Friday, October 14, 2016

The Idiocy of Economics

Dean Baker produced a response today to a column in Bloomberg News in which he says it is “almost impossible to exaggerate how absurd” the premise of the column is. He then proceeds to illustrate that the columnist cannot hold a candle to an economist when it comes to being absurd.

First, he says that “it only takes the debt side of the ledger,” which is something that “no business would ever engage in.” This after spending years pointing out repeatedly that the government is not a business in that governments do not repay debt, but we’ll let that one slide.

Then he points out that “Microsoft has much more debt than the restaurant down my street,” and suggests that Bloomberg should be “highlighting Microsoft's massive debt.” All of that is, of course, irrelevant to the column’s argument about the increasing size of government debt. In any case, if you look up Microsoft’s balance sheet, it has a rather small debt, 32% of its assets and only 75% of its annual revenue.

He than explains that Bloomberg’s business reporters would “report on Microsoft's debt in relation to its assets and its debt service in relation to its revenue or profits,” and that if they reported on the government debt in this fashion, “it would be pretty obvious and totally non-scary that our per capita debt rises through time.” Actually, that’s precisely what the column said and was, in fact, the whole point of the column. Baker may consider that “totally non-scary,” but not everybody agrees with him.

Besides which, it’s not clear to me how reporting the government debt “in relation to its assets and its debt service in relation to its revenue or profits” would make it in any way obvious that government debt is increasing over time, or especially why it would make that fact “totally non-scary.” For one thing, how does one determine the assets of the federal government?

The big lie, though, is the part where he advocates reporting of government “debt service in relation to its revenue or profits,” and then says that if they did so then “it would be reported on the ratio of debt service to GDP,” which he cites as being 0.8% currently. That is an utterly false picture, because the Gross Domestic Product is an order of magnitude larger than federal revenue. The government does not have access to the money represented by the GDP, it only has access to the money that is paid into its coffers by taxes and other sources.

Federal revenue this past year is $3.3 trillion, but of that $1.1 trillion is social services taxes which are paid directly into a trust fund for Social Security and medical care. The general fund revenue is $2.2 trillion, then, of which $432.7 billion was paid to service the debt, i.e. interest charges, which amounts to 19.7% of revenue. That is not the trivial amount that Dean Baker wants us to believe it is.

There is a very large difference between the reality of “19.7% of federal revenue” which Dean Baker says Bloomberg should be reporting and the meaningless “0.8% of GDP” which he cites instead.

He then declaims the “absurdity that in the Bloomberg Halloween debt story our children would be better off if we eliminated public schools and funding for their education altogether,” which apparently came entirely from his feverish imagination, because it certainly is not contained in the Bloomberg column. He then claims they say that it “would be even better off if we stopped spending to maintain and improve infrastructure,” despite the fact that the column doesn’t say that and apparently unaware that we’ve already stopped such spending decades ago.

He finishes up with a tirade on patents, which is a pet peeve of his, but is pretty much irrelevant to government debt. Sort of like writing about a football game and complaining about a baseball rule. He considers patents as a government plot to permit corporate graft and overpricing and thinks patents and copyrights should be outlawed. Authors and inventors may disagree.

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