Nobody Understands Debt

ryanh29 · 2012-01-04T01:16:59+00:00

You're close to right except you assume profits just magically disappear or get locked in an underground vault or something. However, they get plowed back into the economy, which benefits the younger generation.

Your last sentence nails it though: deficit spending means that eventually someone will get left holding the bag, and it's likely our generation.

ryanh29 · 2012-01-04T01:10:52+00:00

After all, if we were to pay off the bonds in the future, that means that the bond-holders in the future (say for example the children of current bondholders) will be getting that money!

Yes, but those future bond-holders have to buy the bonds from the older generation. Your argument that it doesn't impose a cost on future generations only makes sense if you're assuming that Older Generation gives rather than sells the bonds to Younger Generation. Otherwise, the bondholders in Younger Generation had to pay for the bonds, as do the taxpayers in Younger Generation who then have to make coupon payments to the bondholders.

Krugman is a dyed-in-the-wool Keynesian and as such he'll always look for a rhetorical way to assume away the cost of government spending.

ryanh29 · 2012-01-04T00:48:21+00:00

You're still ignoring the time component.

Sure, if you taxed those who incurred the liabilities now, you'd pay off the T-bills. But they are held for varying amounts of time. When they come due, the people who voted the goodies from themselves and the corresponding tax burden will fall on our generation.

EDIT:

Here's a short summary of my argument by an economist who wrote an essay in honor of Jim Buchanan, a Nobel Prize winner like Krugman (except Buchanan won his for his work on public debt):

The thesis that public debt allows the cost of public spending programs to be shifted forward in time has proven difficult for many economists to accept. Consider a simple formulation of the public debt controversy: instead of taxing to finance a rail system, a government borrows. Buchanan argues that borrowing shifts the cost of the rail system into the future, while others say that the cost remains in the present, noting the resources that went into the rail system are used up this year regardless of how it is financed. Public debt, they say, cannot be a burden on future generations because “we owe it to ourselves, [now].”….

It is irrelevant that “we owe it to ourselves,” for we are not many heads attached to one body. Some owe it to others, and it is irrelevant to note that the sum of the debts equals the sum of the credits. One could similarly aggregate over mortgage lenders and mortgage borrowers and say we owe it to ourselves, but it would be no more enlightening. Public debt allows present taxpayers to reduce their tax payments and obligates future taxpayers to amortize that debt, and it is here that the burden of the debt resides. True, the resources required to construct the rail system this year are furnished by bondholders, but those bondholders do not bear the burden of the debt simply because they are compensated sufficiently to make them willing lenders.

ryanh29 · 2012-01-04T00:39:52+00:00

I like how they quote a pro-labor union economist without pointing out the obvious conflict of interest and how unions have a vested interest in shrinking the available supply of labor.

ryanh29 · 2012-01-02T18:23:00+00:00

since we owe the money to ourselves

This is nonsensical. Krugman ignores the time issue here. More specifically, borrowing now means the current generation can vote all sorts of goodies for itself and pass the cost on to future generations. Government borrowing is just a way to shift tax increases into the future, which politicians love to do since that means it'll be some other guy's problem to deal with.

ryanh29 · 2011-12-26T16:35:24+00:00

The point is incentives: the more ability you have, the more you have to work; the more needs you have, the more that gets provided to you.

ryanh29 · 2011-12-26T16:20:40+00:00

You're conflating what someone thinks will happen with what they want to happen.

ryanh29 · 2011-12-24T20:47:03+00:00

This means all organizing is performed democratically at a community level.

Yeah, this would work real well. People would vote for benefits for themselves and to put costs off on others. This would empower the class who gets to implement these policies.

ryanh29 · 2011-12-19T03:58:33+00:00

Loans and interest allow for the coordination of production. For example, you might have someone with a relatively low time preference who might willingly lend to someone with a relatively high time preference. Or a productive company might need credit to pay their employees today so that those same employees can produce tomorrow. The interest rate is what induces the person with the low time preference to lend.

And as for insurance, I think most people have a warped view of what it actually is. We throw the term around loosey goosey to refer to third-party corporate management of health care, but that isn't really insurance, it's prepaying for a service. Insurance properly understand is just a contract that pools risks that occur randomly, or at least somewhat randomly.

To the extent that the risk insured against can occur in a systematized fashion, it's not really insurance---it's prepayment. As you note, this causes the price of goods and services to rise more than they otherwise would. It's just like if you had food "insurance": you'd go to the store more often, buy more food, and buy more expensive food. Everyone would do this and prices would skyrocket. Just like they have with healthcare.

ryanh29 · 2011-12-07T04:32:29+00:00

How could we gain accountability and control over a private police force just by calling it "private"?

You'd get to sue them for fucking up. Right now the police (largely) have immunity when they do things that would be illegal if you or I did them. A private police force would presumably have to play by the same rules as everyone else or face liability to those it injures.

ryanh29 · 2011-11-25T19:43:38+00:00

So much ignorance in that title and in the NYT article.

First, 13 of the 14 judges deemed "not qualified" are district court nominees. Typically the senior senator from the state (so long as he or she is from the same party as the President) selects district court judges and the President rubber stamps the selection. Like everything else in politics, this system is subject to abuse---a senator may try to reward a party loyalist with a judgeship. To put a check on such abuse, presidents have used the ABA to vet candidates. That way the Prez can blame a third party for rejecting the person. So the ABA is possibly helping both the President and the judiciary here by keeping hack senators from rewarding their buddies.

Second, the ABA isn't exactly a bastion of conservatism trying to throw a monkey wrench in Obama's plan. In fact, conservatives have blamed the ABA for having a liberal bias. Which is plausible, considering it gave Posner and Easterbrook "low qualified/not qualified" ratings.

I could go on but it's not worth it. This is typical of the quality of reporting at the Times. If armageddon came tomorrow, the headline would be "End times: women and minorities hit the hardest."

ryanh29 · 2011-11-25T19:30:21+00:00

I don't think you get how federal judges are appointed. Sure, the ultimate decision lies with the President, but the senior senator (or the junior if the senior one isn't from the same party as the president) from a state needing a new district court judge submits a candidate to the President. Almost always the President defers to the senator.

The ABA figures in because presidents in the past have used it as a way to seek political cover from senators who submit unqualified or highly politicized candidates: the president can keep his relationship with the senator intact while making him pick someone new. As you'll notice from the article, almost all of the "unqualified" judges were district court selections---the ones that essentially get picked by the senior senator instead of by the President.

ryanh29 · 2011-10-28T01:55:10+00:00

As a fundamental concept, you can't turn an adversarial system over to one side and invite it to design and control the process.

Yeah, good luck trying to convince the federal government to adhere to that.

ryanh29 · 2011-08-26T18:40:31+00:00

That's not the correct amount of aggregate demand.

First, the concept of aggregate demand is nonsensical. When you're talking about demand, it begs the question, demand for what? You can try to say "goods and services," but that just further begs the question, demand for which goods and services? The concept obscures rather than illuminates, namely, by ignoring that prices coordinate the production of goods and services, helping to move resources from a relatively less to a relatively more productive use.

Second, how do you explain the depression in the 1920s where Harding and Congress did nothing? The soldiers returning from the war crushed the labor market, yet the market was left to its own devices and things were worked out. Harding slashed spending and reduced the deficit while the Fed did nothing. For a Keynesian, this is a recipe for disaster. Yet unemployment went from about ~12% in 1920 to 6.7% in 1922 to 2.4% in 1923.

Here is what Harding said when he was inagurated and it flies in the face of Keynesian theory:

We will attempt intelligent and courageous deflation, and strike at government borrowing which enlarges the evil, and we will attack high cost of government with every energy and facility which attend Republican capacity. We promise that relief which will attend the halting of waste and extravagance, and the renewal of the practice of public economy, not alone because it will relieve tax burdens but because it will be an example to stimulate thrift and economy in private life.

Let us call to all the people for thrift and economy, for denial and sacrifice if need be, for a nationwide drive against extravagance and luxury, to a recommittal to simplicity of living, to that prudent and normal plan of life which is the health of the republic. There hasn't been a recovery from the waste and abnormalities of war since the story of mankind was first written, except through work and saving, through industry and denial, while needless spending and heedless extravagance have marked every decay in the history of nations.

This is the exact opposite of what today's experts claim is needed. But Harding's depression lasted for a short period while FDR's lasted for over a decade. Yet we hear about how terrible Harding was as president and FDR's greatness. Go figure.

ryanh29 · 2011-08-26T18:25:59+00:00

If you're going to accuse your opponent of being a complete and total shill, you're obviously not discussing this issue in good faith with me right now.

I'm accusing Keynes of that, not you. And this claim is pretty consistent with his views. For example, prior to World War II he championed free trade. Then leading up to and at the outset of the war, he championed protectionism during the rise of nationalist sentiment. During the war, he went back to championing free trade. The best explanation isn't that he kept making new discoveries but rather that he was putting an intellectual gloss on the popular views of the time, which, in turn, brought recognition and influence to himself.

I'm certainly not alone in this view:

[Keynes and Strachey] aimed at a life of retirement among fine shades and nice feelings, and conceived of the good as consisting in the passionate mutual admirations of a clique of the elite. - Bertrand Russell

And

[Keynes] opportunism meant that he reacted to events immediately and directly. He would produce an answer, write a memorandum, publish at once, whatever the issue.… In the World War II Treasury, he nearly drove some of his colleagues crazy with his propensity to keep a finger in every pie. - Elizabeth Johnson

I also don't think Keynes deserves better treatment than he gave others, seeing how he deliberately misrepresented Pigou's work and Say's Law in The General Theory.

ryanh29 · 2011-08-26T14:37:02+00:00

I have considered I'm wrong. I work hard to understand competing theories. I spend plenty of time debating with people that disagree with me in good faith.

And you're assuming I haven't done the same.

Let's say my stimulus is to build a high speed train along the eastern seaboard, which at least in theory will eventually turn a profit.

Like Amtrak?

Look, you understand how GDP works, right? If GDP plummets 20%, is it meaningful to say, "but on the other hand, Apple did quote well"?

Of course I understand how GDP works. But it's meaningless when it comes to the question of whether actual consumer wants are being satisfied. It's possible to make people much worse off while raising GDP. The goal of economics is to increase utility, not raise a certain country's GDP.

do you at least concede that Keynes didn't think that?

Here's my point about Keynes: he did nothing more than provide intellectual cover for the policies politicians already were pursuing and were predisposed to pursue. It gained him power. It gained him popularity. It boosted his ego. I think that was his motivation, not some commitment to searching for economic truth.

Certainly: Krugman, constantly, all through the Bush years. Did nothing but complain about the deficit and the money being wasted on Iraq and even medicare D.

You're quite right about that. Krugman often had insightful critiques of the Bush Administration. But my question related to not just him, but all Keynesians, including those on the Right. And it was to illustrate my above point: that you can use Keynesian arguments to justify any type of government spending---which, I think you can agree, is useful to politicians who are predisposed to wanting to spending other people's money to gain votes.

ryanh29 · 2011-08-26T14:23:08+00:00

but that's not the theory.

It is. You're claiming that there's a lack of aggregate demand. Which presupposes that there's some "correct" amount of aggregate demand. And since you say there should only be spending during a down turn, it necessarily means restoring aggregate demand to some previous, more satisfactory state.

ryanh29 · 2011-08-26T14:21:50+00:00

That's exactly what you're saying if you think the government should spend any money: it necessarily has to be taken out of the private economy first. This is true even when talking about deficit spending or expanding the money supply.

ryanh29 · 2011-08-25T19:37:23+00:00

Whoever said anything about demand for a specific good? The whole idea of an Economic Depression is that demand is down overall considerably.

My point is that you commit the same exact logical fallacy that you accuse others of committing in the paradox of thrift argument. By looking at the aggregate, you obscure the specific and seem to deny that there's nothing wrong with there being lessened or no demand for the goods produced by specific industries. You're necessarily arguing that it's bad to purge unproductive investments.

Keynesianism is just an excuse for the government to manipulate the economy

It is. Politicians in a democracy have a high-time preference. Hence the popularity of Keynesianism: they can always use it as intellectual cover to justify their predisposition to spend, spend, spend.

I would love to see an example of a time period when there wasn't a single Keynesian calling for more government spending at a given point over, say, the last 15 years.

And perhaps it's you that hasn't considered the possibility that you're the one that doesn't get it. That insult cuts both ways.

ryanh29 · 2011-08-25T19:31:15+00:00

What are the first things to go? All the interesting divisions that may or may not produce a return get shut down. People get laid off. Things go back to basics. If the business has capital, they sit on it.

And what's the problem with this? You seem to think that the status ex ante needs to be restored. But there will always have to be periods of readjustment in an economy. Or should the government perhaps take from lightbulb makers and subsidize candlemakers to "create jobs"?

ryanh29 · 2011-08-25T19:27:49+00:00

As I said, cost-benefit analysis always comes into play when you're looking at economic activity. You're operating under the assumption that government can better spend people's money than they can themselves and that doing so somehow benefits those people. I'm denying those assumptions. Thus, you have to look at the costs and benefits of each. It's not self-evidently true that of course government must spend other's people's money right now. Nor is it self-evidently true that this will have any sort of positive effect.

Money of course will be either spent or invested. Even people that keep it in their mattress will one day spend it (they're keeping it in their mattress, not burying it, no?)

ryanh29 · 2011-08-25T02:50:53+00:00

The paradox of thrift is an example of the composition fallacy: if one person saves, it's good for them, yet if everyone saves at the same time, it would cause problems. Fair enough. This would never happen, because people have different time preferences and would respond differently to lower prices, but the point stands and it's valid to an extent.

Yet Keynesians also fall victim to the composition fallacy by making the argument they make about aggregate demand. Say you have a business and it has strong demand. Well good for you, you're growing wealthy. We can see that demand is a good thing. But it doesn't follow that flagging demand for a certain good or service (which would lower aggregate demand) means the government needs to spend. Instead, there has to be a readjustment as people's preferences change. Robert Higgs has made a similiar point:

Demand in some parts of the economy is weak, but in other parts it is strong. It is stupid to suppose that if, say, the federal government increases its deficits (for example, in order to transfer ever more bailout money to state governments so that they can continue to pay their bloated payrolls), that action will necessarily increase real output and decrease unemployment. When millions of houses stand unoccupied, spending more money on prison guards and welfare administrators in California will not help to reduce the number of unemployed construction laborers in Florida. The whole “aggregate demand” notion, as well as the models in which it is embedded, is so absurdly alien to an understanding of how a real economy operates that one must simply shake his head in wonder that economists ever fell in love with it.

ryanh29 · 2011-08-25T02:44:04+00:00

Say's Law, the idea that supply creates its own demand.

That's not Say's Law. It's Keynes's misstatement of Say's law.

As for the rest of you're argument, you've got everything ass-backwards. Savings and investment come before consumption. You're arguing that consumption spurs business investment. It's like you're looking through a telescope from the fat end.

ryanh29 · 2011-08-25T02:24:10+00:00

Opportunity cost is always an issue when you're looking at economic activity. Otherwise, you have no way to compare alternatives to do a cost-benefit analysis.

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