Friday, December 30, 2011

Boudreaux is so intent on being "against" Krugman that he repeats his argument

This "open letter" is embarrassingly bad. It's not even a case of Don disagreeing with Krugman, me thinking Don is dead wrong, and other people subsequently disagreeing with me. Don actually restates Krugman's point and actually seems convinced he's correcting him.

Don writes: "Suppose Uncle Sam were to supplement my annual income to the tune of $1 billion, to be funded exclusively out of present taxation. The result is that Americans as a group today pay $1 billion more in taxes and Americans as a group today (I’m an American) receive $1 billion more in the form of an income supplement. Receipts equal payments, so collectively it’s a wash.

But surely you agree that it’s mistaken to conclude that, because “we” pay this $1 billion to “ourselves,” government granting me this income supplement is no burden on current Americans. Therefore, you should also agree that it’s mistaken to conclude that, because “we” owe the public debt to “ourselves,” the responsibility for repaying that debt is no burden on future taxpayers."

In other words, Don is arguing that the debt burden falls on people who have to ay back the debt - which is exactly what Dean Baker said initially and exactly what Krugman agreed with Baker on in his responses when he said the debt problem is a problem of distribution and incentives, not a problem of "burdening future generations".

I'm not even sure Don understands that he's agreeing with Krugman because he writes his "open letter" as if it's challenging the argument that Krugman made.

My advice - as usual - is to read Krugman's post and if you don't realize he's right, keep reading Krugman's posts until you do realize it and until you realize he's actually making the same point as Don.

He's making many other very good points too, including noting that "owing foreigners" isn't as big of a problem as people make it out to be because they owe us about as much.

The point is this: in our daily lives, the unit of analysis when we think of "prosperity" is our own family. If we are in debt, we actually have less resources. We may get something for that debt (a car, a house), so we're better off taking on the debt than not taking on the debt - but we have less resources available as a result.

That's not true if we want to talk about the prosperity of a community that encompasses both the asset holder and the liability holder. Debt does not automatically imply a lack of resources as it does in our personal finances. It may introduce major distributional problems. It may introduce major incentive problems (Krugman specifically discusses the disincentives introduced by high marginal tax rates to pay off debt burdens). But there's nothing about a high debt level vs. a low debt level that reduces the resources the community has available for productive activity.

Krugman is like catnip to Don like he is to a lot of people, so that even when Don agrees with Krugman he doesn't seem to realize it and is intent on arguing with him.


  1. Is Boudreaux your catnip Mr. Kuehn?

  2. Boudreay has responded:

  3. Boudreaux and Krugman don't really have anything to disagree about here but they want to emphasize different things (going off of Boudreaux's followup, I don't know what was going on in that first post). It is quite correct that the existence of debt on it's own does not make a community worse off if all debts are owed to other members of the community (I think that this is an insightful point). However since government debt is the result of government spending (consumption), in practice, debt usually does indicate that we have less resources than we would with no debt (but not because of anything about debt itself, just because debt is a way of financing consumption). Krugman is emphatically not saying that we can get stuff for free by loaning money to ourselves, but he is (legitimately) focused on clearing up a different misconception and does not emphasize this point.

    I think that you are right that in his zeal to disagree with Krugman, Boudreaux framed his point poorly. He should have just said something like 'Krugman makes this interesting point that I agree with. Here is an aspect of that discussion that he doesn't talk about that I think is important.'

  4. Daniel: sorry, but in this case, on the burden of the debt, Paul Krugman is wrong.

    Even very very good economists sometimes get things wrong. Nobody is infallible.

  5. Daniel, you are the wind beneath my wings.

    While I don't know enough economics to tell who is saying what, I'm curious as to why, when Boudreaux had a chance to address another economist, he didn't use any mathematical formalism? Why some Foxnews-level reductio ad absurdam about leveling the Rocky Mountains?

    (that's a rhetorical question. Only Don knows why.)

    Invisible Backhand


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