Of all matters of public, policy, the debt is the easiest to demagogue. The very word "debt" is already a piece of demagogy, since it immediately confuses government finance with household finance. Using instead terms like "Treasury bills, notes, and bonds" removes much demagogic distortion, if it also puts before us the challenge of actually understanding these financial instruments and their functioning as parts of US government operations and the global (including US) economy. Talking about "the debt" amounts to a pointless exercise insofar as "the debt" has no content except as a big scary number.
Here in the UK, during the post credit-crunch austerity period, the narrative coming from government was entirely aimed at Theory #2 - for example, ministers would make comparisons between government debt and household credit card bills. This was a very effective way of justifying spending cuts that voters (who generally like our welfare state, NHS etc) pretty much waved through, because they believed that there was no other choice. So if you are a politician who dislikes social spending but doesn't want to admit it, pandering to Theory #2 seems quite effective!
I think you're giving short shrift to those who analogize government borrowing to borrowing from a household or borrowing by a firm.
Households and firms care about debt because that debt must be repaid eventually, and mathematically that is true of governments as well. And we care about that because when we have to repay that debt, we have to raise taxes or cut spending in the future.
An economist might retort that when the government raises taxes or cuts spending to pay off debt, that is just a transfer from one group of citizens to another, and that total welfare is unchanged. However, taxes have *deadweight loss*, and the marginal deadweight loss is very plausibly increasing as the amount of taxes collected increases. So just as in the case of a household or a firm, if we borrow today we really are shifting economic pain on to future 'generations.'
I think a big one you missed is “traditional cultural attitudes and moralizing about debt”. Debt’s role in various societies has varied wildly throughout history, but the one constant is that societies have tended to frame it as an individual moral failure.
The real point your missing is that you need to be right forever. If you are ever wrong, and interest rates go to 5-10% (either from inflation or lack of faith) then the discretionary part of spending needs to go to paying interest. Then you will need to cut entitlements to fund interest.
If you are ever wrong we are screwed in a way I don’t think you quite get.
I think the best answer is usually the simple one that people simply don't understand much about the government and how it works and so draw analogies to their personal life.
So when asked about deficits, Americans think about their credit cards. Building a big balance which you have trouble making payments on is bad; drawing down that big debt is good.
It's very simplistic, of course, for the reasons Noah lays out, but can you blame them when President Obama confirms their misguided notion by saying that the government's finances are just like those of your family? https://www.youtube.com/watch?v=oAawr9Lo7dg
I propose a another possible explanation - rational self-interest. Noah offers two opposing thought-processes. “I’d love to help you but I just don’t have the money” vs. “I wouldn’t actually love to help you because you don’t deserve more money”. I suggest the real motivation is: “I’d love to help you but I'd rather help myself."
Noah suggests the spiteful, "everyone is afraid that some other Americans are getting an unfair leg up on them, or cutting line, or getting a free handout, etc." But if scarcity in fiscal policy is an illusion, why doesn't an enterprising politician package an 0% tax rates for Republican support with Biden's child tax credit, Yang's UBI for adults (kids weren't eligible for his UBI), Elizabeth Warren's student debt forgiveness, and Bernie Sanders Medicare for All? Why not put together a package that benefits everyone equally (or in proportion to their political influence)? No one...not MMTers...not tax-cut-and-spend Trump...not Bernie Sanders...no one advocates an "all of the above" giveaway.
If only a some of these policies can be enacted without precipitating a crisis, it is rational for people without children to oppose Biden's plan, people without student debt oppose Warren's plan, people without large tax bills to oppose the Republican plan, etc. Even if Biden's child tax credit has no direct negative consequence to the childless, the money could hypothetically be diverted to benefit the childless (as evidenced by Yang's competing plan for adult UBI). Simple, rational self-interest urges voters to hold out for a plan that provides them with proportional benefit.
Noah's thoughts about artificial scarcity make sense in many contexts, such as housing. But they just don't make sense for fiscal policy. The real economy has constraints and thus people rationally compete for resources.
How about this to give some shading to your Theory 3: People just don’t want more social spending? People dislike the direction the country is headed. A large portion of the population has been taught to distrust the government. And all too few people are willing to countenance any increase in taxes, even when the benefits would be obvious. And let's face it: short of the government stuffing money in your pocket, the benefits are rarely obvious. In such a world, people might be expected to grumble. But then tell people that the day will come when the bill for today's poor decisions will come due, meaning higher taxes for even fewer benefits. Well, it would seem obvious that the debt enables the government to do more of what you dislike.
While I disagree with the above reasoning, I do think it more closely describes how the average Joe perceives the situation. There are no theories on government finance nor the nature of money. And there are no Machiavellian calculations on how to best put the brakes on social change.
I would look at Japan, their BOJ has monetized over half of the national debt, over 100% of GDP, so net debt is fraction of gross debt, yet no inflation to speak of. The underlying forces of secular stagnation have prevented inflation despite massive budget deficits for two decades. I think we also need to think about monetized debt as a balance sheet not an income statement item. If the Fed purchases 8 trillion dollars in bonds, that's not actually an 8 trillion dollar one burst of spending. It is an asset purchase in an economy that has total assets well in excess of 100 trillion dollars. Buying up those 8 trillion dollars puts cash in investors hands, much of which gets pushed out into new investments in riskier assets, but is not actually spent such that no giant pulse of aggregate demand occurs. The effect is muted. Now if the Fed financed a deficit spending binge of 30 trillion dollars in a single year, of course we would get inflation. But a couple trillion in 2020 and 2021 for pandemic relief in a depressed economy isnt going to do it. Fiscal policy will tighten sharply in relative terms in next two years.
Households equate government debt to their personal debt. When they take out a loan, say a 30 yr mortgage, they pay a little off each year because when they retire their income falls. Their debt to income ratio falls over their life span. The government doesn't retire (unless we have a right wing coup.) The Federal debt to income ratio falls as long as national income grows faster than the Federal debt--which it has historically.
Could also be that they assume their taxes will have to rise substantially to pay it off. The media/politicians dividing up the national debt on a per capita basis probably drives this assumption to some extent.
Most of the population were raised in households where frugality was promoted as necessary and desirable (children of a generation who experienced the Great Depression). Therefore frugality practiced by the government is also necessary, because government debt is like household debt....right?.....(wrong).
Likewise - like many people who still believe Jesus is God (as taught in Sunday school) - so many still believe government debt is bad: "Give me the child until he is 7, and I will give you the man" .
You missed the main argument for deficit spending, and its related counterargument. Debt doves will point out that historically our current debt is not that bad and that we have grown tremendously over the past 80odd years through deficit funded growth, and that therefore deficit spending to grow gdp and
the tax base faster than interest rates is a good financial move.
This is a fair point, however at least my personal concern is that despite the fluff the bbb bill has had a lot of the infrastructure, that will increase future tax revenue, cut to retain the social programs that are a deadend money pit. I'm fine with deficit spending to fund NASA and green energy and tech and microchips and whatnot but just lighting it on fire won't pay it back
The media narrative theory seems to fit the best. Worry about the budget deficit is cyclic.
Whenever the Republicans are in power and borrow money to give to the rich by cutting their taxes, we hear next to nothing about the budget deficit. There's no hysterical coverage, constant polling, or major propaganda push. If a reporter were silly enough to write an article on the deficit such policy caused, it would be spiked out of hand.
Whenever the Democrats are in office and might raise taxes on the extremely wealthy and shift government subsidies from the rich to the other 99.9%, we hear a lot about the evils of the deficit. There are polls and specials and constant articles about the horrors of deficit spending. Any article on the dangers of deficit spending is viewed as Pulitzer material.
Deficit panic is a Republican tactic. It is the result of a consistent, long term propaganda campaign by people and organizations who benefit the most from our society but want to contribute the least. Compared to putting something back in the pot, talk is cheap.
You make it sound traumatic, but I actually think you understate how bad scenario 1 would be. IF we have overly indebted ourselves (I agree, we can't know), then the benefits and costs are likely to fall upon entirely different groups - total disaster.
Per accounting, private wealth increases upon the creation of government debt. There would likely be an attempt to preserve such "wealth" in any over-indebted scenario (falls in wealth trigger recessions). This would result in inflation. The creation of wealth and the subsequent inflation could easily occur decades apart. Markets are very capable of ignoring a problem for many years and then pricing it in near-instantly without warning. So you will have essentially bestowed wealth (in highly unequal fashion) upon one generation but later forced a different generation to pay for it via a regressive "inflation tax." However slim the chances of this scenario, it's very much worth avoiding at all costs.
Of all matters of public, policy, the debt is the easiest to demagogue. The very word "debt" is already a piece of demagogy, since it immediately confuses government finance with household finance. Using instead terms like "Treasury bills, notes, and bonds" removes much demagogic distortion, if it also puts before us the challenge of actually understanding these financial instruments and their functioning as parts of US government operations and the global (including US) economy. Talking about "the debt" amounts to a pointless exercise insofar as "the debt" has no content except as a big scary number.
Here in the UK, during the post credit-crunch austerity period, the narrative coming from government was entirely aimed at Theory #2 - for example, ministers would make comparisons between government debt and household credit card bills. This was a very effective way of justifying spending cuts that voters (who generally like our welfare state, NHS etc) pretty much waved through, because they believed that there was no other choice. So if you are a politician who dislikes social spending but doesn't want to admit it, pandering to Theory #2 seems quite effective!
I think you're giving short shrift to those who analogize government borrowing to borrowing from a household or borrowing by a firm.
Households and firms care about debt because that debt must be repaid eventually, and mathematically that is true of governments as well. And we care about that because when we have to repay that debt, we have to raise taxes or cut spending in the future.
An economist might retort that when the government raises taxes or cuts spending to pay off debt, that is just a transfer from one group of citizens to another, and that total welfare is unchanged. However, taxes have *deadweight loss*, and the marginal deadweight loss is very plausibly increasing as the amount of taxes collected increases. So just as in the case of a household or a firm, if we borrow today we really are shifting economic pain on to future 'generations.'
I think a big one you missed is “traditional cultural attitudes and moralizing about debt”. Debt’s role in various societies has varied wildly throughout history, but the one constant is that societies have tended to frame it as an individual moral failure.
The real point your missing is that you need to be right forever. If you are ever wrong, and interest rates go to 5-10% (either from inflation or lack of faith) then the discretionary part of spending needs to go to paying interest. Then you will need to cut entitlements to fund interest.
If you are ever wrong we are screwed in a way I don’t think you quite get.
I think the best answer is usually the simple one that people simply don't understand much about the government and how it works and so draw analogies to their personal life.
So when asked about deficits, Americans think about their credit cards. Building a big balance which you have trouble making payments on is bad; drawing down that big debt is good.
It's very simplistic, of course, for the reasons Noah lays out, but can you blame them when President Obama confirms their misguided notion by saying that the government's finances are just like those of your family? https://www.youtube.com/watch?v=oAawr9Lo7dg
I propose a another possible explanation - rational self-interest. Noah offers two opposing thought-processes. “I’d love to help you but I just don’t have the money” vs. “I wouldn’t actually love to help you because you don’t deserve more money”. I suggest the real motivation is: “I’d love to help you but I'd rather help myself."
Noah suggests the spiteful, "everyone is afraid that some other Americans are getting an unfair leg up on them, or cutting line, or getting a free handout, etc." But if scarcity in fiscal policy is an illusion, why doesn't an enterprising politician package an 0% tax rates for Republican support with Biden's child tax credit, Yang's UBI for adults (kids weren't eligible for his UBI), Elizabeth Warren's student debt forgiveness, and Bernie Sanders Medicare for All? Why not put together a package that benefits everyone equally (or in proportion to their political influence)? No one...not MMTers...not tax-cut-and-spend Trump...not Bernie Sanders...no one advocates an "all of the above" giveaway.
If only a some of these policies can be enacted without precipitating a crisis, it is rational for people without children to oppose Biden's plan, people without student debt oppose Warren's plan, people without large tax bills to oppose the Republican plan, etc. Even if Biden's child tax credit has no direct negative consequence to the childless, the money could hypothetically be diverted to benefit the childless (as evidenced by Yang's competing plan for adult UBI). Simple, rational self-interest urges voters to hold out for a plan that provides them with proportional benefit.
Noah's thoughts about artificial scarcity make sense in many contexts, such as housing. But they just don't make sense for fiscal policy. The real economy has constraints and thus people rationally compete for resources.
How about this to give some shading to your Theory 3: People just don’t want more social spending? People dislike the direction the country is headed. A large portion of the population has been taught to distrust the government. And all too few people are willing to countenance any increase in taxes, even when the benefits would be obvious. And let's face it: short of the government stuffing money in your pocket, the benefits are rarely obvious. In such a world, people might be expected to grumble. But then tell people that the day will come when the bill for today's poor decisions will come due, meaning higher taxes for even fewer benefits. Well, it would seem obvious that the debt enables the government to do more of what you dislike.
While I disagree with the above reasoning, I do think it more closely describes how the average Joe perceives the situation. There are no theories on government finance nor the nature of money. And there are no Machiavellian calculations on how to best put the brakes on social change.
I would look at Japan, their BOJ has monetized over half of the national debt, over 100% of GDP, so net debt is fraction of gross debt, yet no inflation to speak of. The underlying forces of secular stagnation have prevented inflation despite massive budget deficits for two decades. I think we also need to think about monetized debt as a balance sheet not an income statement item. If the Fed purchases 8 trillion dollars in bonds, that's not actually an 8 trillion dollar one burst of spending. It is an asset purchase in an economy that has total assets well in excess of 100 trillion dollars. Buying up those 8 trillion dollars puts cash in investors hands, much of which gets pushed out into new investments in riskier assets, but is not actually spent such that no giant pulse of aggregate demand occurs. The effect is muted. Now if the Fed financed a deficit spending binge of 30 trillion dollars in a single year, of course we would get inflation. But a couple trillion in 2020 and 2021 for pandemic relief in a depressed economy isnt going to do it. Fiscal policy will tighten sharply in relative terms in next two years.
"Big bad Bloomberg bosses ban blogger's B banter."
-Noah Smith
Households equate government debt to their personal debt. When they take out a loan, say a 30 yr mortgage, they pay a little off each year because when they retire their income falls. Their debt to income ratio falls over their life span. The government doesn't retire (unless we have a right wing coup.) The Federal debt to income ratio falls as long as national income grows faster than the Federal debt--which it has historically.
Could also be that they assume their taxes will have to rise substantially to pay it off. The media/politicians dividing up the national debt on a per capita basis probably drives this assumption to some extent.
Most of the population were raised in households where frugality was promoted as necessary and desirable (children of a generation who experienced the Great Depression). Therefore frugality practiced by the government is also necessary, because government debt is like household debt....right?.....(wrong).
Likewise - like many people who still believe Jesus is God (as taught in Sunday school) - so many still believe government debt is bad: "Give me the child until he is 7, and I will give you the man" .
You missed the main argument for deficit spending, and its related counterargument. Debt doves will point out that historically our current debt is not that bad and that we have grown tremendously over the past 80odd years through deficit funded growth, and that therefore deficit spending to grow gdp and
the tax base faster than interest rates is a good financial move.
This is a fair point, however at least my personal concern is that despite the fluff the bbb bill has had a lot of the infrastructure, that will increase future tax revenue, cut to retain the social programs that are a deadend money pit. I'm fine with deficit spending to fund NASA and green energy and tech and microchips and whatnot but just lighting it on fire won't pay it back
The media narrative theory seems to fit the best. Worry about the budget deficit is cyclic.
Whenever the Republicans are in power and borrow money to give to the rich by cutting their taxes, we hear next to nothing about the budget deficit. There's no hysterical coverage, constant polling, or major propaganda push. If a reporter were silly enough to write an article on the deficit such policy caused, it would be spiked out of hand.
Whenever the Democrats are in office and might raise taxes on the extremely wealthy and shift government subsidies from the rich to the other 99.9%, we hear a lot about the evils of the deficit. There are polls and specials and constant articles about the horrors of deficit spending. Any article on the dangers of deficit spending is viewed as Pulitzer material.
Deficit panic is a Republican tactic. It is the result of a consistent, long term propaganda campaign by people and organizations who benefit the most from our society but want to contribute the least. Compared to putting something back in the pot, talk is cheap.
You make it sound traumatic, but I actually think you understate how bad scenario 1 would be. IF we have overly indebted ourselves (I agree, we can't know), then the benefits and costs are likely to fall upon entirely different groups - total disaster.
Per accounting, private wealth increases upon the creation of government debt. There would likely be an attempt to preserve such "wealth" in any over-indebted scenario (falls in wealth trigger recessions). This would result in inflation. The creation of wealth and the subsequent inflation could easily occur decades apart. Markets are very capable of ignoring a problem for many years and then pricing it in near-instantly without warning. So you will have essentially bestowed wealth (in highly unequal fashion) upon one generation but later forced a different generation to pay for it via a regressive "inflation tax." However slim the chances of this scenario, it's very much worth avoiding at all costs.