Thursday, January 5, 2012

A couple debt updates

- I emailed Paul Krugman this morning pointing him to Nick Rowe's post and asking him if he was a #1 or a #4. I think he's clearly a #4 and his point was never to prove the "logical impossibility" of anything. Nick thinks he's a #1. We've both marshalled quotes from his blog. But this is silly - we need to just ask him. We'll see if he responds - he's been responsive to me over email in the past.

- Bob Murphy provides an example here. It's very similar to Nick's but I actually think the exposition is a little clearer. Bob also goes to great lengths to note that he's had his mind changed on this one, and he's been very obliging to Krugman, which he should be credited for. Still - I'm not quite sure what to make of this one. I'd be much more interested in a model where debt is funding investments that will help the second generation rather than pay for the consumption of the first. And it would be nice to have a growing economy. What Bob illustrates is obviously a burden on future generations, but as Steve Landsburg and I point out, the burden is the transfer itself - not the public debt. If Bob and Nick want to say "transfers from one person to another are a burden on the people that it is transferred from", then I would say "no duh, guys!". But that's a very different proposition from asking whether public debt is inherently burdensome. As Krugman would say, that's a different kettle of fish. I don't think anyone was ever disputing that.

- Now in this post it's clear that it's the transfer itself that Bob is really concerned about. If that's your concern, fine. We always knew that some of us think that the state is a legitimate way for free people to pursue their own prosperity, and some of us didn't. Bob conceives of it as the state telling Isaac (his second-generation rational actor in his model) what to do. I'd argue it's more like Isaac and Abraham (the first generation rational actor) getting together and deciding what to do together. But that's not really relevant (except as a rhetorical flourish to advance Bob's point). If his point is that government allocation (1.) can be zero-sum, and (2.) can be distortionary, I obviously agree - particularly in the case of transfer payments... but I thought we were talking about the nature of the public debt.

Commenter Major_Freedom appears to agree with Bob's focus on the nature of government in this post, although he doesn't have anything like Bob's character. Responding to me, he writes: "I think it’s very, very reasonable for you to find yourself a different career, because obviously you’re more concerned with how to advance the violent state and hurting innocent people’s lives than you are with economic science."

Yes - that's what I'm interested in MF. Hurting innocent people. Geez - now I remember why I've been enjoying Bob commenting over here and talking with him over email so much more ever since the CIA shut down his blog his blog has been having technical problems.


  1. I put in a good word for ya.

    To business - yes, I independently also came to the conclusion that #4 is where Krugman comes down (and, interestingly enough, that is where I would place MMT as well).

    I like that Nick Rowe is putting this out there - but, me being concerned with the meaning of words (silly, I know, to continue to protest when appearances seem so often finagled to offer the maximum offense to Keynes and MMT), I did not care for the use of the term "Ponzi Scheme." A democratically arrived-upon consensus for preferences cannot by definition be a Ponzi Scheme. The way to defeat bad policy is with the facts, not with subterfuge.

    My guess is that MMTers think that if #4 works (which is a prerequisite, I think, for MMT working) then the path is cleared toward considering even more interesting and exotic results, such as the abolition of taxes, or the establishment of more sweeping welfare programs, or (less provocatively) a "free" long-term, low-risk asset for the markets. (There was something else, I think...but that's enough craziness for now.)

    A commenter on Nick Rowe's piece raised an interesting point about #4, it "keeps working until it stops working." MMTers may argue that, being the lender of last resort and printer both, the worst that can happen is inflation gets out of control, but they still retain monetary policy to deal with that.

    It is an interesting question - "works until it doesn't" seems better to me than "never works and prevents good policy to prevent a mythical apocalypse." But not to put too light a spin on it, I consider it an open question of great concern - but I would rather deal with an inflationary crisis than persistent enforcement of austerity scooping out the economy and leaving an ever-thinner rind of residual private demand.

  2. "Hurting innocent people."

    You may not be interested in that, but the consequence of supporting a strong, centralized state is hurting innocent people. Then again, advocates of a strong, centralized state are probably going to say, sure, that's likely true, but you are also going to hurt innocent people without it. The current strong, centralized state in the good old USA is hurting lots of (to me at least) objectively innocent people. One response is, well, that's the best that we can do; which is a fine response as far as it goes. But if your response is, no, I want something different that I think will be less harmful, there is nothing objectively wrong with that position.

    "We always knew that some of us think that the state is a legitimate way for free people to pursue their own prosperity, and some of us didn't."

    No, some people think it doesn't lead to freedom at all - and there are lots of examples historical and current where that is clearly the case. The state is just a tool after all; if the tool sucks, or performs worse over time, there is no reason to continue to use it.

  3. Well, I only support a "strong, centralized state" relative to the internet company I keep. If someone were to ask me on the street whether I support a "strong, centralized state" my answer would be "no".

    As for what actually hurts people and what doesn't and what actually promotes liberty and what doesn't, we've had this discussion many times elsewhere. I think the sides are fairly well defined.

  4. Well, for me if you aren't constantly conflicted and hedging and doubtful about the state there is something wrong. To many people just take it at face value and run from there.

  5. Hmm...the faith is weak in this one.

    If somebody asked me on the street if I support a strong, centralized state, I'd hopefully remember to say "do you mean compared to the GDR, or do you mean compared to the Articles of Confederation?"

    Sometimes it doesn't hurt people to remind them that pigeonholes are too small to sleep in.

  6. ~~Well, I only support a "strong, centralized state" relative to the internet company I keep.~~

    I'm with Edwin.

    This is a really very strange way of dealing with your fellow human beings on multiple levels.

  7. I like Edwin's response too... it's not exactly a contradiction of what I said, just an alternative.

    All I'm saying is that you sounded strange to me writing this sentence: "You may not be interested in that, but the consequence of supporting a strong, centralized state is hurting innocent people."

  8. Daniel: the Woody Allen/Marshall McCluhan gambit eh? Good thing to try.

    Though Post Modernists would say that the text is what matters, not the author! (Dunno if I fully buy that, but well).

    On the other hand, this is not easy stuff (well, it was very hard stuff for me, when I was trying to get my head around it). And if you had asked me that question at that time, my reply would have been: "Dunno, I'm thinking this through, and I'm not sure what I believe and if those 4 are all really different and if they mean what you think they mean!"

    Plus, if everybody is ready to pounce on every word you say...

    Edwin: yep. There's a very big difference between a "Ponzi scheme" that is sustainable and transparent and a true Ponzi scheme that is unsustainable and based on deception.

    I don't know of better words though, that are as simple and quick.

  9. Just a standard way of giving someone the chance to clarify their position. I run into enough people with that attitude that I like to get what they mean clear on that way of thinking.

    Also, you can look sort of slippery doing that (whether you mean to or not). Better to just either be consistent with people or ignore the conversation is the way I look at it.

    Alright, I have an empire to govern.

  10. Doesn't Nick's result fall quite naturally out of an OLG model? Don't see what the issue is, personally.

  11. vimothy -
    I think what you'll find if you look at what I have said in the past on this is that I have no problem at all with the result that falls out of his or Bob's OLG model. I'm happy to see this sort of discussion, in fact - it makes me feel like Prof. Joutz's macro class has some payoff!

    The concern comes in what we try to say with that result, and what we think others are trying to communicate.

    That's always the tough part!

  12. Fair enough, then; I quite agree.

  13. -Daniel

    Please forgive the intrusion of an ignorant non-economist here; but can there be an instance of public debt without a transfer? I get that public debt is not inherently burdensome. (Seems like another "duh, you guys!" proposition.) But I'm trying to think of a situation in which public debt is incurred without a transfer of burden onto non-identical parties to the original transaction.

    Say there is no such situation. Then isn't it the case that public debt and transfers are 1:1 logically equivalent? If so, then saying "public debt creates a burden" is merely imprecise, but not inaccurate, no?

  14. Caleb -
    When talking about policy, "transfer payment" generally refers to what you'd usually think of as welfare - except the idea is a little broader and can include (in addition to welfare)social insurance (Social Security, unemployment insurance) and things like tax expenditures like the earned income tax credit.

    That's not a technical definition, but it's how it's often used - a simple transfer of money from one group to another for its own sake.

    That's differentiated from, say, the government purchasing education services or purchasing a tank or purchasing research or purchasing the labor of a federal judge.

  15. Once again, please forgive my ignorance of the subject. I'm in the process of trying to figure this out.

    1. I fail to see the ultimate difference between govt transfer and govt purchases. Isn't, for example: (Govt transfer of $ -> me purchasing -> education services) the same as (Govt purchasing -> education services transferred -> me)?

    2. Since we're talking about two different groups, (present and subsequent generations), doesn't the operation public debt at least imply an effect that fits the definition of "a simple transfer of money from one group to another for its own sake" for most conceivable situations? That is, between the point where the debt is incurred and when the debt is discharged (through taxes, inflation, or default), there is at least a small change in the populations who enjoy the benefits of the debt and those who bear its cost. Doesn't this change in population imply a transfer?

  16. Major Freedom is absolutely the most ugly, vicious commentator at Bob's blog. I once had a private discussion with another commentator there who guessed he is an angry thirteen-year-old.

  17. Gene Callahan,

    While Major Freedom denies it, I'm positive he has regularly posted on under various names. (I asked him before)

    Here he is supposedly leaving the site as "Private Freedom" claiming to have just received his Phd and got a job in China.

    (Later he came back as Captain Freedom and then Major Freedom, but he deleted those accounts too)

  18. In another account, he claimed to be a retired investor that "made lots of money taking risks" for over 50 years.

    The guy is a total troll.

  19. Major Freedom?

    Captain Freedom?

    As a Sith Lord I say these are silly titles. I certainly wouldn't talk to anyone below the rank of General Freedom.


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