20 March 2012

How bad is US fiscal policy?

Take away some zeros and then decide:


Anonymous said...

Come on David...this seems a bit disingenuous. And I truly hope you do not actually believe the comparison. One can do a simple search and find half a dozen different quality analyses as to why government debt is not analagous to household debt and why one cannot think of the national budget as one owuld think of a household.

Dean Baker, Krugman, EconProph, and several others have demonstrated how the comparison is intellectually dishonest at best.

Given all the great work you do and wonderful insight you provide, your readers expect better.

David Zetland said...

@Anon -- any reason why the Gov't SHOULD run a deficit or have debt? I've never heard an economic theory to support that claim (note that I am excluding counter-cyclical spending that balances debt and surplus).

David Zetland said...

ps/Krugman is no longer an economist. He's a lobbyist who ignores "inconvenient truths."

Anonymous said...


as a law and economics guy (water lawyers are allowed to dabble, right?), I find Baker to be the most persuasive on the topic. I was looking to find the specific post, but in the name of conversation, I figure we could discuss some of the points he makes in the above paper.

My point is that I think it is much too crude of a comparison where you are comparing an exceedingly complex budget tied to a ton of different factors to a relatively simple budget of a household. I think that we can agree that certain budget decisions made by a government (military appropriations, subsidies and price controls for agriculture, appropriations for roads to nowhere, etc) that lead to the need for more borrowing are problematic and can be argued against on their own terms, without entering into the realm of arguing against deficits altogether.

I forgot a name earlier...Neil Buchanan from Dorf on Law has also made arguments against the comparison. I don't disagree that deficits may become a problem someday, but they clearly are not today (numerous commentators have noted that folks are still willing to buy our debt, or Japan's, etc...and that the dreaded inflation increase has not happened and is in no danger of happening anytime soon)...I think that looking at it in a more sophisticated fashion as opposed to a simplistic direct comparison is the better bet.

Here is one of Buchanan's posts...


I am just of the opinion that you usually utilize much deeper analyses that that offered in the rather crude posting that was delivered.

Anonymous said...


See also Baker's article on The Bankrupt Debate About Bankrupting Our Children

Brad DeLong has also done a couple of articles: e.g. "A Larger National Debt Would Be A National Blessing"

While the articles do not directly touch on the comparison offered, they do offer concise articulations as to why the debt is not a huge deal. I assume the 14.3 trillion in your article is the same as the amount referenced in Baker's article above.

Anonymous said...

btw...we absolutely agree on Krugman...however, I still find some of his arguments to be persuasive, at least to someone who has a law degree with a focus in economics and policy as opposed to the expertise you have developed on the topic.

That being said, I have no idea what happened to the NYT...can they hire worthwhile columnists anymore? Mr. Magoo makes me retch, Nocera has no clue, Kristof has a good heart but no chance, Dowd..really?...and on and on. Frank Rich might be the best of the lot and he misses a heck of a lot more than he hits.

David Zetland said...

@Anon -- while you may have some reason to see "no harm" in LT debts of constant deficit, I see "no benefit." You did remind me to write a post on the cost of our "lifestyle," so I'll say more there...

NYT -- like Faux news -- needs to sell papers too :-\

Anonymous said...

Ah...now you have "moved the ball." Instead of a direct comparison between government debt and household debt...and the realism of said comparison, you have now shifted the discussion to whether there is "harm" in LT debts of constant deficit.

If we can agree that comparing government debt to individual household debt is like comparing apples to Ford Festivas, it would then make sense to move on to whether there is harm or not in LT debts of constant deficit.

To your statement that there is "no benefit" in LT debts of constant deficit, I would have to break up the statement. Long term debt - how long is "long term?" Is it a single debt, or debt as a whole? For instance, if LT debt is a series of shorter term debts based on building infrastructure, promoting scientific advancement (not meaning subsidies or other price controls), emergency spending, fighting disease, purchasing land for conservation, purchasing water rights to protect the environment...then I would argue that there is a definite benefit to running the debt...as long as it does not reach a point of unsustainability (as is touched upon by everyone that I cited). "Constant deficit" is even acceptable (besides the "everyone does it and that is how the global economy functions" response) as long as creditors are willing to purchase the US debt, and effective controls are put into place to prevent government from getting too large or being controlled by large moneyed interests or parties interested in creating largesse.

I would argue (as would those economists that I cited), that reducing the deficit at this time would actually be destructive, and can point to any number of states (my home hell of the moment...Florida) where "balancing the budget" has led to terribly destructive policies that negatively impact the entire population.

All that being said...I return to something that I think you agree with...the problem is the human beings involved. It is all well and good to esoterically debate which approach is better...at the end of the day either approach would probably work, but for the human beings involved in implementing the system. And therein lies the rub...neither system works as long as the species is forced to sink to the lowest common denominator (as you not time and time again in your posts). So we do our best to move the ball forward on a daily basis...knowing all the while that some self interested, manipulative, highly intelligent, usually wealthy or powerful _______ is going to either prevent us from making real progress, or start to break down any progress as soon as it is achieved.

Keep fighting the good fight...

David Zetland said...

@Anon -- I don't think I moved the ball. I question debt within a HH or country. You mentioned "worthy" spending but that's often an excuse for unsustainable spending. Worthy spending should produce payback that will reduce the initial debt.Instead of that, we see more "worthy" spending -- often, as you point out, to the benefit of unworthy causes...

Read this on US interest rates. You will see that we are benefiting from a structural demand that could go away (cf. carry trade), with disastrous results.

I'll stick with Shakespeare:
Neither a borrower nor a lender be,
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.

Eric Morey said...

Perhaps the the family just bought a car and used a cash advance on a credit card with a promotional and very favorable interest rate to pay for it. (I did this and saved a fair amount of money over time.)

A single year and incomplete Cash Flow overview is not the best way to evaluate the financial outlook for any entity.

If highways and bridges last for decades why not use debt finance (with currently negative real interest rates) to help match the the inter-temporal value of it's beneficiaries to cash flows?

David Zetland said...

@Eric -- I've explicitly allowed for what you said, but that's NOT what's happening here (the US has not had a balanced budgets in a long time -- tho Clinton/R Congress got close).

Robpublican said...

To me, the most striking thing about this analogy is not the level of debt, and it is not the size of the deficit. The really striking thing is the (minuscule) size of the cut that has been sold to the American people as some sort of real progress.
The questions of whether or not deficits are good or bad, or whether or not the comparison of govt. to household debt is intellectually honest might be important but they don't pertain. The point is that the budget cuts we're expected to appreciate so much are trivial.