Matthew J. Franck
Robert P. George
William J. Haun
David T. Koyzis
Robert T. Miller
James R. Rogers
Russell E. Saltzman
(Via: Take Your Vitamin Z)
Amusing, was that the guy who played Max Headroom back in the 80′s?
Anyway, at first I thought this is a good example of the fallacy of composition but in reality I think its merely an example of fallacy by false analogy.
The little girl clearly will deal with her father’s crushing debt when she is an adult. Yet in reality for a nation the debts we incur now are a trivial burden for our children. To the degree there is a real debt problem its a real future debt problem. In other words, the little girl won’t suffer so much from the $127,000 debt she is signing as a kid but will suffer when she borrows $5 Million in 30 years to put her father in a nursing home. If that was in the pipeline, the debt incurred today would be totally irrelevant.
To see this in real life ask yourself where exactly is the burden we are dealing with today for the debts incurred for WWII? Korea? The moon landing? Vietnam? I mean since the debt was never zeroed out they must be there in some manner. So why aren’t they crushing us? If tomorrow the Federal debt was reduced by the amount borrowed in WWII, it would hardly be noticed and would be much smaller than, say, the debt incurred by the Iraq War….yet the Iraq War entailed using fewer people and a smaller portion of the economy than WWII… Try to figure out those paradoxes and you’ll see the problems that come from reasoning by analogy to an individual family or person’s or even large business’s budget.
This is a great video. But it’s kind of an easy one to make, isn’t it? Anybody can say debt is bad. Saying how to pay it off is a little harder.
That means telling people they’re going to get less in government benefits than they want to get. Most people will have to accept a less comfortable retirement than they want, less health-care than rich people can afford, less prestigious schools for their kids, smaller house, fewer vacations, longer hours for lower wages at a more boring, exhausting job.
Then you ask them to vote for you. Meanwhile, one click of the remote away, some other guy is telling them they can have everything they want if we just tax the rich and/or abolish welfare to the poor and/or eliminate waste and fraud.
So they vote for the other guy. And the debt keeps sky-rocketing.
“If tomorrow the Federal debt was reduced by the amount borrowed in WWII, it would hardly be noticed and would be much smaller than, say, the debt incurred by the Iraq War.”
That is because (1) the economy (GDP/tax base) grew a lot in the last sixty years and (2) there has been a lot of inflation.
GDP is not likely to grow again like it did in those years. And inflation is destabilizing and irresponsible. This is not a Great Recession; this is the new normal.
We seem to have no perspective regarding the debt which has become not just a ‘debt’ but a millstone that will sink us.
The US Treasury says that 1 million dollars in 100 dollar bills weighs about 22 pounds. That is carry-on luggage.
1 Trillion dollars in those same bills? We are asking our children to “carry-on” 22 MILLION pounds.
The followers of “modern monetary theory” (MMT) think that analogies to a household debt are misplaced because the government just creates money by spending it. “Fiat money.”
I think the only thing that’s going to convince them out of their spending ways is a complete crash.
What debt critics refuse to say, most of the time, is that the analogy of this video is exactly backward. The ‘problem’ is not that the little girl is signing on for $100K+ of debt today to finance her dad’s family vacations, it’s that she’s projected to be signing for $3M in debt 30 years from now to pay for her dad’s nursing home care. If that was the case, $100K of debt today is meaningless. Even if she were to force her dad to immediately cease all new borrowing and pay off the $100K or so owed, that would barely make a dent in the $3M in debt coming in the future.
Read deeper into debt critics and you’ll notice this fact too. Just say for the fun of it that for the next 4 years the budget was magically balanced. It would make no difference, borrowing 5% of future GDP is such a huge nominal figure that balancing today’s deficit does nothing against it.
True there was a lot of inflation since WWII, but even if you backed up to say 1969, before most inflation hit, the WWII debt burden was not great and was rather trivial compared to moon landing debt or Vietnam debt of that age.
GDP is not likely to grow again like it did in those years. And inflation is destabilizing and irresponsible.
Rapid GDP growth isn’t necessary, only positive real GDP growth and there’s really no reason to think that has suddenly ceased being ‘normal’.
Just to illustrate how getting the analogy right can make a huge difference, just suppose the crises is $3M projected to need to be borrowed in 30 years rather than $150K today.
If that was the case, would it make sense for the father to decline to borrow $150K today to send his daughter to college and then medical school? That would be penny wise and pound foolish as the $150K today would not grow in a savings account to $3M that quickly and if his daughter became a doctor her lifetime income would likely rise by a few million. while that wouldn’t make borrowing $3M a light thing to do, it would make it at least somewhat manageable.
1 Trillion dollars in those same bills? We are asking our children to “carry-on” 22 MILLION pounds.
Are we suffering a shortage of paper and ink? Most money does not even exist as paper but as account balances. I would say that’s something new in this age of computers and the internet but its not, it was probably even true when the US was on the gold standard in the 1920′s.
OK, I agree that nursing home care is prohibitively expensive, rapidly increasing, and likely to swamp us all. So, what do you want to do about it? Euthanize the old people? Maybe we can use a euphemism for euthanasia, for example, by designating some care too expensive for public reimbursement?
Curing expensive last act diseases like Alzheimer’s in that little girl’s lifetime is probably going to be impossible. Maybe we can develop robots to provide a lot of the care for the demented?
Here’s what will help: universal, mandatory, daily, national calisthenics, like in 1984 plus outlaw refined sugar and dairy products. Healthy people tend to go a lot faster and less gruesomely than unhealthy people. Good luck getting that through Congress, though.
I think growth is doomed to slow because as a population, we are just a lot dumber than previous generations. (You and I, obviously, are exceptions.) Every time somebody tunes in to a reality TV show in America, more smart investment heads off to Asia. People are dumb; money isn’t.
1. As simple satire or slapstick, the video is fine. But if it’s intended to be used as an exercise in reasoning by analogy, then we have to look at the primary reason why reasoning-by-analogy fails. Namely the difference between the analogy and the real life case you’re trying to think about. Examples of pretty serious differences:
– In the analogy the debt limit is imposed by creditors, like your credit card limit. In real life creditors are very happy to ‘increase our limit’ and the debt limit is a self imposed legal creature not from external creditors but from our own political system.
– In the analogy, the burden is the current debt and what’s about to be added to it in order to fund the father’s lifestyle. In real life the current debt is not a burden and will shrink in burdensomeness (i.e. where is the ‘burden’ from WWII’s national debt? or the first Gulf War for that matter?)
– In the analogy, the father’s income is independent of his spending and debt. His decision to take a trip to the Bahamas, for example, doesn’t cause him to get a job offer from a travel agency and hence earn more income. In real life, gov’t spending is an integral part of the economy. We see this in Europe were round after round of ‘austerity’ fails as tax revenues drop faster than spending cuts thereby short circuiting attempts to control debt. In the analogy, though, the father cutting back his spending won’t cause him to get his hours cut on his job!
If your analogy has serious differences with real life, then your attempt to reason by analogy will almost certainly fail. In fact, I think most attempts to apply ‘reasoning by analogy’ end up failing. The only examples I can think of off hand that sometimes work is testing drugs on animals, and even then many fail. Joe wrote the book on logic so he can correct me if I’m wrong, but reasoning by analogy is highly untrustworthy in most cases I believe.
2. Interesting factoid, typical phone bill in 1969 was about $4 a month which is about $25 in today’s money. Yet today many of us spend nearly $200 on phones per month (toss in your home phone, cell phones….consider most families have multiple cell phones as opposed to one house phone). So in real terms we are spending 8 times as much on phones. If you time travelled back to 1969 and told a person “In 2011 you’ll spend 8 times more for phone service”, he might sigh and wonder where the money will ever come from. Good question, where did the money come from?
- Some came from not spending on certain things. We buy fewer records these days. Typewriters out. Carbon paper, 8-Tracks and so on. We don’t notice that we aren’t spending on those things anymore because we have substitutes that seem better than the original.
- Some came from additional income. Again you don’t even notice it but look at all the cell phone stores, the sections of electronics departments devoted to cell phones….all that is people working, making money, in phones that they weren’t in 1969 when just a handful worked ‘for the phone company’. Likewise there’s indirect income from phones. People using phones to do business in ways they couldn’t, people using phones to coordinate themselves and so on. All of that is additional income which happens when we shift our spending. All money spent is also money earned. Shifting from, say, typewriters to cell phones, means income shifts from typewriters to cell phones.
So with all this in mind….let me say this in reply to you. Part of the problem will be solved by income expanding into the health sector. Most of us see today more and more jobs opening in health care which is like ‘nursing homes’. As spending shifts in that direction, income does too. So I don’t think there’s any need to euthanize old people or engage in 1984ish “mandatory, daily, national calisthenics” programs.
I also think the debt projections are suffering from an error. One way to forecast is to simply take the last 5, 10, 20 years and average its growth rate and assume that will be its growth rate for the next 5, 10 to 20 years. OK so economic growth which tracks to tax revenue has been a certain percentage for the last so many years so let’s assume it will be like that going forward. Likewise, the cost of medicine has been going up at this rate for so many years and we put that together with the fact that people will get older at a certain rate for the next so many years and we have projected spending on Medicare…..and other health programs….
Problem, the whole has to be the sum of the parts. If you take something that’s been growing faster than the whole economy in the past and assume it will continue to do that in the future, then at a certain point you’re going to run into trouble. The thing that’s a part of the whole, growing faster than the whole, will start taking up more and more of the whole…..in other words its going to start becoming the whole. If its going to continue growing fast, then the whole itself has to start growing faster. If health care is going to keep growing faster than the rest of the economy, then the economy itself has to start growing faster at some point….or health care will slow down.
Every time somebody tunes in to a reality TV show in America, more smart investment heads off to Asia. People are dumb; money isn’t.
I think this is a bit too overboard. There’s plenty of dumb in Asia and if you go to Japan you’ll see as insipid and stupid TV programs as anything you’ll find in the US. Investment is positive in the Asia because, well they have little or nothing (yes China has huge cities, but most of the country is poor and agricultural just getting around to have electricity 24-7). High marginal returns, that’s all.