This came out a week ago over on Law & Liberty, but I just stumbled across it, so here it is; The Democrat’s Paranormal Economics. Excerpts, with my comments.
US government debt now stands at $20 trillion, or roughly 100% of GDP. This should be a concern, but Democratic economists are not worried. A much-discussed November 30 paper by former Treasury Secretary Lawrence Summers and former Council of Economic Advisors Chairman Jason Furman suggests that Democratic thinking has veered into the paranormal, with an emphasis on levitation. Governments will be able to borrow and spend as much as they want for whatever purpose they want, the authors argue in so many words, and interest rates will remain low forever.
As Washington Post editorialist Charles Lane commented Dec. 7, “Far from burdening future generations, governments have a golden opportunity to fund long-standing needs by borrowing for investments in future prosperity—the list includes child care, early education, job training and clean water.”
Note than none of those things have been shown to result in long-term economic growth. You could make an argument for job training, but since our education system seems to emphasize Underwater Ethnic Dog-Polishing Studies over the trades, well, color me skeptical. This crap is vote-buying, nothing but.
The price of insurance against a currency collapse has risen, but that does not mean such a collapse is inevitable. Why can’t the United States simply ignore the warning signals, as Furman and Summers propose, and continue to borrow and spend? Japan’s government debt now stands at 240% of GDP, more than twice the American ratio. Japan appears able to sustain a much higher debt burden. Why can’t the United States?
The difference is that Japan has a current account surplus and nearly $4 trillion in net foreign assets, while the US has a current account deficit and a net international investment position of negative $13 trillion. Japan finances its government debt by selling bonds to Japanese institutions and households. The dollar is the world’s principal reserve currency, which gives the United States the benefit of free or cheap credit from the rest of the world. Foreigners hold trillions of dollars of deposits in dollars to pay for transactions, and these constitute a loan to the United States.
I do not believe that the dollar’s reserve status is in immediate danger, but the world has shifted markedly away from dollars during the past several years. As of late 2020 the world cleared as many transactions in Euros as in dollars through the interbank SWIFT electronic transfer system.
The gist of the Left’s argument, as described and refuted here? Debt is good. All hail the almighty debt! It’s economic suicide.
The Left (and, to be fair, plenty on the Right as well) are awfully good at cherry-picking data points from a variety of sources to prove their own points without having to adjust any of their thinking, anytime, ever. In this case, they picked Japan; in others, they’ll pick Denmark or Norway. But they never, ever present just one coherent economic model.
At the moment, though, the Left has seized the levers of power – and what we are seeing from the incoming Biden Administration is economic mayhem. The incoming administration promises to be a cluster-fuck of epic proportions, and not just on economic matters. Growth is about to be dragged down to a crawl. On Day One, President Biden, at a stroke, not only wiped out thousands of good-paying American jobs, prompting an angry response from the Governor of Montana, but also alienated our closest neighbor and #1 trading partner.
What an asshole.
Want to see economic growth? That comes from innovation and creativity. Want to see innovation and creativity? Stay the hell out of the way.