Wednesday, July 20, 2011

Communicating the difference between public and private debt

Yesterday afternoon I was doing something I usually avoid - listening to a lot of the Congressional debate on C-Span. Both sides were depressing because both were demanding deficit reduction. The Democrats were a smidgen less depressing because they at least kept pounding the position that maybe reforming some tax credits was a better way to close the gap than cutting into student loans. But overall, it was not what you wanted to hear during what is now increasingly being called the "Little Depression".

One of the things that just about every Republican said was that "Washington needs to do what families do and not spend more than they take in". It's powerful rhetoric that is electoral gold. Getting tough on the deficit is good for politicians - analogizing it to family values is even better.

What's bothersome is that no one challenged this view, which among economists is almost universally considered to be fallacious. Even those economists who don't think deficit spending is good macroeconomic policy do not claim that government has to, on average, run a balanced budget. The people demanding austerity ultimately have a better stump speech than the people who understand public deficits and debt, and this is a problem.

So my question to readers is - what is a good, succinct way for politicians to communicate that (1.) public debt is different from private debt, (2.) it is not fiscally responsible to cut public debt during downturns, and (3.) we can run deficits from now until the Sun burns out and everything would be just fine, so long as their magnitude is manageable over long periods.

Let's put together a good stump-speech phrase and then spread it over the internet - get Paul Krugman, Matt Yglesias, Brad DeLong, Mark Thoma, Menzie Chinn, and lots of others saying it so politicians might start saying it. What should our representatives say when Republicans or others analogize government to families?

[A note on comments - I know I have a large libertarian readership, but I'm not at all interested in challenges to these three points. While (2.) is admittedly a fair topic for debate, the other two simply aren't. I'm really interested in generating a good stump-speech phrase, so comments trying to challenge the premise are just going to get deleted. I'm not interested in a debate on this particular post. Obviously this comment policy doesn't carry over to other posts].


  1. I'll start with one important element:

    Peter Dorman recently pointed out ( that most people only see the liability side of debts rather than asset sides, so the idea of public debt being an asset isn't natural to them. One way to say this might be something like "Our robust market economy makes Americans some of the wealthiest people in the world, and Americans want to put that wealth somewhere that's safe and a good investment. Families, pension funds, and corporations have always found government bonds to be a great vehicle for storing their wealth. Do responsible business owners get scared and hysterical when investors are excited about the opportunity to lend to them? Of course not! It's good for those investors and it's good for business owners. Why are we acting like this is a bad thing? So long as people have faith in government bonds and are willing to invest, it makes no sense to reject those investors and rely on taxes to fund what government does".

    This - James McDonald has pointed out ( - was a very important element of colonial enthusiasm for public borrowing. Reliance on voluntary lenders reduced the need to impose involuntary taxes.

  2. "Let's put together a good stump-speech phrase and then spread it over the internet - get Paul Krugman, Matt Yglesias, Brad DeLong, Mark Thoma, Menzie Chinn, and lots of others saying it so politicians might start saying it. What should our representatives say when Republicans or others analogize government to families?"

    Just say: The Republicans are stupid, and we are not.

    There, that wasn't so hard, was it? This sort of partisan rhetoric has worked for those columnists before, has it not?

    Or maybe, since deficits are financed by bondholders, who would instead put their money in...I don't know...lottery tickets and race horses, try to use paternalism.

    "We make sure that the bondholder's money goes to protecting the elderly on life support, not on booze and late night partying."

    That ought to work. In fact, isn't that what they sometimes argue? "Financiers will put money into speculation. Grrr! We'll put their money to more responsible use. Yay!"

  3. I think the "Republicans are stupid" might backfire, but the others are interesting.

    However... we have a proud and I think justified tradition of being skeptical of government here. Certainly I'd say government does certain very good things, but it's precisely vigilance and skepticism that determines whether they stick to those things.

    But I still like your approach - perhaps highlight the good things: "People want to invest in the government because they think investments in education, infrastructure, and caring for the less fortunate are good investments to make, and they know the investment is a reliable. Insisting on a balanced budget is tantamoun to telling these investors that we know better than them and that they are wrong to decide that where they want to park their savings".

  4. theres that hayek quote about the intimate vs large scale orders and how applying the one set of values to the other will destroy it.

    LOL. they won't see that one coming.

  5. My only comment is that this is a proper "quest" for the real economists in the nation. The people are not stupid. But they are ignorant of economics -- both micro (economic rent) and Macro (fiat money). There is insufficient time to use a proper educational fix for this problem. It has to be done in simple, easily understood terms that politicians can use to assert REALITY and COMMON SENSE. I like the ones about "savings" and the good old "full faith and credit of the US government".

    What this should tell us all is that the Republicans _WANT_ the nation to default. That removes both of the aforesaid talking points. Is it not the objective of the Republicans to destroy government?

  6. To commenters: I'm really looking for talking points/ways of phrasiing this. I'm not looking for a debate of my premises. Don't spend time writing a comment that's not going to give me some fodder to write a post at a future date (perhaps this weekend) presenting a few good stump-speech lines that seem to communicate the point.

  7. "The government can borrow and pay very low interest. The economy is in the tank because people and families have debt they can't pay, at high interest. They're paying interest instead of buying goods and services made by other Americans. Cheap government debt to displace expensive private debt is a great trade."

    Too long, I know. Argh!

    It is, sad to say, to Adam Smith himself that we owe the fallcacy you complain about, Daniel.


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