Friday, October 11, 2013

The Ivory Tower Speaks

Well, well, well, Paul Krugman finally admits that failure to raise the debt ceiling and default on national debt are not synonymous. Not that I actually care. That’s all a “sounding brass” kind of noise, and in the long run the debt ceiling is going to be raised. We all know that. It just points out the idiocy of the conversation.

In a post yesterday he posits a theory in which failure to raise the debt ceiling would not automatically and inevitably cause default on debt and result in a world wide economic Armageddon, supposing that when the ceiling is reached, “Treasury manages to engage in ‘prioritization’ -- paying interest on bonds, so that all the burden falls on other kinds of spending.”

He then says that doing so would require balancing the budget, an act that would be fully as disastrous as defaulting on the national debt, leading to “a Great Recession-sized event.” Well, it was fun while it lasted, but we all knew the dean of the Princeton Ivory Tower would never go along with a cessation of borrowing, and of course he has charts.

He points out that the “cash-flow deficit is a bit more than 4 percent of GDP,” because nothing ever matters except in the degree to which it is a percentage of GDP. I’m surprised he doesn’t relate greenhouse gasses to GDP. “Carbon dioxide is dangerously close to 4% of GDP, so we need to run our cars on gold dust.”

There is the rather scary fact, as he points out, that the government’s deficit spending is 4% of a GDP which is growing at only 2% per year. So there is a certain amount of national self delusion in this “economic recovery” we are in, because if you take away that 4% which is simply the expenditure of borrowed money, then our economy actually has a negative 2% growth rate. That most certainly is not recovery.

1 comment:

bruce said...

I just want to know what is the heck is wrong with having a balanced budget? An economist saying a balanced budget is bad? WTF? okay,maybe deficit spending in necessary in times of economic shutdown or national emergency, but certainly not all the F*ing time.

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