked in a union with Germany and France whose economies are near full employment, though. They are like a kid with a severe sugar deficiency living in a family full of diabetics. A mismatch that can be fatal if the decision makers in the family don’t see the issue.
August 8th, 2011 | 3:12 am
Booton
Japan’s situation is slightly different, because so much of the government debt is held internally,by its own financial institutions, which makes it even easier to manage – but the underlying principles are the same
August 8th, 2011 | 11:37 am
One of the criticisms of the stimulus package was that it ‘didn’t work’ because people who got tax cuts opted to save the additional funds rather tahn spend them. This was a bit overblown but it does reveal the double sided nature of national debt.
If gov’t borrows $100 from the bond market and gives it to Joe…and Joe saves it then what has happened? Basically nothing has happened. But the gov’t is now $100 more in debt, horrors! Yea, so what? Well taxes may go up in ten years to pay that debt? Ok so what? If Joe’s taxes go up $100 but the gov’t sends him a check on his maturing $100 bond….well again nothing has happened.
So now we are watching the markets crash over this manufactured ‘debt crises’ and what is happening to US debt?
http://finance.yahoo.com/echarts?s=%5ETNX+Interactive#chart1:symbol=^tnx;range=5d;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
Our ‘downgraded’ interest rate has fallen from 2.55% to about 2.40%. I even drove into work late this morning listening to pundits actually utter that the markets were ‘unhappy’ with our debt and were showing it by ‘panicing’ and ‘buying more gov’t debt’. I sigh not because the world is insane but because so many people actually speak as if this wasn’t insane at all. When you achieve a certain level of incoherence you should pack it in and admit that just maybe your ‘model’ of reality needs a bit of fine tuning.
August 8th, 2011 | 2:03 pm
Anyway, let’s return to my question:
Where is the debt burden for WWII? It has not been paid off yet multiple generations have gone by and at no period can anyone really identify anyone saying “gee taxes are high now, growth is lownow, unemployment is high now, etc.” because that debt from WWII was so big or so unpaid. Why not? Where did it go?
Next big question, consider the scope of what WWII entailed economically. Retooling almost the entire industrial base of the economy….pulling 1 out of every 6 workers from the labor force into the armed forced…building an entire secret city in the desert to work on the atomic bomb…if the borrowed money to do all this didn’t hurt us then are you seriously going to say….ohhh, say the $700B or so borrowed for the stimulus can hurt? That resurfacing some roads and giving some people a little bit less payroll tax and 9% unemployed a little bit more food stamps and unemployment benefits was the fucntional equilivant of D-Day?
August 11th, 2011 | 2:13 pm
Blake,
Hyperinflation can happen if the monetary authority prints money at very high rates. But there is no default on it’s debt (yes, the debt may not be worth anything, but because of inflation – the debtor is completely current on the payments). Two different issues.
To have hyperinflation in the US, let’s say 50% a year, the Treasury would need to be adding 5 trillion dollars a year into the money supply (current money supply is in the 10 trillion range). The federal government’s entire interest payments run about $400 billion a year now.
So, to get hyperinflation of 50%, the federal government would need to borrow more than 10 times the amount it’s borrowing right now.
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