{"id":10447,"date":"2012-01-13T15:37:45","date_gmt":"2012-01-13T20:37:45","guid":{"rendered":"http:\/\/www.prosebeforehos.com\/?p=10447"},"modified":"2012-12-26T16:07:41","modified_gmt":"2012-12-26T21:07:41","slug":"why-dont-we-understand-debt","status":"publish","type":"post","link":"https:\/\/www.prosebeforehos.com\/article-of-the-day\/01\/13\/why-dont-we-understand-debt\/","title":{"rendered":"Why Don’t We Understand Debt?"},"content":{"rendered":"

The Article:<\/strong> Nobody Understands Debt<\/a> by Paul Krugman in the New York Times.<\/p>\n

The Text:<\/strong> In 2011, as in 2010, America was in a technical recovery but continued to suffer from disastrously high unemployment. And through most of 2011, as in 2010, almost all the conversation in Washington was about something else: the allegedly urgent issue of reducing the budget deficit.<\/p>\n

This misplaced focus said a lot about our political culture, in particular about how disconnected Congress is from the suffering of ordinary Americans. But it also revealed something else: when people in D.C. talk about deficits and debt, by and large they have no idea what they\u2019re talking about \u2014 and the people who talk the most understand the least.<\/p>\n

Perhaps most obviously, the economic \u201cexperts\u201d on whom much of Congress relies have been repeatedly, utterly wrong about the short-run effects of budget deficits. People who get their economic analysis from the likes of the Heritage Foundation have been waiting ever since President Obama took office for budget deficits to send interest rates soaring. Any day now!<\/p>\n

<\/p>\n

And while they\u2019ve been waiting, those rates have dropped to historical lows. You might think that this would make politicians question their choice of experts \u2014 that is, you might think that if you didn\u2019t know anything about our postmodern, fact-free politics.<\/p>\n

But Washington isn\u2019t just confused about the short run; it\u2019s also confused about the long run. For while debt can be a problem, the way our politicians and pundits think about debt is all wrong, and exaggerates the problem\u2019s size.<\/p>\n

Deficit-worriers portray a future in which we\u2019re impoverished by the need to pay back money we\u2019ve been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.<\/p>\n

This is, however, a really bad analogy in at least two ways.<\/p>\n

First, families have to pay back their debt. Governments don\u2019t \u2014 all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.<\/p>\n

Second \u2014 and this is the point almost nobody seems to get \u2014 an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.<\/p>\n

This was clearly true of the debt incurred to win World War II. Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than debt today; but that debt was also owned by taxpayers, such as all the people who bought savings bonds. So the debt didn\u2019t make postwar America poorer. In particular, the debt didn\u2019t prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation\u2019s history.<\/p>\n

But isn\u2019t this time different? Not as much as you think.<\/p>\n

It\u2019s true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar\u2019s worth of foreign claims on America is matched by 89 cents\u2019 worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that\u2019s already deep in hock to the Chinese, you\u2019ve been misinformed. Nor are we heading rapidly in that direction.<\/p>\n

Now, the fact that federal debt isn\u2019t at all like a mortgage on America\u2019s future doesn\u2019t mean that the debt is harmless. Taxes must be levied to pay the interest, and you don\u2019t have to be a right-wing ideologue to concede that taxes impose some cost on the economy, if nothing else by causing a diversion of resources away from productive activities into tax avoidance and evasion. But these costs are a lot less dramatic than the analogy with an overindebted family might suggest.<\/p>\n

And that\u2019s why nations with stable, responsible governments \u2014 that is, governments that are willing to impose modestly higher taxes when the situation warrants it \u2014 have historically been able to live with much higher levels of debt than today\u2019s conventional wisdom would lead you to believe. Britain, in particular, has had debt exceeding 100 percent of G.D.P. for 81 of the last 170 years. When Keynes was writing about the need to spend your way out of a depression, Britain was deeper in debt than any advanced nation today, with the exception of Japan.<\/p>\n

Of course, America, with its rabidly antitax conservative movement, may not have a government that is responsible in this sense. But in that case the fault lies not in our debt, but in ourselves.<\/p>\n

So yes, debt matters. But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way. <\/p>\n","protected":false},"excerpt":{"rendered":"

The Article: Nobody Understands Debt by Paul Krugman in the New York Times. The Text: In 2011, as in 2010, America was in a technical recovery but continued to suffer from disastrously high unemployment. And through most of 2011, as in 2010, almost all the conversation in Washington was about something else: the allegedly urgent […]<\/p>\n","protected":false},"author":49,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[259],"tags":[],"yoast_head":"\nWhy Don't We Understand Debt? - Prose Before Hos<\/title>\n<meta name=\"description\" content=\"The Article: Nobody Understands Debt by Paul Krugman in the New York Times. 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