It’s not about money, and the country isn’t broke

I just encountered a peer-reviewed scientific paper whose authors announce, as their centerpiece finding, that because they couldn’t show A to be correlated with B at a 5% significance level, A is therefore uncorrelated with B.  The correlation coefficient in their sample is about .2. This error is at the Stat 1 level; wrongwrongwrong. So is a lot of the depressing, and dangerous, nonsense about government debt and stimulus being put about by people claiming to be economists.  What real economists say passes a sanity test, even when it’s complicated and often when it’s surprising.  Choose wisely.

Here is how to think about the deficit and the economy.
First, it’s not about money, nor about “how much the government owes” people or governments, except in a very secondary way. It’s about use and waste of economic resources, resources we typically compare, measure, and aggregate using their money prices.  This aggregation is quite convenient, and money is useful, but value is no more made of money than a house is made of inches. Never stop asking questions about a proposition in economics until you have got through the money to the real resources and understand how they are being used.

Nor is the government sector of a nation like a family that has to “live within its resources.” If you like household analogies, you can make one, but not the one deficit alarmists and conservatoid pols wave around. Try this: it doesn’t have any money in it at all. Think of the entire nation as a family that lives on a farm, and one that has delegated everything to do with food to Dad.  Let’s call what he does the Nutritionment. Mom does everything else, like house repairs, making clothes, and fixing the car and tractor.  After school the teenage kids earn some money in town; it turns out to be more efficient to do this and buy coffee and chocolate from the outside world than to try to grow those essentials in Vermont.  After dinner everyone washes the dishes together.  In this economy, as in any economy, the fundamental economic resources are people’s time and the capital equipment they have to work with, and the name of the game is to waste as little as possible of them.Until recently, Dad’s time has been sufficient to feed everyone but since the birth of new twins, not so much, especially since one of the burners on the stove stopped working and his favorite saucepan wore out. Furthermore, Mom has had a fair amount of time on their hands since the family has been buying wash-and-wear clothing and she doesn’t have to iron, and one of the teenagers was just laid off at the soda fountain. Winter is coming and their warm clothes are outgrown/worn out. The family has an emergency meeting: “We’re going broke!”  “What we need is for Dad to stop wasting his time making broccoli, I hate broccoli.” “Yeah, the Nutritionment is too big and I don’t like a lot of what it makes!”
Some alternatives are laid on the table:
(1) Stop helping Dad with the dishes, so the parasitic Nutritionment will use up less labor. No-one has any clear idea of what they will do instead, but Mom is sure that if  only she didn’t have to dry silverware in the evening, she would be able to find something useful for the laid-off teenager to do in the afternoons.
(2) Have Mom and the idle kids work with Dad enlarging the henhouse .
(3) Have them learn to knit and make some sweaters for everyone.
(4) Have them spend some time teaching the twins to read and write and collect eggs and weed vegetables.
You have to be a special kind of idiot to think what this family needs is less resources creating nutrition, and for Mom and the kids to go on wasting even more time doing nothing.  You probably think options (2) and (3) make a lot of sense, because they would wind up with more free time (for piano practice, or surfing the web, or making gourmet cheese) after making those investments in physical and human capital. Even if they have to get Mr. Chen’s Carpentry and Needlework Emporium to spot them some lumber and yarn in return for eggs and nice sweaters in a few months. You would probably think that a teenager who refused to do (4) by saying, “teach the twins? I already know that stuff; they won’t do any of it for me before I leave home. Forget it!” was missing a couple of cards from his moral deck.  You would probably think this even if the only way to make it happen was to vote Dad the power to draft people for these projects, and even if the sweaters weren’t going to be useful until November.
This family isn’t broke, it’s stuck in resource-allocation habits that don’t work any more and need to be changed. The Nutritionment is ‘broke’, but only because everyone decided to make it so. And the waste that’s making them poor isn’t Dad experimenting with Cordon Bleu recipes, it’s Mom and the kids, sitting on their hands, unable to create value unless the family organizes them to do so.

If you disagree with everything in this post, then you have a future as a speechwriter for Richard Shelby or a toady for Grover Norquist, or maybe a ventriloquist’s dummy at a Tea Party party, and my sympathy.  If you think it makes overall sense, you are a Keynesian; deal with it.

Author: Michael O'Hare

Professor of Public Policy at the Goldman School of Public Policy, University of California, Berkeley, Michael O'Hare was raised in New York City and trained at Harvard as an architect and structural engineer. Diverted from an honest career designing buildings by the offer of a job in which he could think about anything he wanted to and spend his time with very smart and curious young people, he fell among economists and such like, and continues to benefit from their generosity with on-the-job social science training. He has followed the process and principles of design into "nonphysical environments" such as production processes in organizations, regulation, and information management and published a variety of research in environmental policy, government policy towards the arts, and management, with special interests in energy, facility siting, information and perceptions in public choice and work environments, and policy design. His current research is focused on transportation biofuels and their effects on global land use, food security, and international trade; regulatory policy in the face of scientific uncertainty; and, after a three-decade hiatus, on NIMBY conflicts afflicting high speed rail right-of-way and nuclear waste disposal sites. He is also a regular writer on pedagogy, especially teaching in professional education, and co-edited the "Curriculum and Case Notes" section of the Journal of Policy Analysis and Management. Between faculty appointments at the MIT Department of Urban Studies and Planning and the John F. Kennedy School of Government at Harvard, he was director of policy analysis at the Massachusetts Executive Office of Environmental Affairs. He has had visiting appointments at Università Bocconi in Milan and the National University of Singapore and teaches regularly in the Goldman School's executive (mid-career) programs. At GSPP, O'Hare has taught a studio course in Program and Policy Design, Arts and Cultural Policy, Public Management, the pedagogy course for graduate student instructors, Quantitative Methods, Environmental Policy, and the introduction to public policy for its undergraduate minor, which he supervises. Generally, he considers himself the school's resident expert in any subject in which there is no such thing as real expertise (a recent project concerned the governance and design of California county fairs), but is secure in the distinction of being the only faculty member with a metal lathe in his basement and a 4×5 Ebony view camera. At the moment, he would rather be making something with his hands than writing this blurb.

34 thoughts on “It’s not about money, and the country isn’t broke”

  1. There’s something fundamentally creepy about your family analogy. I mean it, it’s positively scary that you’d expect this analogy to be even the slightest bit persuasive. Psychotic, even.

    The government isn’t our dad. And anybody who starts from thinking that analogy even begins to work has lost me instantly.

    I didn’t elect my dad.

    Once I became an adult, my dad stopped issuing orders to me, we both understood that phase in our lives was due to my having been temporarily incompetent to make my own decisions, not because he had some perpetual claim to power over me.

    I don’t love my government. Quite the opposite at times.

    My government has quite limited, explicitly delegated areas of authority, which it has vastly overstepped.

    If I had to come up with an analogy which would work better, let’s keep the farm. Only, we’re not a family, more like one of those cults, like maybe the one Jim Jones was running. The cult leader has a lot of the members convinced he’s invested with all moral authority, and he’s claimed more and more secular authority as time has gone by. Not that his decisions have objectively been very good, and the living conditions of the cult have been declining of late. But now, some of the members are refusing to drink the Koolaid, and the properly programed members, who think of the leader as “dad”, are outraged.

    That would be you…

  2. And MO’hare’s story is more creepy than the standard “the government sector of a nation like a family that has to ‘live within its resources.'” how? They’re both simplifications, both wrong, except that one is a commonplace in economic discussions and the other is less familiar. MO’hare was just borrowing the common image to tell a different story, turning the image to another purpose to make a point. B-Bellmore either missed this or didn’t like the moral of that story and chose to object to the image itself as creepy. This is a red herring since MO’hare did not originate the image (He didn’t start the image, It was always burning, Since the world’s been turning… )

    Incidentally, the one thing that MO’hare should have pointed out is that high-brow economists, the real men in this economy, don’t talk about households but about representative agents.

  3. How? Well, the chief way in which this differs from the usual family analogy is that in the usual case, the analogy working isn’t quite so dependent on all authority being invested in “dad”, and everybody else being regarded as incompetent to make their own decisions. That’s what I really object to it: O’Hare’s analogy is critically dependent on the aspects of a family in which government is least like a family, unless the government in question is totalitarian in nature.

    Really, the usual ‘family’ analogy isn’t dependent AT ALL on the unique characteristics of a family, any grouping of people utilizing shared resources and division of labor would work. It’s just that most people are better acquainted with families than small business…

  4. I don’t think this analogy works for many reasons, but the largest is that you’ve assumed away trade with other farms; the household is consuming considerably in excess of its own production by borrowing from other farms, and while the other farmers can’t dispossess them, they can stop lending us more stuff, which creates an immediate crisis for the household. To be sure, deficit imbalances become slightly less worrisome if we assume away trade. They also become less worrisome if we assume a sweater tree suddenly appears in the back yard, and so what?

    I understand that you think there are a lot of productive investments that the government should be making to increase human capital. But you cannot convince anyone by building strained metaphors that assume away other peoples’ entirely valid concerns, and prefacing it with a claim that anyone who disagrees with you is an idiot who doesn’t understand *real* economics.

  5. Well Megan, this is a very special farm. It prints its own money. Other farms are quite happy to trade their goods for these bits of paper. Of course you have assumed this away.

  6. Brett: I think you are projecting your own assumptions about family structure and organization onto this story. Where is there any indication in the text of “all authority being invested in “dad”, and everybody else being regarded as incompetent to make their own decisions?”

    It says there, in black and white, that:

    The family has an emergency meeting: “We’re going broke!” “What we need is for Dad to stop wasting his time making broccoli, I hate broccoli.” “Yeah, the Nutritionment is too big and I don’t like a lot of what it makes!”
    Some alternatives are laid on the table:

    This does not sound like dad is making the decisions and that everyone else is regarded as incompetent to make their own. Rather, in the meeting they all discuss the problem and alternatives are laid on the table. How this family actually makes its choice from among them is unstated, but the possibility you assume is certainly not the only one.

    Megan:you’ve assumed away trade with other farms; the household is consuming considerably in excess of its own production by borrowing from other farms, and while the other farmers can’t dispossess them, they can stop lending us more stuff, which creates an immediate crisis for the household.

    Maybe other farms, but what about this (from the original story):Even if they have to get Mr. Chen’s Carpentry and Needlework Emporium to spot them some lumber and yarn in return for eggs and nice sweaters in a few months.

    That certainly suggests that trade is going on in the background.

    Anyway, most of the arguments for that WE HAVE TO DEAL WITH THE DEFICIT RIGHT NOW focus on the existence of the deficit to the neglect of the reasons why there is one and why it is unusually high at the moment. We can cut spending (which is likely to further reduce revenues, leading at least temporarily to a vicious circle called the multiplier) or we can worry about employment (which is likely to increase revenues and to a small extent reduce spending, leading at least temporarily to a virtuous circle called the multiplier).

    And finally, why is the metaphor anymore strained than the usual household analogy from which MO’hare derived it?

  7. Damn html tags! The close bold was supposed to kick in right after the caps. Thank god it kicked in when the paragraph ended.

  8. Brett: One further thought on the family structure. Nowhere is there any indication in this story that Dad rules. Analogizing Dad (or Mom) to the government is not justified by any internal evidence. In some societies, depending on their governments and family structures, this may be appropriate. But you are reading your own assumptions or inferences into this story in a particular way, without providing any defense, reasoned or otherwise, for your reading.

  9. It think this is way too convoluted an analogy. Remember, in the original “we’re broke” family analogy, the family would already be living in a bunch of taped-together refrigerator boxes and limited to looking for work in walking distance, because being broke means never taking on crippling debt like a mortgage or car payments.

  10. If there are plenty of people and supplies to make stuff but not enough money to pay them to make stuff of buy supplies, make some more money. That’s a bad idea when there isn’t idle capacity because the system will be resource limited, but when one tenth of people are unemployed it’s silly for the government to say it doesn’t have enough money to fix things.
    “This planet has — or rather had — a problem, which was this: most of the people living on it were unhappy for pretty much of the time. Many solutions were suggested for this problem, but most of these were largely concerned with the movements of small green pieces of paper, which is odd because on the whole it wasn’t the small green pieces of paper that were unhappy.” -Douglas Adams

  11. So no one here needs analogies to understand the economy, apparently. Huzzah for us, we can just talk about the thing being analogized, rather than the analogy itself.

    Though as an inkblot it has been useful.

  12. Think of the farm as a very large one occupied by an extended family that spans generations. Some members of the family randomly drew the best land for growing crops and became very wealthy in the sense that they could trade their produce for both necessities and consumer goods. Others also grew very wealthy in this way by working very hard to become horticulture experts so they could maximize their portion of the farm and trade their expertise for the things they want and need. Their children begin with advantages and generally turn out well enough, either living off their inheritance or leveraging it to become even wealthier.

    Other branches of the family have less luck or skill, and end up cleaning the barns, driving the trucks, and other necessary work for the wealthier members because the family decision making system never allocated workable land to them, and they lacked the mental acuity or specific motivation to become experts in a marketable skill. They work just as hard as anyone, and efficient operation of the farm requires shit shovelers. But they do not accrue wealth.

    At some point the farm grows to a size that does not permit everyone to sit down together for decision making sessions, so each branch sends representatives to regular meetings and gives them the power to make arrangements for the entire extended family. After a particularly tragic crisis that almost destroys the farm, these representatives vote to allocate wealth from those who have a lot to those who have little in ways that ensure no family member lives in poverty as they age and everyone can call a doctor if they get sick. Older family members like this because they get a sense (and the reality) of security. Younger folks like it as well, since it frees them to pursue their own farming dreams without having to stay in the main house and help great-grandma when she needs to use the toilet. And the system works by smoothing out the highs and lows of farm operations — the boom or bust days seem to be over.

    But after a while the truly wealthy members of the family begin to believe someone is taking advantage of them. They tire of paying into a central pot of money for assisting others (and for building and maintaining roads, tractors, plows, common buildings). They come to think that they can more effectively manage their money than the representatives sent to make decisions. So they disconnect themselves from these representatives even as they start choosing new ones to protect them from collective action and allocation of resources. The representatives become the enemy, one they say steals from them even though they freely chose the representatives. So the wealthy begin paying less into the collective pot.

    This results in a farm with vast wealth, and healthy ongoing production but with many family members poor, sick, and living in misery. Others appraise this farm at a million dollars and it produces a hundred thousand dollars a year. But the wealthy claim it is broke because operating it costs thirty thousand and they only want to pay twenty.

    Please forgive the extended comment. But it must be said that like this fictional farm, the United States of America is not broke. The money is there for infrastructure, social insurance, and health care for everyone. We’ve just stopped playing as a team — and working as a national family — because those who can afford to don’t want to pay the cost. That is fine as far as it goes, but at least say it out loud: we’ve become selfish.

  13. Essentially all models are wrong, but some are useful.

    George E. P. Box and Norman Draper in Empirical Model-Building and Response Surfaces.

    @Brett,

    Your crowd is the one insisting that the Federal Government must conduct its finances exactly like a family, ignoring the fact that government bookkeeping is an accounting quagmire with its own arcane rules. A new Federal Courthouse was built in Our Fair City. This building will likely be in use well into my grandchildren’s lifetimes (I have no grandchildren yet, by the way). But the budget placed the entire cost of the building on the budget in the year it was built. An accountant friend and colleague said to me, “No business would ever show a profit if they kept their books the way the (federal) government does.”

    Governments are obviously not families, and long-term assets (like courthouses) ought to be capitalized and amortized over their useful lifespan. If you want to bitch about the analogy, then let’s stop pretending that the Government budget is a family budget.

  14. My fave example of Stat 1 wrong-wrong-wrong was a lead company apologist who attacked a paper by some clinicians who had measured the lead levels in blood of children in a community near mine tailings because they had not generated error bars for their averages. These clinicians had analyzed blood samples from every child (150 or so) in the community, there could be no error bars.

    Mike says “This family isn’t broke, it’s stuck in resource-allocation habits that don’t work any more and need to be changed.” I think this is absolutely right. I also think both doctrinaire lefties and doctrinaire righties have some awareness that this is true, but they have focused on different allocations which are too high or otherwise not working. This is why I keep having wistful hopes that something like the Gang of Six or the Biden Group can agree, okay, ethanol subsidies go and so does the mortgage tax deduction and we have to find some way of getting the financial sector down from consuming 4% of gdp to the 1 1/2% it did in the good old days.

  15. M O’H: “What real economists say passes a sanity test, even when it’s complicated and often when it’s surprising.”

    I only wish that were true. Robert Lucas, Steve Landsburg, http://noahpinionblog.blogspot.com/2011/04/raghuram-rajans-wrongness-rankles.html, Narayana Kocherlakota — are these real (as in, actual) economists? Unfortunately.

    Economics is not a well-disciplined discipline, and prominent economists are often ignorant hacks, who will go to a lot of trouble to confuse themselves and others.

    To derive an analysis of the macro-economy, one needs an adding-up constraint, a conservation law. You seem to be groping toward one of the best: the notion that the only thing, which is real, is the present moment. Resources can be used, or not, in the present moment only. And, failing to use resources productively in the present moment is an unambiguous waste.

    That insight — the unambiguous waste of unemployment — was the basis for Keynes’ most powerful arguments, against the Austrians and Classicals and Schumpeterians, who made more mystical arguments, trying to justify doing nothing about the suffering and waste of a profound failure of social and political coordination represented by the Great Depression.

    You are wrong, though, to say that it is not about money. Money and finance are the institutions of economic coordination, which failed. In an economy of de-centralized and distributed decision-making, money/finance is the vehicle of central authority. It is the means of exchange, which allows all to productively specialize. And, it is how we keep score. It is how we calculate and make deals to cooperate, one with the other, distributing risk and reward, while enabling investment and anticipating the future.

    The Great Depression and the current Great Recession represent massive failures of money/finance, massive failures of coordination by the chief institutions of centralized coordination.

    So, what is the source of that failure? Are we just dumb? Do are technocrats fail us?

    Not exactly. In addition to the size of the pie, there’s the small matter of how to divide the pie. And, when the struggle over the distribution of income becomes acute, hostages may be taken.

    So, no, the country is not going broke (except, in the long run, it is, because we are no longer investing in a productive future for the vast majority). Technological change has been sweeping away,as obsolete, a lot of the former structure and capital of the economy; without replacing that capital, productivity and incomes of the laboring classes will decline in a globalized world. The uber-rich and powerful corporations are taking a larger share of the national income than they have earned, and are refusing to pay taxes.

    That’s all. Nothing mysterious. Just the unconstrained greed of banksters and other con artists and vicious masters of the universe. The wolves and foxes slaughtering the sheep, and not worrying much about next year’s shearing season.

    The general shape of the “right” thing to do, as economic policy, is not hard to see: marshal un-employed and under-employed resources to restructure the economy away from predatory finance and the ecology-destroying petro-economy and perpetual war, and toward a highly-productive, post-internet, sustainable economy. Except, politically, that requires destroying some highly organized political interests, with a big stake in the existing scam-economy.

  16. I agree that this is way too convoluted. There’s a super duper important lesson here, but it gets lost in the hasty muddle. Kleiman and Drum are two who really lay things out clearly, and Obama should be parroting those two.

  17. To the original post, I thought this way of expressing it was apt (can’t remember where I saw it): Just because we’ve spent money irresponsibly doesn’t mean we should stop working so much.

  18. My take on A Farm Story

    Once upon a time there was a succesful farmer with a lot of land and a lot of folks to work it.

    Every night his wife would make one great big pie that she would divide up three ways. The farmer got a third, the managers got a third, and the folks who tilled the land and harvested the crops got a third.

    The land was good, and for many years the weather was favorable, and folks came from miles around to help with the sowing and reaping. And the pie grew. And everyone was happy.

    One day the farmer gathered everyone around. He had prepared a speech.

    The farmer noted that the pie was growing, and explained that it would continue to grow forever, and that this was due, of course, mostly to his great farming. And that it was necessary that he be rewarded for his effort. And that meant he must have a larger share of the pie, this year and every year. After all, if it wasn’t for him there wouldn’t be any pie at all. But that everyone else would still be getting more pie, too, because the pie was growing and would keep growing forever. That was the beauty of it. It was a win-win situation.

    This new arrangement, he explained, was inarguable, inescapable. It was the best way to go forward, the right and only way to go forward. It was scientific. It was logical. It was in fact a moral imperative that he take a larger and larger share forever, because you’ve simply got to reward good behavior, and owning the farm was the best behavior of all.

    It was a great speech, and folks were very impressed.

    The new arrangement was put into effect, and for many years that worked out okay, and no one ever doubted that things could just go on that way forever.

    So you can imagine how surprised and confused folks were then, to discover one day that the pie was not growing as fast as it used to. All it took was a little bad weather. And as the farm had grown and reached farther and farther into the countryside, it cost more, and was more complicated, to till the land and transport the crops.

    For a while folks were baffled because, though it seemed like they were getting less pie, not more, the farmer and his managers displayed colorful charts and graphs that proved conclusively that everyone was getting plenty of pie, more and better pie than ever before.

    When folks finally began to grow poor the farmer and his managers explained that the problem was that there were too many folks coming to the farm, though they didn’t stop hiring them. They explained that folks didn’t work hard enough or long enough hours, folks took too much sick and vacation time, folks just had too much pie already.

    Then one day the farmer gave another speech. There had been a financial crisis, he explained. No one was to blame, and no one could have predicted it, and it was all very complex, but the long and short of it was that the farmer was going to need a whole lot more pie right now, and that would mean less pie for everyone else, but that it would save the farm.

    Folks didn’t like it, but they didn’t know what they could do about it. It seemed like this was more about saving the farmer than saving the farm.

    But the farmer went ahead and did it, and all folks did was grumble.

    Well, folks are still getting poorer, and the farmer’s share is still getting bigger. And that’s where the story ends because so far no one can think of anything else to do but give the farmer an even bigger share of the pie.

  19. USA Today reported this morning that “the federal government’s financial condition deteriorated rapidly last year” and that government debt is now “$534,000 per household.”

    http://www.usatoday.com/news/washington/2011-06-06-us-owes-62-trillion-in-debt_n.htm

    Two years ago US Today reported that this same “per household” figure was $546,688.
    http://www.usatoday.com/news/washington/2009-05-28-debt_N.htm

    Does the story today explain that the “per household debt” has gone down over the period of Obama’s presidency? Of course it doesn’t. This isn’t intended to be news. It’s pure propaganda.

    As for the nonsensical notion of “debt per household,” it’s purely a scare tactic intended to convey the idea that each and every American family owes half-a-million dollars above and beyond what it already pays in taxes. It’s double-counting and it’s got no purpose other than to terrify the mid-level managers and salesmen who get USA Today for free outside their hotel rooms and read it at their buffet breakfasts.

  20. “Does the story today explain that the “per household debt” has gone down over the period of Obama’s presidency? Of course it doesn’t.”

    And how does that work, when the national debt has gone up dramatically every single one of those years?

    $63.8 Trillion plus upteen billion equals? $61.6 Trillion? Methinks there’s something strange going on in the way this is calculated. And I suspect I know what it is: Projecting forward today’s abnormally low, due to the stalled economy, interest rates, reduces the present value of future expenditures. But who really thinks those interest rates will be sustained? And when they go back up to historically normal rates, we’re going to be in a world of trouble financing that debt.

  21. To Brett: The answer to your question is population growth. Debt per capita is the better way to understand whether “real” debt is expanding or contracting. Since there are more people in the U.S., it means we take in more revenue, thus meaning that we can take on more debt without calling our credit into question one bit. It’s the same as if you received a personal raise, and then asked for a higher credit line – the bank would likely be perfectly comfortable issuing you more credit. So yes, your debt may go up, but you are just as capable of paying it down as you were before.

  22. To Brett, part 2: Also, your anxiety over interest rates is uncalled for. When interest rates are low, it’s only rational for the government to take on more debt. When interest rates go up, you are not “in a world of trouble financing that debt” because the treasury security holders do not suddenly get to change their rates of return. Only new debt comes with the higher interest rate. And since we’re not in a period of stagflation, interest rates will only go up when the economy improves substantially, and when the economy improves, it’s much easier to pay off the deficit and thus contribute less to the debt.

    At least, that’s my impression of how it all works. If anyone (besides Brett) more knowledgeable in these matters would like to correct me if I have this all wrong, I’d be more than appreciative.

  23. 1.) Scary numbers: “Methinks there’s something strange going on in the way this is calculated.” You might take 30 seconds and look at the link. The bogus USA calculation is based on some kind of discounted amount of all present and future federal obligations divided by present population. In other words, pure BS, the kind of crap statistic that gets wingers wet. Obviously ObamaCare bent the cost curve in the latest spin…..take that, sir. Har Har!!!

    2.) Interest rates: Perhaps Brett can fill us all in as to what a “historically normal rate” is. Too young to remember the 40’s and 50’s? Not inclined to actually look up the data?

    ON ANOTHER NOTE: BRUCE WILDER GETS IT. MY THANKS TO YOU, SIR!

  24. “Since there are more people in the U.S., it means we take in more revenue, thus meaning that we can take on more debt without calling our credit into question one bit.”

    Well, that rather depends on whether or not you’ve got a deliberate policy of admitting hordes of ill educated grunt laborers, who drag down the average capacity to pay off that debt, doesn’t it? I mean, by your theory, we could cut to the chase, admit Mexico to the union as a new state, and our capacity to sustain debt would instantly go up by a third… Think that would really work?

    “Only new debt comes with the higher interest rate. And since we’re not in a period of stagflation, “

    And we’re constantly adding new debt, as well as rolling over old debt into new debt. We’re not like somebody with one fixed term loan, who doesn’t have to care what interest rates do. As for stagflation, the only thing that makes you think we don’t have it, is that they altered the way unemployment and inflation were measured a while back. By the measures in place at the time, we’ve got as bad a ‘misery index’ as anything Carter managed to achieve.

    “You might take 30 seconds and look at the link. The bogus USA calculation is based on some kind of discounted amount of all present and future federal obligations divided by present population.”

    You might read my next line: “And I suspect I know what it is: Projecting forward today’s abnormally low, due to the stalled economy, interest rates, reduces the present value of future expenditures.” So you’re in no position to complain about not reading, are you? I figured it out without having to read the link…

  25. There is no evidence that interest rates are going up. Even after public pronouncements by a rating agency that the U.S. credit rating might be downgraded, interest rates didn’t budge.

    Nor is core inflation on the way up, rather, it’s on the way down, which is good for creditors, and bad for debtors (which is most of us).

  26. I know one thing, as soon as I see or hear the words, “Here’s how to think about…”, I know it’s time to stop reading / listening. Imagine the arrogance!

    That was a favorite of business leaders some years ago, and when we, the employees heard it, we knew for sure it was propaganda time. No difference when it comes from academics and policy “experts.”

  27. Brett Bellmore – these aren’t my numbers. They’re USA Today’s numbers. I’m perfectly happy to agree with you that they are bullshit worthless ridiculous meaningless numbers. But if USA Today quotes a debt figure that is lower than its own calculation of the same figure of two years ago, and tells us that this is evidence of a disastrously deteriorating situation, without even mentioning its own calculation two years back, I think you and I can both agree that USA Today is good for lining the parakeet cage and nothing else. Can we not?

  28. Brett –

    Not that I often agree with you, but I usually find your contributions to be worth reading. This, however, is a little over the top: “admitting hordes of ill educated grunt laborers…” Hordes, now there’s a word free of pejorative connotations!

    Taking this statement at face value, you are positing that illegal immigration from Mexico & Central America make up a significant percentage of U.S. population growth, far more let’s say than in-nation births, legal immigration through other channels like H1-B & the like, etc. Is this in fact true?

    I don’t know the answer to the question and am too lazy to research the it. But then again I’m not making any implied assertions. I do think at minimum you should have included some sort of citation when tossing a little bomb like that.

  29. Brett –

    One other thing. As a hypothetical, let’s say we had a deliberate policy of deporting every single one of the ill-educated horde tomorrow. I would assume that the jobs these folks were doing – harvesting produce, building houses, kitchen support, processing poultry, landscape care, et al – would still need to be done by someone else, I assume more-educated citizens or legal immigrants? And that, owing to the illegals being gone, the market clearing labor price for labor for these sorts of jobs (where an education is not required) should rise? Is this your position?

    What I wonder is whether there isn’t a more-or-less given amount of money available in the economy to do these sorts of jobs. And by extension whether higher wage rates would simply translate into fewer jobs overall but not a real increase in debt paying capacity?

    Just doing the thought experiment here.

  30. I would assume that some of them would eventually end up being automated, others would end up being done by somebody else, yes, at a higher rate due to market forces, and less abuse, due to being done by people who don’t have to live in fear of being deported if they report abusive conditions. Even if gross debt carrying capacity didn’t increase, (And the efficiency of automation ought to permit that.) Debt carrying capacity per capita ought to, while the reduction in unemployment would reduce future debt, and the increase in good role models would reduce future social problems.

  31. “admitting hordes of ill educated grunt laborers…”

    These folks clean the houses, mow the yards, and care for the children of the upper middle class, who trust them with their property, the keys to their homes, and the safety of their kids. They are hired for these jobs because they are hard-working, honest, dependable – and because, without strong English language skills, they can’t get the better-paying jobs that their work ethic qualifies them for, they are willing to work for servants’ pay. These “grunt laborers” are what makes the American upper middle two-job two-kids lifestyle possible.

  32. And what makes the American lower class stuck in unemployement possible, too… Nothing quite like having a bunch of foreigners camping out on the first couple rungs of the employement ladder to keep the native prols dependent on government.

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