The problem is not that people think debt is a free lunch.
Just look at the recent debate we've had over the deficit in the last couple weeks! Look at every debate we've had over public debt.
"Absurd" doesn't even begin to describe the view that the public is sanguine about debt. "Incomprehensibly out of touch with reality" might start to get closer.
The problem is that the public sees paying costs in the future as being much, much worse than paying costs now and the issue is often overly moralized. Paul Krugman likes to point out that in German (the Germans are especially antsy about public debt), the word for "debt" and "guilt" are the same.
That's a problem, if you're someone that cares about the economic way of thinking.
One of the reasons why the public does this is that they forget that "we owe it to ourselves". They see an extra burden because they see a future that is impoverished by debt payments, when in reality there is no extra impoverishment on top of the normal costs of a tax collected for the exact same expenditure.
Friday, January 11, 2013
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Oh god, here we go again.
ReplyDeleteI think it's my final word... I think. It needs to be because I really need to keep writing.
DeleteJoseph Fetz: "Of course, you know that I agree with Bob on this particular issue. In fact, he and Nick were the ones who changed my mind."
DeleteWhat they did was to show that under certain assumptions (not all of which they identified), a debt crisis could develop. In fact the debt crisis could be averted at almost any point. The cost would be that some people would be disappointed, but their expectations were illogical, so what can you say?
You aren't going to drag me back into this argument, I already spent far too much time thinking about it this year, and I'm too involved in other thoughts to stray. For me it's shelved for at least a month or so.
DeleteI +1 Fetz, but for the opposite reason I fear. Krugman is obviously right on this, as is (to restrict myself just to the usual suspects here and at FA), Landsburg, Callahan, Kuehn and Ken B. And as Bob acknowledges, all the profs he learned about debt from, and as was Bob himself before he got confused about a simple OLG example.
ReplyDeleteThat PK is right about the owe it to ourselves stuff doesn't make debt financing a good thing of course. Everyone acknowledges it has effects.
Of course, you know that I agree with Bob on this particular issue. In fact, he and Nick were the ones who changed my mind. However, my comment was more related to the current issue, and the fact that my mind cannot process both the MPK=r thing AND a re-visit of the generational debt thing. My head will either explode or implode, I can't be too sure which at this point, I just know that it won't be pleasant. And stuff like this actually does keep me up at night.
DeleteWell you know how I feel about externalities, so try to make sure it implodes, if you don't mind.
DeletePersonally, I prefer neither.
DeleteThis is why platinum coin easing would be so effective, even though it shouldn't be any different than monetary easing. It can allow us to collectively deleverage without creating a depression, ridding us of the fear of debt.
ReplyDelete