Francis Bator on the need for more stimulus spending

Cutting public spending in a deep recession is folly.

Francis Bator, who taught me economics in graduate school and was warning about the insanity of rational-expectations macro long before the current crash, had a short letter-to-the-editor in the Financial Times, which he has revised and extended for publication here.

Martin Wolf’s characteristically insightful and important column of October 13 attributes to IMF’s Olivier Blanchard an uncharacteristically partial (in both senses) prescription for the “internal” rebalancing needed in the advanced countries for a strong, sustainable world recovery: “a return to reliance on private demand in advanced countries and retrenchment of the fiscal deficits that opened in the crisis.”

For the U.S., that prescription ignores a hugely damaging multi-year demand-shortfall caused output and employment gap that cries out for extra fiscal stimulus to complement uncertainly potent Federal Reserve quantitative easing. Fiscal stimulus that would perforce make the already huge federal budget deficit temporarily still larger. In the longer term, the prescription would rule out an alternative deficit-shrinking fiscal strategy arguably more appropriate for an enormously rich country – a depressed GDP of $142,000 per notional three-person family – whose resource-starved public infrastructure and many resource starved public services are a scandal. Specifically, it would rule out shrinking the fiscal deficit mainly by increasing taxes on, and cutting transfer-payments to, the well-to-do as needed to reduce the relative share in GDP of the personal consumption of the non-poor, so as to make room not just for extra private business investment and net exports but also for public investment, hard and soft, and even some extra public consumption.

It’s no real suprise that the unwashed Teabaggers still believe in fixing economic downturns by cutting public spending: they have a demonstrated capacity for believing six impossible things before breakfast. But it’s pretty shocking that anyone who pretends to be a grown-up – let alone an economist – still believes in Hooverism.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: Markarkleiman-at-gmail.com

30 thoughts on “Francis Bator on the need for more stimulus spending”

  1. I would have thought it shocking that there are educated people who think there's such a thing as "Hooverism" or that it has anything at all to do with cutting spending.

    I'd say that a term of Obama would be enough to cure most of that sort of ignorance, but I'm guessing that it can't really be cured.

  2. I suppose it's possible to think that spending money would be beneficial, but not beneficial enough to justify going hugely deeper into debt. Not to mention the various negative effects if our international creditors should finally conclude that we're no longer a safe haven.

    Granted, not a position which makes sense to anybody who thinks the federal government has effectively unlimited, consequence free borrowing power. Or who trusts the government to spend borrowed money to maximum effect. But a lot of sane people are averse to testing the limits of the federal government's ability to borrow.

  3. Thomas, please learn WTF was going on in 1930-32.

    Mark, if there's one thing we've learned about such people (tenured economists, and Very Serious People who get columns in elite publications) it's that being wrong doesn't matter, so long as one is wrong in a way pleasing to the elites.

  4. Brett, not to repeat the obvious, but anyone who doesn't want to go deeper into debt can't rationally support the continuation of the tax cuts for the very wealthy.

  5. Brett: at the close of the Napoleonic Wars in 1815, British government debt stood at 290% of what is now estimated to be British GDP at the time. It was 175% in 1918 and 250% in 1945. The sky did not fall in. Nor was the problem solved by inflation, but by growth.

    Please cite the hyper-low-multiplier model you are relying on for your first assertion. Freshwater armchair economic theorists believe in strict Ricardian equivalence, so you are too generous for them. Neo-Keynesian models – the ones actually used by people in government and private finance who build predictive economic models for a living – don´t support your a priori pessimism. That´s why the conservative but real-world economist Martin Feldstein supported the principle of the stimulus. And did you notice how the massive deficit spending of WWII created full employment?

    I think you may be imagining that the situation of a single household or firm- genaralises to a whole society. For the former, increased debt lowers net worth; so you only do it if the benefit is greater than the costs. For an entire economy, my debt is your asset. If I double my debt and you buy it all, the total wealth of society is unchanged. Of course there are other effects of the change: greater volatility and vulnerability to shocks, possible crowding-out of private investment, debt to foreigners in an open economy. But the huge historical variation in debt levels in normally growing economies suggest that these problems can be managed. Current low, low interest rates prove that crowding-out can´t be a problem at the moment.

  6. A)I don't think rich people either deserve their money nor provide much benefit to the economy & B)I think society deserves quality services and paying for them will provide a much needed demand-side boost to the economy.

    Seems perfectly sane to me!

  7. Why, no. Government spends to the limit of revenue, and then borrows all that it's politically feasible to borrow. Increase revenue, and you go just as deep into debt, only at a higher level of spending. Those who want a balanced budget must insist that the government demonstrate spending restraint. Not give it more money to spend in addition to the borrowing.

    Indeed, if the 'stimulus' were really about stimulating the economy, instead of just making the government bigger, the fastest possible stimulus would have been a tax holiday. So, why didn't you people who don't worry about debt agree to that?

    Because you just want a bigger government, and are trying to trick people who want a balanced budget into enabling an unbalanced, but LARGER, budget.

    You've really got to get over the notion that your opponents are so stupid you can trick them like that. "Give me more taxes, and I'll balance the budget!" is one of the oldest political scams around. Nobody falls for it who doesn't want a bigger government.

  8. James, we are borrowing from other countries. Hence your rationalization, even if it were valid, is inapplicable to our current situation. which is more analogous to the family example than you care to admit.

    If I saw the slightest hint that our political class were actually capable of spending restraint, I might believe we could grow our way out of debt. I see no such hint. I merely see a drunk asking for another bottle.

  9. Now that you bring it up, I do want a larger government, one large enough to solve serious problems facing the country. I don't want to balance the budget. I want to balance the economy.

    You, Brett, clearly want a smaller government and bigger problems.

  10. Barry, federal spending increased significantly during that period of time–by roughly 50% from 1929 to 1932.

  11. My, but your ex-prof economist writes badly. The six nouns in apposition to 'gap' (not to mention the double-barrelled adjective phrase before them) slowed me down, but the final sentence I find incomprehensible. He seems to say that one should be taxing the well-to-do (is that the group with incomes over $250,000 where President Obama proposed to stop the tax cuts, or a larger group?), though it's not at all clear, since it's buried in a statment about not reducing the deficit by raising taxes on this group. So maybe he means that the tax cuts should be maintained, since they won't work to reduce the deficit.

    Then he talks about reducing the share of the GDP taken by consumption of the 'non-poor' (is that everyone except the poor and the well-to-do, or is it a synonym for 'well-to-do', and if not the latter, then how many people are we talking about?) in order to 'leave room' for kinds of investments. Where the 'room' is to come from, or why it is needed, is not explained.

    He may be completely right, or at least have a completely rational and coherent argument for his point of view, but I don't know what he's talking about, and I have a couple of degrees in economics. Who is he trying to persuade?

  12. "the tax cuts should be maintained, because *ending them* won't work to reduce the deficit". Sorry. But I'm trying to interpret "it would rule out shrinking the fiscal deficit mainly by increasing taxes on, and cutting transfer-payments to, the well-to-do".

  13. "Indeed, if the ‘stimulus’ were really about stimulating the economy, instead of just making the government bigger, the fastest possible stimulus would have been a tax holiday."

    Maybe the fastest, but not the most effective by a long stretch. There appears to be a lot of empirical knowledge about how much economic activity bang we get for a buck of different types of government expenditure (in the broad sense) and a taxes aren't the most efficient. So indeed the ARRA included both quick tax cuts and other actions with higher multipliers.

    But what do I know. I'm still under the illusion that the internet was created by the government under the direction of some wastrel bureaucrat named JCR Licklider, whom I mistake for a visionary.

  14. Brett wants "spending restraint" to balance the federal budget.

    Last time we had a balanced federal budget, the Republicans said: "See, the gummint is taking more of your money than it needs, so we should have a humongous tax cut!"

    Now, I don't know whether Brett voted for Dubya in 2000, or whether he was in favor of Dubya's tax cuts. But his argument that "spending restraint" will necessarily lead to balanced budgets is a Quixotic fantasy as long as the GOP still lives.

    –TP

  15. Indeed, if the ‘stimulus’ were really about stimulating the economy, instead of just making the government bigger, the fastest possible stimulus would have been a tax holiday.

    If only there were some sort of published literature and empirical study showing how much economic activity is generated by tax cuts vs. other kinds of stimulus!

  16. If only it weren't generated almost exclusively by people who were directly or indirectly on the government's payroll, and well aware of who they need to generate spending excuses for.

    TP, the last time we had a balanced budget, I was in fifth grade. And I'm in my 50's. Perhaps we can start by not perpetuating the myth that the budget was balanced during the Clinton administration, which saw the national debt rise every single year? The debt doesn't get bigger if you're running a surplus.

    Now, for a brief, shining movement, we got close enough to a balanced budget to see one with binoculars. It only required a Republican Congress and Democratic President locked in a death struggle, and a stock market bubble generating rising revenue faster than they could agree on how to spend it. If you want Congress to impeach Obama, I suppose that some pretext could be found, but how are we to arrange for the stock market bubble?

    No, I see no spending restraint, and I certainly didn't see any during the last administration, either.

    Further, you might note that, when applying a stimulus, you want it to arrive quickly. I think this is why, when you flatline, and the doctor calls for adrenaline, they don't use the patch to supply it… Are you aware that a large portion of even the first stimulus package hasn't been spent yet? That's what happens when "shovel ready" projects take half a decade to complete, with the expense backloaded.

    But I will grant that the federal government spends money effectively, when 'effectively" means to effectuate the priorities of incumbent politicians. That is, spending it so as to pay off supporters, launder some into their own pockets, and buy votes. That sort of junk.

    Effectively to stimulate the economy? Not so much…

  17. Brett, you've argued that more spending will always equal more spending. I think that's paranoid. But it also serves to make any sort of reasonable conversation about what kind of expenditures we might want irrelevant. For those of us who believe that there are many things we like to see the government doing, and can make very good cases that these are things that the private sector either won't or cannot do, there needs to be a serious discussion of what to pay for and how to pay for it. Your hand-waving precludes this debate.

    As to stimulus, I think being serious about how to make the most effective expenditures is a good debate to have. But you can't get to that debate if the very notion of a stimulus is denied outright. That's a principled position, albeit one that – to the degree it is serious – relies on very complex economic theory. At which point most non-economists are simply relying on ideology to get them through. I plead guilty myself. But that's a very different thing than wanting stimulus to fulfill my liberal policy dreams. A third of the stimulus was tax cuts, which I don't care for. A good deal more was simply to give emergency aid to states and individuals hurt by the recession. But ultimately, if the government is going to be spending money on something, that something is by definition going to have to be spending – which conservatives have convinced themselves is always bad.

  18. Brett has seen through my cunning plan to trick the USA into fighting wars against Napoleon Bonaparte, Kaiser Wilhelm and Adolf Hitler in order to have a bigger government! (Joining in against Napoleon would have been a fine thing, instead of free-riding, eg the Louisiana Purchase.)

    Look again at Britain. In 1945 it was run by Fabian Socialists who definitely wanted a bigger government – but did they enjoy having to finance a huge national debt as well? In 1918 it was run by conservatives who wanted to keep the state roughly as it was prewar, and more or less did (though Neville Chamberlain etc did expand govenment involvement in health and housing). In 1815 it was run by reactionary Tories whose social policy Rand Paul and Brett would have found a bit extreme – they didn´t even believo in policing, let alon public health and education. Makes my point: debt levels are independent of social policy on the large scale.

    Exhibit for my personal good faith, or at least consistency: I have supported here the Obama plan for a national health IT network, clearly bigger government. But I objected to spending lots of money on it in the stimulus as it was nowhere near shovel-ready.

  19. Brett Bellmore: "I suppose it’s possible to think that spending money would be beneficial, but not beneficial enough to justify going hugely deeper into debt. Not to mention the various negative effects if our international creditors should finally conclude that we’re no longer a safe haven.

    "Granted, not a position which makes sense to anybody who thinks the federal government has effectively unlimited, consequence free borrowing power. Or who trusts the government to spend borrowed money to maximum effect. But a lot of sane people are averse to testing the limits of the federal government’s ability to borrow."

    James Wimberly: "Please cite the hyper-low-multiplier model you are relying on for your first assertion. Freshwater armchair economic theorists believe in strict Ricardian equivalence, so you are too generous for them. Neo-Keynesian models – the ones actually used by people in government and private finance who build predictive economic models for a living – don´t support your a priori pessimism."

    Eli: "As to stimulus, I think being serious about how to make the most effective expenditures is a good debate to have. But you can’t get to that debate if the very notion of a stimulus is denied outright. That’s a principled position, albeit one that – to the degree it is serious – relies on very complex economic theory. At which point most non-economists are simply relying on ideology to get them through."

    What I get out of this exchange is that Brett is an effective propagandist, and economic theory has very little credibility with anyone.

    I take exception to Eli's idea that denying the "very notion of a stimulus" is a "principled position" or relies on "very complex economic theory". At base, the idea of Federal government purchases (a fiscal stimulus) as a remedy for a shortfall in effective aggregate demand is simple and undeniable: people and resources are available, but unemployed; the government buys stuff, causing the unemployed to become employed building the purchased stuff. First-order skepticism about the effectiveness of Federal purchases in reducing unemployment isn't a "principled position" and it doesn't rely on "complex economic theory" — it's the stuff of the Monty Python dead parrot joke; stubbornly denying what is undeniably obvious. People are involuntarily unemployed; it's a serious problem for the society/economy as a whole; solve the problem, by employing them.

    The political dispute over policy enters the fray on the back of my second premise: is high unemployment a serious problem for the society/economy as a whole, and, therefore, for the government to solve?

    Ideological disputation over whether people are actually involunarily unemployed, or whether the government is sufficiently competent to spend money without waste so massive as to eliminate all benefit from the purchases, is just a cover for a dispute over the second premise, that the high unemployment is a common problem, requiring state policy for a solution.

    Should the state try to manage the economy? To what extent, and by what means, should the state try to manage the economy? For whose benefit, should the state manage the economy?

    Keynesian theory was partly an analysis of how the economy worked; Keynes, by his own lights, destroyed the conservative premise that the economy was reliably self-managing, leaving state management of the economy, by means of fiscal and monetary policy, necessary and inevitable. The management task was a technical problem, to be handled by a technocracy of mandarin civil servants, calculating on the common good.

    Our politics have evolved. Today, the U.S. is a kleptocracy, and its economy is managed by neo-liberal technocrats to benefit the extremely wealthy and a small elite of corporate CEOs and Financial sector executive managers. All the ideological confusion is just a fog, generated by a propaganda machine, to obscure this reality, and justify a political blockade on policy with broader benefits.

  20. Gimme ten minutes to parse this sentence, then I'll slog on: "that prescription ignores a hugely damaging multi-year demand-shortfall caused output and employment gap that cries out for extra fiscal stimulus to complement uncertainly potent Federal Reserve quantitative easing"

    Not a complaint, mind you; I'm the kind of guy who enjoys brain teasers.

  21. Keynes, you may note, advocated deficit spending in bad times, alternated with surpluses during the good times to pay down that debt. Funny how those who cite him to defend running deficits seem to forget his prescription of surpluses in good times…

    There is a fundamental difference between occasional deficits as an emergency measure, and perpetual deficits. In the latter case the debt accumulates. The cost of servicing it keeps rising. Suppose, not unrealistically, that interest rates, now at historic lows due to the recession, start rising. The cost of servicing that debt will rise with them.

    The national debt is currently 94% of GDP. Were we to see Carter era interest rates again, the cost of servicing that debt, alone, would exceed the federal government's entire budget. How are we going to achieve Keynes' surpluses then? Tripling or quadrupling taxes?

    No, the idea that running deficits doesn't matter, because we "owe it to ourselves" is madness. No matter how loudly you rationalize it.

  22. "Funny how those who cite him to defend running deficits seem to forget his prescription of surpluses in good times…"

    Shorter Brett:

    "Republicans are massively incompetent managers of the economy, deficit spending like drunken sailors when times are good and even worse when times are bad. Even though Democrats work toward and produce surpluses when times are good, because Republicans Suck So Hard, good times or not, Democrats should do the wrong thing too when times are bad."

    Ok then.

    Brett is nuts, a simpleton doofus, and has been for the last ten years. Why do we respond to him?

  23. We respond, because he's good at propaganda.

    Arguments can be logical analysis, or they can be hypnotic trance inductions: emotional word association games and suggestion. Brett uses partial-truths and resentments, like a seller of soap uses sex and shame to make a teevee commercial. It might not make a lot of sense, but it excites and it sells. After I read a particularly good BB post, I feel I have to rebel and contradict, to shake off the trance, and return to reality. I'm sure others feel the same need.

    It should be noted, though, that in Economics and in the Obama Administration, he has ripe and easy targets. No insult intended to Professor Bator, but, in the main, the economics profession is incompetent and corrupt, and the doctrine is foolish or incomplete, when it is not altogether incomprehensible; professors with CVs as long as your arm and even Nobel Memorial Prizes say things as dumb or dumber than Brett's claims. And, to a large extent, the mainstream macroeconomists not only failed to anticipate the financial crisis, their favored theory — those New Keynesian models James Wimberley recommends to us — lacks sufficient account of finance to make sense of it, even in retrospect. (The financial economists are a bad parody of themselves: they "assume" financial markets are efficient, and leave it at that.)

  24. Bruce, you can call it propaganda all you like, (And thanks for calling it good propaganda.) but you've yet to reveal where the propaganda is wrong.

    Am I wrong that we haven't had a balanced budget since the late 1960's? (Remember, the national debt went up every year of the Clinton administration, and that doesn't happen if you run a REAL surplus.) Which strongly suggests that borrowing in the US is due to lack of restraint, not rational economic calculation.

    Am I wrong that Keynes advocated deficits during economic downturns, to be paid off by surpluses during the expansionary periods? And thus 40 years of straight deficits can't really be claimed to be Keynesian policy?

    Am I wrong that the national debt is currently almost on a par with the GDP?

    Am I wrong that, were we to return to interest rates on that debt which are historically realistic, debt servicing alone would exceed the entire current budget?

    Am I wrong that we're financing the borrowing with funds from OTHER nations, and we'd be in real trouble if they suddenly decided we weren't a good place to keep their surpluses Which means the usual 'we're borrowing it from ourselves' rationales aren't really applicable, even if their reasoning was valid?

    In fact, we're financing the borrowing from *China*, which is no particular friend to the US, and which probably views the bond purchases as something more like munitions for economic warfare, than actual investments. WHERE we are borrowing from ought to scare people silly.

    You can call what I'm saying propaganda all you like, but if you don't identify something I got WRONG, your own response can hardly be persuasive to anybody who needs persuading.

    Before I run out to pick up some milk and eggs for breakfast, (We're out, and have a 2 year old! :O )let me hit you with a quote from Keynes, and an observation:

    "Lenin is said to have declared that the best way to destroy the Capitalistic System was to debauch the currency… Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million can diagnose."

    The observation: My work involves overseas purchases, and I am not alone in observing that exchange rates between the US dollar and other currencies have started shifting against us lately. The idea that all this borrowing isn't having it's consequences is simply, empirically, false. And I'd venture to suggest that, in a few days, when the election is safely past, our government is going to admit that something called 'inflation' has returned.

  25. Another observation occurred to me in the dairy aisle; Even if the economists' theoretical models really did prove, to anyone who could follow them, (You know, 0.015% of the population…) that the government borrowing several times the GDP was an unalloyed good, you're facing a nation full of people who've lost their homes, and face years of penury, because they got too deep in debt. That is NOT going to be a sympathetic audience.

    If you win the argument, it won't be with the public, it will be with the political class. And you're not going to win it because of the models, you'll win it because spending buys votes, and taxing costs them, so politicians have a built in incentive to run deficits.

    And I would argue that THAT is the real reason we have those arguments from economists that borrowing is good when the government does it: Because we're getting the economic theories the government, politicians, are paying for.

    I'd think about that the next time you dismiss any research or arguments on any other subject, on the basis that they were paid for by people who wanted those results. Why is an economic profession financed by the government, and saying the government is right to borrow, more credible than research on global warming funded by a coal company?

    Because they're saying what you want to hear?

  26. "And thus 40 years of straight deficits can’t really be claimed to be Keynesian policy?"

    This of course is an echo of Reagan's rhetoric, "look what 40 years of tax and tax, spend and spend, have done to America!" I remember it as a lad.

    I also remember thinking looking around and saying to myself, "Hey, pretty good! Let's have 40 more!"

    But hey, what do I know. I still think Reagan was a Siegfried-like holy fool, a simpleton with the appearance of a good heart. But lots of people seem to prefer their heroes that way.

  27. "And did you notice how the massive deficit spending of WWII created full employment?"

    Well, that and taking hundreds of thousands of working-age citizens out of the private job markets, shipping them out of country and getting a significant portion of them killed or handicapped for life. All out world war may not be the best approach to obtaining full employment.

  28. BB: Am I wrong?

    In large things, yes, and consistently, in the sense of consistently confused. In small things, sometimes, sometimes technically or arguably, sometimes mistaken as to meaning in context. In your comments, here, your thinking appears to be a jumble, passionately expressive of resentment and tendentitiously relentless in affirming certain ideological shibboleths. It's not that this fact or that, which you assert has paramount importance, is wrong, though sometimes, it arguably is wrong, depending on technical definitions or context. What's wrong, at base, though isn't technical; what's wrong is not the fact asserted, so much as the insistence that the fact asserted has paramount importance. It's the lack of perspective, sense of proportion and logical or "mechanical" consistency that troubles me.

    I have no desire to tangle with you over whether Clinton balanced the budget or reduced the national debt. Certainly, by some measures or standards, he did, but disputing over definitions and wonky distinctions doesn't seem like it's going to be productive.

    I don't recall whether Keynes, himself, actually advocated a counter-cyclic policy of fiscal surplus during "booms" and long-run "balance". Certainly, it is a conventional view, and has been expressed by mainsteam New Keynesians, like Mark Thoma. It doesn't seem to me entirely consistent with Keynes' overall analysis, and I question its internal, intellectual coherence, but I don't honestly care much. I will say, though, as a logical proposition, if the secular trend for the whole economy is growth, then a good Keynesian government will tend, in general and on average, to run deficits. Even if it might run a surplus to contain a transient runaway boom and inflation, increases in the level of economic activity must be accomodated by increases in the money supply, to maintain monetary stability (and monetary stability implies a low, but positive rate of inflation). Overall growth implies deficits more often than not. If that's not what you concluded, you made a mistake in your reasoning.

    I used to be an economist; at least that was my job title. Macroeconomics was never my long suit, but I understand the basics well enough to have a critical perspective. By and large, economics is a failed profession, corrupt and incompetent. This is obviously true of macroeconomics, given the current financial crisis and Great Recession, in that professional economists played critical and conspicuous roles in creating, and failing to anticipate, catastrophe. I can't ask you to defer to the professional experts, because, to a very large extent, I regard many of the professional experts in economics as little better than liars and nincompoops. The abject failures of the economics profession do not make understanding how the economy works any less important, though. To the contrary.

    You are obsessed with the size of the deficit and the national debt, but you don't seem to have any perspective on how deficits and debt work in the economy. It is certainly not the case that debt is simply "bad" and reducing debt is a virtue that will be rewarded by the gods. That reputable, credentialed economists can be both condescending and stupid does not make you right about any of it.

    I cannot instruct you in all of economics in a blog comment. If I were to instruct you in baseball, I could distill my instruction into a single categorical imperative: "keep your eye on the ball!" Lots of people would say the corresponding idea in economics would be, "keep your eye on the money", but that's not quite right, because money belongs to the institutional maya of the economy, the shared, consensual illusion that coordinates our economic activity. Money is to the economy what the scoreboard and the stats are to baseball; money is how we keep score. We cannot run out of money, anymore than the scorekeepers in baseball could run out of points to put on the board. The scarcity of money and debt is an illusion, an illusion that enables and masks the distribution of goods and opportunities.

    BB: "Am I wrong that we’re financing the borrowing with funds from OTHER nations, and we’d be in real trouble if they suddenly decided we weren’t a good place to keep their surpluses . . . In fact, we’re financing the borrowing from *China*, which is no particular friend to the US, and which probably views the bond purchases as something more like munitions for economic warfare, than actual investments. WHERE we are borrowing from ought to scare people silly."

    I think the massive U.S. borrowing from China was a disastrous policy. I won't say I'm on your side, though, because you just seem to me to be confused about the mechanics of how it affects the U.S. You don't reference the exchange rate, for example, though you mention it elsewhere. Did U.S. borrowing drive U.S. interest rates up or down? Exchange rates up or down? Is up or down, "good" or "bad"? How?

    You are emphatic in your statements, but you seem to be completely confounded by the money illusion, unable to see any mechanical, logical relationships to other economic variables and activity.

    The national debt is what it is. So is the unemployment rate. What's the relationship? The relationship is what economic analysis is, or should be, about, because the relationship tells us what our options are, what the consequences are, of action or inaction. To a large extent, the national debt is just an accounting convention, while high, persistent unemployment is the destruction of people's lives and productive potential. You seem to lack perspective and a sense of proportion on that.

    Your opening gambit in this thread was: "I suppose it’s possible to think that spending money would be beneficial, but not beneficial enough to justify going hugely deeper into debt."

    I suppose it is possible to think that, and be wrong in your thinking.

Comments are closed.