J.D. Tuccille at Reason took on journalist Matthew Yglesias’s vox.com video that I wrote about yesterday, focusing on Yglesias’s pooh-poohing of the sheer size of the national debt. Tuccille noted that Yglesias under-reported its humungosity, and that the Congressional Budget Office finds, counter to Pollyanna-liberals, no small reason to worry about the ballooning debt.
But I’m still shaking my head that Yglesias really did argue the federal debt is no problem, because — get this! — the Fed can always just print more money.
We know! What he sees as a solution we see as a problem.
The modish government-as-savior view of society seems pure simplicity: major inputs and outputs — money supply, fiscal spending, debt, inflation — all of which liberal-progressives will “expertly” adjust.
Fed this, no wonder people ask questions like “why haven’t we seen inflation, following the huge influxes of quantitative easing?” Well, it is not just about consumer prices, but investment prices, too, which we have long known to be more volatile than consumer goods; investments can easily suck up new money to create an unstable boom, which bursts.
The biggest problem for today’s market recovery — aside from subsidies and wage controls and all the folderol that directly discourage new jobs — is federal government irresponsibility itself (symbolized neatly by the federal debt) which signals to investors and other market participants that they cannot make viable long-term plans.
Economist Robert Higgs called this effect “regime uncertainty.” It’s the uncertainty bred by bad policy.
Just the kind Yglesias and his comrades adore.
Fiddle with the economy’s dials, oh wise ones, and uncertainty seems a certain result.
This is Common Sense. I’m Paul Jacob.
7 replies on “Their Solution Is Our Problem”
“…no wonder people ask questions like “why haven’t we seen inflation”
No inflation?
I invite you to read this essay in today’s LewRpckwell.com by David Stockman:
http://www.lewrockwell.com/2014/03/david-stockman/let-them-eat-ipads%E2%80%A8/
NO INFLATION? LOOK AT THE PRICE OF GAS. ABOUT $3.50 PER GALLON WHERE I LIVE. When Nobrainer took office about $1 or so; FOOD – hamburger meat about $4.00 pound; about 1 or so in 2007.
OF COURSE, IF ONE LEAVES OUT FOOD AND FUEL, INFLATION IS SOMEWHAT LOW, AS CONSUMER AND ELECTROINC GOODS, MADE IN CHINA, ARE STABLE OR DROPPING (sometimes, especially with eectronic goods – due to innovations, lowering the prices of “olderA” 9 could be 6 months older, but is older) products.
Called rigging the numbers.
Same with the “unemployment rate”-after 6 months, dropped and no longer unemployed. Might not have a job, but not officially unemployed. A better guide would be the % or working age people in the labor force. Last time I saw it, it was close to the level of the early or mid 1950’s, when (comparitively) feww9er) women (at least per centage wise) were in the labor force.
Ignored by our liberal anal pores‑I mean experts who know what is best for all.
I also did not mention, perhaps Mr. Yglesias and his comrades can take a look at how well this worked for the WEIMAR REPUBLIC (GERANY) AND IS WORKING IN SUCH WORKER’S AND PEASANTS PARADISE LIKE ZIMBABWE (FORMERLY RHODESIA).
There was never a proper cleansing. The Fed wouldn’t allow the gamblers to die when they should have consequently we have the wolves now running the chicken house, meanwhile the economy is still losing jobs to overseas, boomers have quit spending because they’re facing retirement without a job and technology is killing jobs right & left. Check out this weeks job cuts:
http://dailyjobcuts.com/
They should have allowed housing prices to find a natural level. Now kids are coming out of school, loaded with debt and can’t afford housing, can’t find a job and will be years behind the natural course of building a family.
Who says consumer prices aren’t rising? What’s toothpaste these days, like $5 a tube.
Why is there no inflation? I suggest reading Mike Shedlock’s work on this topic. Money supply consists of debt plus dollars in a fractional reserve lending system. Consequently, money supply has not been rising as the FED prints money because debt has been falling. Also, the FED money printing has been directed to buy outstanding bad debt, government debt and mortgage debt issued mostly by the government through Fannie/Freddie/FHA. The FED then gets interest payments from the Treasury and returns the payments to the treasury as a profit. Bernie Madoff is smiling.
Paul:
I love your column and hesitate to take issue with you, but here it is. Milton Friedman himself once bemoaned the focus so many free-market people have on the deficit and the debt, pointing out that it detracts focus from the actual problem.
Consider: Suppose the US government is spending $4 trillion and that nominal GDP is $8 trillion. Let us also suppose that the $4 trillion expenditure is financed as follows. $2 trillion comes from tax revenue and the other $2 trillion is borrowed through treasury bond sales. So the deficit is $2 trillion and is 25% of GDP.
Now suppose everyone is convinced that the deficit and the debt (the accumulation of deficits over time) is too high, so that congress raises tax rates enough that tax revenue rises by another $2 trillion and the deficit goes to zero. And over time, the debt/GDP ratio declines.
Question: would we be any better off? My answer (following Friedman) is no. True, large Federal borrowing raises interest rates and/or by other processes crowds out productive private investment, thus slowing real economic growth and making us poorer than we otherwise would be over time. But simply replacing an increment of debt finance by an added increment of tax finance does no good. The added tax finance just crowds out private economic activities and slows real economic growth by a different set of processes.
Now if we were to end the deficit by reducing total federal spending by $2 trillion, things would be different. Resources would be released to the private sector and the rate of real economic growth would increase. The problem is not the deficit, or the debt, but the size of Federal spending and associated resource extraction from the private sector. The composition of that finance between taxation and debt makes little or no difference.
We trap ourselves by obsessive focus on the deficit and debt. When we say “the deficit and debt are too high” the liberal democrats are glad to agree, even if we advocate reducing expenditures. Their immediate response is “but we must use a balanced approach, raising taxes to help close the gap.” Neither of us has clearly seen the real problem.
Jim
James R. Edwards
Professor Emeritus of Economics
Montana State University-Northern.