Sunday, March 10, 2013

Proper Perspective

Paul Krugman is back yesterday on the topic of the magically disappearing government debt; shrunk to nonexistence by the growth to infinity of the GDP. In introducing the topic he says that “Anyone who is serious knows that it’s highly misleading just to focus on the raw deficit numbers.” We can’t therefor just say that the deficit is $1 trillion dollars, we must always point out that the deficit is 2% of GDP.

The obvious reason for that is that the former scares the shit out of people and the latter gives them a nice warm fuzzy feeling and allows the government to keep on operating on borrowed money, but that is not either of the two reasons Paul Krugman gives. His first reason is something about business cycles and “automatic stabilizers” that sounds like it came from the floor of a horse stable, and the second is his regular mantra that “all we need is to ensure that debt grows more slowly than GDP.”

His theory is obviously working, since the $16.7 trillion we already owe is such a small fraction of the current $15.09 trillion national GDP. Wait... That doesn't look right. The national debt doesn’t seem to be disappearing.

So be aware that anyone who tells you that the deficit is $1 trillion is not a serious person and should be ignored. It actually is $1 trillion, of course, but no serious person should ever point that out because doing so does not put that number in it’s “proper perspective.”

It is, however, proper and serious to say the Exxon made $250 billion in profit without providing any sort of “proper perspective” for that number. News reporters and “serious” pundits do that all the time. A “proper perspective” for that figure might consist of pointing out, perhaps, that it represents a mere 4.7% profit margin on sales.

Quoting raw numbers without context is “serious” depending on why you are doing it. If you are doing it in a manner which makes policies look bad which Paul Krugman favors, then you are not serious and should be ignored. If you are doing it in a manner which makes policies look bad which Paul Krugman opposes, then you are a serious person to whom attention should be paid.

In parting, Krugman’s argument about debt growing more slowly than GDP is absurd on it’s face in any case. The growth of GDP is forecast at something like 2%, with even the most optimistic hoping for a 4% annual increase, but a $1 trillion annual defect with today’s debt represents a 6.25% increase in the national debt. So our debt is clearly growing significantly more rapidly than is our GDP while he is babbling that everything is okay. Even by his own fallacious theory, it clearly is not.

1 comment:

bruce said...

It is never pointed out that GDP is not the same as income, but everyone seems to treat it that way. It is not income or profit (heaven forbid the government makes a profit, but some wingnuts might say so).

A far better measure of the debt issue is to state it as a measure of debt vs income or vs total expenditures. That would scare people too. And of course, no one mentions the fact that is it just this income or lack of it - and spending - that creates the need for borrowing in the first place.

And of course every citizen, or municipality, or business creates a budget with income, expenditures and debt. And it should balance, preferably with more on the income side than debt /expenditures. But governments don't work that way, and neither do politicians.

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