More Debt and Deficit Sophistry

Japan’s is one of the highest on Earth – it is ~21 Mass capital flight can occur when you have external investors (unlike the US) Japan has almost none. (And as with the US their debt is payable in their own currency…) There are three very big differences between Japan and the US in regards to debt…around 5 The US has incentive to eventually renege on it’s debt either by outright default or by de facto default by printing money. US debt held by foreigners Total US debt Note usually when we speak of US debt we speak of Debt Held by the Public as opposed to total US Public Debt which includes intergovernmental holdings. If we were to compare total US debt to GDP, then the US would hit more than 10 There’s another option to massive deficit spending…raise taxes on fuel (7

Uncle Milton, a deficit hawk, repeats common falsehoods about the US debt. First of all, Japan had little to external investment before it ran up all that debt, and it has none now. So there was no loss of external investment with debt run-up. True, Japan’s debt is held internally. The US debt is the 3rd lowest in the developed world. Hardly anything to get exercised about. Uncle Milton plays the game of comparing debt held by the public (the only meaningful measure) with total debt, which includes intergovernmental debt, which is meaningless. Intergovernmental debt is where the government borrows from itself, for instance dipping into the Social Security trust fund. It’s not an important debt measure and it’s never used when comparing comparative debt burdens between states. Why do deficit hawks constantly bring up the meaningless intergovernmental debt? Because it produces a nice big fat number that scares people and makes them want to make the budget cuts that the deficit hawks slaver over. A phony number, but a big number. Another phony game they play is to add up all US federal debt, all state and local debt, and all consumer debt. Then they come up with some number that says that the US has more debt that any other country on Earth. But that’s not a meaningful or important measure last time I checked. It’s just another phony game they use to scare people into making cuts. A number that is typically tossed about is 10

0 thoughts on “More Debt and Deficit Sophistry”

  1. To Rob:
    Uncle Milton plays the game of comparing debt held by the public (the only meaningful measure) with total debt, which includes intergovernmental debt, which is meaningless.
    Absolutely wrong on my position.

  2. To Rob:
    At the current rate of growth, our debt will hit 100% of GDP in 2074, and that is with a fake deliberately low rate of economic growth projection from the Congressional Budget Office. The CBO deliberately made up this fake low rate of growth in order to justify heavy spending cuts.
    Have you actually read the report…? They assume that the Bush tax cuts will expire and that the tax increases for Medicare will not be rolled back by future politicians. They also assume an unemployment rate of 5% and low interest rates.
    At first it would appear that the real GDP growth of
    2% is too low but we are looking at a rapidly aging population and high levels of debt (private and public…) huge trade deficits and the potential for peak oil will which possibly cause major disruptions. I think 2% GDP growth is fairly reasonable considering. That said projecting out 64 years into the future is close to fantasy… consider what the world looked like in 1946 and what economic forecasters were saying then.

  3. To Rob:
    Why do deficit hawks constantly bring up the meaningless intergovernmental debt?
    I brought it up to clarify the difference Rob simple as that… and by the way it is not meaningless.. (albeit it is not as potentially damaging as external debt…..) that debt as you point out is owed to SSN recipients and Federal pension recipients. It will have to be paid… but I suspect it will be paid mostly through higher taxes.

  4. To Rob:
    The US debt is the 3rd lowest in the developed world. Hardly anything to get exercised about.
    As I have said repeatedly the US is not the worst off in the OECD but all of the OECD is potentially facing major structural problems. (Low birth rate and a pay as you go retirement system…) Arguably we are in better shape than most of Western Europe and Japan. (Japan hit it’s peak labor force participation in 1991 and has been declining in population since 1998..)
    We do have an added wrinkle however…. Tulio (who is Black…) called Social Security a form of welfare for elderly Whites. In some ways this is correct since today’s retirees are being paid by today’s workers and the retirees are overwhelmingly White (around 90%..) but the labor force is around 70% White. This will become more skewed racially in the future as White baby boomers retire and immigration and higher birth rates from non-Whites shifts the labor force to something like 50% non-Whites supporting a retired population that will be around 80% to 85% White. Right now we have 3 workers supporting 1 retiree, in 2025 it is projected that we will have 2 workers supporting 1 retiree. I wonder how Jose, Leticia, and Quan will feel about supporting Jennifer, Richard, and Beatrice.

  5. To Rob:
    Maybe I should be like Dick:
    Cheney to Treasury: “Deficits don’t matter”
    Former Treasury Secretary Paul O’Neill was told “deficits don’t matter” when he warned of a looming fiscal crisis.
    O’Neill, fired in a shakeup of Bush’s economic team in December 2002, raised objections to a new round of tax cuts and said the president balked at his more aggressive plan to combat corporate crime after a string of accounting scandals because of opposition from “the corporate crowd,” a key constituency. O’Neill said he tried to warn Vice President Dick Cheney that growing budget deficits-expected to top $500 billion this fiscal year alone-posed a threat to the economy. Cheney cut him off. “You know, Paul, Reagan proved deficits don’t matter,” he said, according to excerpts. Cheney continued: “We won the midterms (congressional elections). This is our due.” A month later, Cheney told the Treasury secretary he was fired.

    Looks like Paul O’Neil was prescient. (and early…)

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