Seldom has Dean Baker put so much self-justifying nonsensical rationalization in one article as he did a last Friday in a piece titled "Debt and Deficits with the Coronavirus.” He then compounded it with even more egregious nonsense in Sunday’s “The Washington Post’s Debt Cult.” The man has gone completely down the rabbit hole.
I will start with Friday’s follies, in which he starts by pontificating at great length (and incoherence) on the horror of the thought that the Fed might increase interest rates and why they should not do so. The Fed clearly has not shown the slightest intention since last year of raising interest rates, so he wins that round by default, sort of like urging the sun to come up in the morning. Good idea. Yea, he was right, it did.
Then he addresses the idea that the budget deficits are “overheating demand” and leading to shortages, notably of toilet paper. Right. Except that we ran short of toilet paper before the government started handing out money, so that weakens his argument just a little bit. Maybe more than a little. Perhaps we ran short of toilet paper in anticipation that the government… Never mind.
But he gets more than a bit incoherent again, saying that shortages, “would result in higher prices because the government is giving people money to buy these things, but the shortages would still be there without the budget deficits.” If you don’t follow that don’t feel bad, because no one else does either.
He follows that up with what he seems to think is a solution, saying that, “large numbers of people who are now getting unemployment insurance and other forms of income support in the shutdown period, simply would not be able to buy anything, thereby eliminating the demand and price pressure,” which doesn't address how demand (and prices) got so high in the first place. That’s called “circular reasoning,” and economists do it quite a lot.
He then tells us that he is going to address the issue of, “The other part of the big deficit story is that we are adding more than $2 trillion to the debt that our children and grandchildren will have to pay off, or so the story goes.”
Except he doesn’t, of course, because he address payment of interest on the debt (incoherently, of course) but never addresses “paying off the debt” part.
That's because, like most economists, Baker does not visualize government debt as something that is ever paid back to the lender. Economists live in their own reality. In our reality, if it doesn’t have to be repaid it’s not a loan, it’s an investment, and investment by definition means an ownership stake. How can one have an ownership stake in the United States government?
Well, it’s called “campaign contributions,” but that’s a different topic.
“First,” he says, “this is not a case of our children paying the money to us…” which actually is wrong. We are spending the money, and are receiving the benefit of having spent the money, and our children and grandchildren are paying the money back. How is that not them paying us the money?
(The answer, for Dean Baker, is that they are not paying the money back. No one is paying the money back. We spent the money with no intention that it would ever be paid back. What does that make us?)
“…it is a case,” he goes on, “of some of our children paying money to other of our children.” This is true, he profoundly observes, because, “At some point, everyone who is alive today will be dead.” Interesting. Who among us would ever have thought of that? I was wrong; the man is a deep thinker.
“At that point,” he goes on, “the interest will be paid to whoever happened to inherit the bonds. So, the burden created by the debt … is that most of our kids will be paying interest to the heirs of Bill Gates, Jeff Bezos, and other wealthy people.”
Dean Baker is one of the wealthy, so he’s quite happy that your kids and mine will be paying interest to his kids. You and I might not like that very much but, as he points out, we will all be dead.
And bear in mind that, according to Baker, “The burden of the debt, insofar as there is one, is the amount of money that we are paying out each year in interest to service the debt.” The debt itself, $24 trillion at this point, is not a burden. It is an irrelevancy and is of no concern to future generations.
Tomorrow I will explore Sunday’s exposition of incoherence and insanity, titled, “The Washington Post’s Debt Cult.” I read this shit so that you don’t have to.