What a field day for the heat
A thousand people in the street
Singing songs and carrying signs
Mostly saying, "hooray for our side"

Monday, August 31, 2009

Economics of debt

I've been going on about various things in politics. Of late the cries of "the debt burden" have been ringing from quarters that seemed just fine with the Bush Tax Cuts, Tax Rebates, and war of choice in Iraq. Yes, welcome to the cause, get some coffee and sit down in back, you're late to the meeting.

But here's the strange thing. See, back in the 2000s we had mild recessions that were avoidable, but took some government spending to help right the economic ship. When we complained, "Debt Burden" the other side stuck their fingers in the ears and shouted the mantra, "Lalalalala, can't hear you." Now that we're in a major recession, one that we can look at the minor recessions as preliminary shocks to the system, the government also needs to spend more.

Don't believe me? Okay, China, Germany and France are out of recession at this point. What did they all have in common? A government stimulus package of over 3% of their GNP (ours was slightly less than 2% IIRC). And now we are seeing signs of the recession lessening about a year earlier than predictions made last year (as the situation was worsening).

Are thing still bad? Oh yes, we're at the bottom of the curve. Things suck. Majorly.

But to cry about the debt at this time is to lose one's mind. This is exactly the situation when the government should run into debt. The forces out there are trying to make you afraid. Very afraid. After all, it worked for them for over seven years. Yes, the debt is something to worry about. However, people are pulling shenanigans to make it seem worse than it is.

Still don't believe me? Okay, would you believe Paul (Friggin') Krugman? (grokked from Jay Lake)

So, to review: to make the debt look scary, you have to dismiss the post-World -War II experience, even though it turns out that the 50s offer a quite good lesson; assume that in the future the federal government will have to amortize debt over a quite short period, even though it never had to in the past; compare this inflated debt burden with a narrow piece of the federal tax base; and ignore the likely growth in the tax base over the next decade.

But then there are those who are late to the fight and are mostly doing it to stop health care reform. And to me, going into debt to increase the franchise by extending insurance benefits to the majority of people is not a bad thing. Again, before the recession, although energy had us by the shorts, healthcare costs were kneeling on the windpipe of the economy. If we don't fix that (and frankly, 20% of every dollar being spent on administrative costs is not what I'd call a health service industry) our recovery will be short lived.

No comments: