Paul Krugman's columns are so brilliant every day that it's beyond me why I single out this particular one for publication. It just shouted out to me, I guess. Published on Jan. 2, 2012, here 'tis:
Nobody Understands Debt
By PAUL KRUGMAN
New York Times
In 2011, as in 2010, America was in a technical recovery but continued to suffer from disastrously high unemployment. And through most of 2011, as in 2010, almost all the conversation in Washington was about something else: the allegedly urgent issue of reducing the budget deficit.
This misplaced focus said a lot about our political culture, in particular about how disconnected Congress is from the suffering of ordinary Americans. But it also revealed something else: when people in D.C. talk about deficits and debt, by and large they have no idea what they’re talking about — and the people who talk the most understand the least.
Perhaps most obviously, the economic “experts” on whom much of Congress relies have been repeatedly, utterly wrong about the short-run effects of budget deficits. People who get their economic analysis from the likes of the Heritage Foundation have been waiting ever since President Obama took office for budget deficits to send interest rates soaring. Any day now!
And while they’ve been waiting, those rates have dropped to historical lows. You might think that this would make politicians question their choice of experts — that is, you might think that if you didn’t know anything about our postmodern, fact-free politics.
But Washington isn’t just confused about the short run; it’s also confused about the long run. For while debt can be a problem, the way our politicians and pundits think about debt is all wrong, and exaggerates the problem’s size.
Deficit-worriers portray a future in which we’re impoverished by the need to pay back money we’ve been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.
This is, however, a really bad analogy in at least two ways.
First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.
Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.
This was clearly true of the debt incurred to win World War II. Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than debt today; but that debt was also owned by taxpayers, such as all the people who bought savings bonds. So the debt didn’t make postwar America poorer. In particular, the debt didn’t prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation’s history.
But isn’t this time different? Not as much as you think.
It’s true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that’s already deep in hock to the Chinese, you’ve been misinformed. Nor are we heading rapidly in that direction.
Now, the fact that federal debt isn’t at all like a mortgage on America’s future doesn’t mean that the debt is harmless. Taxes must be levied to pay the interest, and you don’t have to be a right-wing ideologue to concede that taxes impose some cost on the economy, if nothing else by causing a diversion of resources away from productive activities into tax avoidance and evasion. But these costs are a lot less dramatic than the analogy with an overindebted family might suggest.
And that’s why nations with stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it — have historically been able to live with much higher levels of debt than today’s conventional wisdom would lead you to believe. Britain, in particular, has had debt exceeding 100 percent of G.D.P. for 81 of the last 170 years. When Keynes was writing about the need to spend your way out of a depression, Britain was deeper in debt than any advanced nation today, with the exception of Japan.
Of course, America, with its rabidly antitax conservative movement, may not have a government that is responsible in this sense. But in that case the fault lies not in our debt, but in ourselves.
So yes, debt matters. But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way.
© New York Times 2012
Blip32962 here: I was also favorably impressed -- more so than usual -- by the lead editorial in yesterday's New York Times. It was headlined "Where the Real Jobs Are" and it seems to me a no-brainer that we should be making the same kind of all-out push toward green energy companies that John F. Kennedy put into place regarding sending manned flights to the Moon.
The Times wrote:
Where the Real Jobs Are
The Republicans believe they have President Obama in a box: either he approves a controversial Canadian oil pipeline or they accuse him of depriving the nation of jobs. Mr. Obama can and should push back hard.
This is precisely the moment for him to argue the case for alternative fuel sources and clean energy jobs — and to lambaste the Republicans for doubling down on conventional fuels while ceding a $5 trillion global clean technology market (and the jobs that go with it) to more aggressive competitors like China and Germany.
The payroll tax cut bill, which Mr. Obama signed last month, gave him 60 days to decide on the Keystone XL pipeline. That is not enough time to complete the required environmental review of a project that, in its present design, crosses ecologically sensitive territory and risks polluting an aquifer critical to Midwestern water supplies.
The Republicans’ claim that the pipeline will create tens of thousands of new jobs — 20,000 according to House Speaker John Boehner and 100,000 according to Jon Huntsman — are wildly inflated. A more accurate forecast from the federal government, one with which TransCanada, the pipeline company, agrees, says the project would create 6,000 to 6,500 temporary construction jobs at best, for two years.
The country obviously needs more jobs. Mr. Obama needs to lay out the case that industry, with government help, can create hundreds of thousands of clean energy jobs without incurring environmental risks — by upgrading old power plants to comply with environmental laws, retrofitting commercial and residential buildings that soak up nearly 40 percent of the country’s energy (and produce nearly 40 percent of its carbon emissions) and promoting growth in new industries like wind and solar power and advanced vehicles.
By even the most conservative estimates, the power plant upgrades required by the new rule governing mercury emissions are expected to create about 45,000 temporary construction jobs over the next five years, and as many as 8,000 permanent jobs as utilities install pollution control equipment. And while the projects are new and the numbers tentative, the Energy Department predicts that its loan guarantee programs could create more than 60,000 direct jobs in the solar and wind industries and in companies developing advanced batteries and other components for more fuel-efficient cars.
Much more needs to happen. Europe has encouraged the commercial development of carbon-reducing technologies with a robust mix of direct government investment and tax breaks, loans and laws that cap or tax greenhouse gas emissions. This country needs a comparably broad strategy that will create a pathway from the fossil fuels of today to the greener fuels of tomorrow.
We are under no illusions that such an appeal by Mr. Obama would win support among Republicans on Capitol Hill. House Republicans voted 191 times last year to undermine existing environmental protections or reject Democratic efforts to strengthen them — even killing off a modest regulation requiring more energy efficient light bulbs — and in general have vowed to resist new energy strategies or do anything at all that might disturb their patrons in the fossil fuel industries.
American voters are smart enough to see through the ridiculous pipeline gambit. And they will surely listen if Mr. Obama makes a compelling argument for both protecting the environment and investing in clean energy industries that will create lasting jobs.
© New York Times 2012
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