Galbraith: There Is No Debt Crisis


The king of Keynesians himself weighs in on the debt and deficit crisis: there is no crisis!

He makes some interesting points. First of all, the CBO debt and deficit predictions are based on complete lies. They were conjured up out of thin air to invent a fictional future that will not, and could not take place. The fictional future is rigged in all sorts of ridiculous ways to make it look like the debt is going to explode out of control.

The debt is only at 61% of GDP right now. That is a very manageable level. It was much higher from 1941-1955 and we paid it off easily back then. When Bill Clinton left office in 2000, the US state was in wild surplus. In fact, we were on target to wipe out the debt with that massive surplus created exclusively by Bill Clinton. The Republicans have been deliberately trying to create a debt crisis for 30 years now, so they did not use the surplus to pay down the debt or to set it aside as a rainy day fund. I would have supported either option.

The dean of the deficit hawks is Pete Peterson. He’s a hedge fund manager and the head of the Concord Coalition, which has fooled a lot of well meaning liberals. Even 30 years ago, when our debt was a much more manageable level than 61% of GDP, Peterson was screaming that the debt was out of control. This shows you that deficit hawks are all liars and fakes.

Deficit hawks have one goal and one goal only – to slash government spending to the point where government barely exists. They scream about the deficit as an excuse to destroy the state that they despise. Republicans don’t care about deficits – we know this because under Reagan, Bush Sr and Bush Jr they set records by spending like there was no tomorrow and being extremely fiscally irresponsible.

But as soon as a Democrat gets in, there’s a debt and deficit crisis and it’s time to slash and burn. Remember the debt and deficit crisis under Bill Clinton? He actually balanced the budget and produced a huge budget surplus.

Galbraith notes that a state that prints its own money should never have a problem paying off its debt. He is correct in a sense. Because the US controls its own currency, we can never end up like Greece, as everyone is warning.

Greece is in the boat it’s in because it does not control its own currency. Since we mint our own money, we can always just print money to pay off our debt if we wish to do so. The only worry is inflation, but with a dead economy and demand in rigor mortis, there’s no risk of inflation. Inflation is caused by excessive demand chasing too few goods. You can’t have inflation when demand is dead. Indeed, the main risk right now is not inflation but deflation.

The other risk of excessive debt is that at some point, foreigners might not want to buy your government bonds. Is there any risk of that? Looking at the bond market, we can’t see any. US bonds still have a seemingly unlimited number of eager buyers.

What about fake risks? According to conservative Republican Barack Obama, the reason the economy is dead is because of the high government debt and deficit. As long as debt is so high, Obama says, business won’t invest due to “uncertainty.” By lowering the debt and deficit, we give a signal of confidence to the private sector and they will start investing again.

It’s sad that Obama said that because it shows that he believes rightwing lies about economics and implies once again that Obama is a Reaganite on economics.

Another lie is that business will not invest due to “regulatory uncertainty.” That is, they are afraid that the “super-liberal” Obama is going to regulate them to death, so they won’t invest. The Republican solution to this to eviscerate business regulations, and then the business sector will receive the vote of confidence needed to invest again.

This are both sickening lies. There is not the tiniest bit of truth to either of them.

Facts show that the deficit is currently caused exclusively by the dead economy and the declining tax revenues that result from it. The US also fails to collect 15% of the taxes owed to it. Greece fails to collect fully 33% of the taxes owed to it. It turns out that this difference works out quite well to cover the differences between the deficits of the US and Greece.

The debt problem does not come from excessive spending. US state spending, at 25% of GDP, is very low by the standards of similar states. Greece’s spending, for instance, is 40% of GDP.

As you can see, the screams about how the US will end up like Greece are nothing but lies. We can’t possibly be Greece in any possible universe. You’re comparing apples to hot fudge sundaes.

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9 thoughts on “Galbraith: There Is No Debt Crisis”

  1. The problem with the debt is not its current level, but that the baby boomers are about to transition from their prime taxpaying years to their government-consumption years. The next generation won’t be able to support government at current rates, because it’s demographically made up of fewer whites and more NAMS (although Asian immigrants will pick up some of the slack.)

    You’re correct that this is the moment the Republicans have been setting up for 30 years. But 2011 is the year demographers have been dreading since 1946. It’s something of a coincidence that the split Congress and recession caused by the financial breakdown are occurring together in this specific year.

    1. I don’t agree that there will be a problem in the future due to too many baby boomers retiring and too many NAM’s supporting them.

      Social Security is fully funded until 2037, although Barack Obama and the Republicans are trying to defund it. After that, there are some issues, but they can easily be dealt with by eliminating the cap on SS taxes at $106K/yr.

      This whole argument is nuts. The idea that one of the richest countries on Earth with such a pitifully meager safety net can’t even afford that weak safety net has got to be some kind of a joke.

      1. One of the difficulties in economic debates is that it’s usually possible to trade one problem for another, and then say “the issue isn’t A, it’s B.” We could, for example, just not change anything except eliminate the debt ceiling, then we’d have an inflation problem, not a deficit problem.

        There’s lots we could do that would help:
        –cut military commitments, like Galbraith suggests
        –diversify our population around the country better, which would lower housing costs and enable higher taxes
        –dis-employ illegals, so they return home
        –cut the welfare incentives that enable impoverished single motherhood
        –change the culture of educational requirements, to cut public cost and private debt

        All these would be worthy ideas, but trying to implement them would come up against the central problem of democracy — single-issue constituencies and short-term political thinking.

        BTW, I’m against abolishing (thought possibly favor raising) the SS income cap, because SS benefits are limited, and making taxation unlimited would change it from a self-funded savings program to a another transfer benefit.

        1. It’s absolutely not true at all that rising debt would lead automatically to an inflation problem. That’s just another lie of the deficit hawks. Debt has been rising from 1990 to present. See any inflation lately?

        2. This is an example of trading A for B. Government deficits lead to some combination of inflation, recession and negative balance of payments. That last one has been the biggie the last decade (the Chinese own our homes), along with some recession. I assume more debt will lead to inflation, because we won’t tolerate a worse recession and foreigners won’t buy more eroding debt.

  2. It’s not true, Bruce. Deficits simply do not inevitably lead to inflation. They can, but not necessarily.

    Deficits of course do not lead to recessions! That’s utter madness. I see you have swilled the deficit hysteria 190 proof!

    The recent recession was NOT caused by deficits, as you just stated. It’s not true!

    Foreigners are continuing to buy our debt, so it’s not a problem at the moment. Anyway, we can always just print money to pay it down. There’s no inflation risk anyway, so why not do it?

  3. The inflation that we have seen in the last decade has been largely limited to the energy and food sectors. The reason for the latter is that food cost hinges closely on transportation. The energy sector is only related to deficit spending in an esoteric way, i.e., fighting expensive wars on credit, ostensibly to secure our energy interests in the Middle East. So, I suppose my question is, did we get our money’s worth?

    Also, the idea of inflation itself ought to be taken in relative terms. The millions who have become jobless over the past decade probably perceive ALL goods and services as being more expensive now.

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