The Virtues of Deficit Spending
Initial Side Note: I initially started this blog a few years ago when I was having problem with my Gàidhlig language blog and thought the only solution was to continue it in a new blog. I fixed the problem I was having so this one went inert. With mi feeling the need to comment in English from time to time, I thought I'd start using this blog again but this time in English.
It's interesting to me how, after criticizing Bush for the deficits that he ran up, that now that we have a democrat president running deficits at something three to four times the rate that Bush ever did, now all of a sudden, deficits are a good thing.
Paul Krugman in the New York Times is one of the foremost apostles of this notion, spreading the gospel of deficit spending.
Today I just got done reading a piece by James Galbraith in The Nation entitled In Defense of Deficit Spending.
One of the basic points of his article is that as long as we control our own currency, it's okay to run up deficits, that it's not the same as a family living beyond its means because when a government controls its own currency, they can spend money "simply by typing numbers into a computer.," something neither Greece or your typical family of four can do. They have to go out and get their euros or dollars before they can spend them.
Now I realize that this has been going on, to a greater or lesser extent from the time of the Revolution and within bounds that it is a good thing. You need a money supply that expands with the economy. If there were but three gold coins in Juneau with which to conduct the economy here, that would be a severe impediment to the exchange of goods and services. The Revolutionary War was essentially financed with money conjured out of thin air. Paper money. They didn't tax, they didn't have a war chest of gold or silver coins, something that was thought, at the time, to be a essential to fighting any war. They just printed the money they needed. And it achieved its objective: they managed to complete the war in victory. But it also touched massive inflation and the notes they printed were worthless by the end of the war.
This business of the the government paying its debts by conjuring money out of thin air by key strokes into a computer is nonsense. To suggest that we should just spend with no thought to the deficit and print whatever we need to pay for it is madness. Sure, there's no harm in deficts on a modest scale. But if it gets out of hand, it undermines the whole confidence game that a currency is. Each dollar key-stroked into existence represents a claim on the fruit of someone else's labor. Yet it is not the fruit of the government's own labor. I can fix my neighbor's roof in exchange him repairing my car. Or we can trade dollars as chits to keep track on how many favors we've done for each other. I fix his roof, he pays me $100. Later I pay him those $100 back to him for him to fix my car. Those dollars that I possess represent my value added to the economy that I can exchange for goods and services.
But enter dollars into the system that don't respresent someone's value added (or promise to add value in the future), dollars that are the result of key strokes, yet they can be used to makes claims on the fruit of another labor. If this is done on a small scale, on the margins, no real harm is done. However, if done on a massive scale, as is projected before us, it can undermine our currency.
James Galbraith makes the claim that Greece's problem is that they don't have a currency of their own that they can control (i.e. print). But this is nonsense. Greece has a demographics problem, an aging population that retires way too early and an extremely a low birth rate. The results is that a huge percentage of the able bodied population is paid to loaf around. That's a reality that accounting trick like currency key-stroked into existence can't paper over. It will express itself one way or another without they do substantive reform like increase their birth rate, raise their retirement age, whatever. If they had their own currency, it would soon become worthless outside their country if they remained on their current track.
It's interesting to me how, after criticizing Bush for the deficits that he ran up, that now that we have a democrat president running deficits at something three to four times the rate that Bush ever did, now all of a sudden, deficits are a good thing.
Paul Krugman in the New York Times is one of the foremost apostles of this notion, spreading the gospel of deficit spending.
Today I just got done reading a piece by James Galbraith in The Nation entitled In Defense of Deficit Spending.
One of the basic points of his article is that as long as we control our own currency, it's okay to run up deficits, that it's not the same as a family living beyond its means because when a government controls its own currency, they can spend money "simply by typing numbers into a computer.," something neither Greece or your typical family of four can do. They have to go out and get their euros or dollars before they can spend them.
Now I realize that this has been going on, to a greater or lesser extent from the time of the Revolution and within bounds that it is a good thing. You need a money supply that expands with the economy. If there were but three gold coins in Juneau with which to conduct the economy here, that would be a severe impediment to the exchange of goods and services. The Revolutionary War was essentially financed with money conjured out of thin air. Paper money. They didn't tax, they didn't have a war chest of gold or silver coins, something that was thought, at the time, to be a essential to fighting any war. They just printed the money they needed. And it achieved its objective: they managed to complete the war in victory. But it also touched massive inflation and the notes they printed were worthless by the end of the war.
This business of the the government paying its debts by conjuring money out of thin air by key strokes into a computer is nonsense. To suggest that we should just spend with no thought to the deficit and print whatever we need to pay for it is madness. Sure, there's no harm in deficts on a modest scale. But if it gets out of hand, it undermines the whole confidence game that a currency is. Each dollar key-stroked into existence represents a claim on the fruit of someone else's labor. Yet it is not the fruit of the government's own labor. I can fix my neighbor's roof in exchange him repairing my car. Or we can trade dollars as chits to keep track on how many favors we've done for each other. I fix his roof, he pays me $100. Later I pay him those $100 back to him for him to fix my car. Those dollars that I possess represent my value added to the economy that I can exchange for goods and services.
But enter dollars into the system that don't respresent someone's value added (or promise to add value in the future), dollars that are the result of key strokes, yet they can be used to makes claims on the fruit of another labor. If this is done on a small scale, on the margins, no real harm is done. However, if done on a massive scale, as is projected before us, it can undermine our currency.
James Galbraith makes the claim that Greece's problem is that they don't have a currency of their own that they can control (i.e. print). But this is nonsense. Greece has a demographics problem, an aging population that retires way too early and an extremely a low birth rate. The results is that a huge percentage of the able bodied population is paid to loaf around. That's a reality that accounting trick like currency key-stroked into existence can't paper over. It will express itself one way or another without they do substantive reform like increase their birth rate, raise their retirement age, whatever. If they had their own currency, it would soon become worthless outside their country if they remained on their current track.
posted by tearlach61 at
1:01 PM
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