Thursday, June 04, 2009

Kudos to the NY Times on Government Debt

"Rising Interest on Nations' Debt May Sap Growth"

Yes Workers was very happy to see this headline on the front page of the New York Times this morning. Not because, as was so nicely illustrated in a graph accompanying the article, government debt in the US will increase from $1 trillion in 2008 to $3 trillion in in 2009 but because that this is preceived as a problem by the mainstream press, specially the Times, the paper of record.

Some economists have argued that when the government borrows more it means that there is less money for the private sector to invest in productive assets. Increased government borrowing increases the interest rate, "crowding out" (making more expensive) real investment into real things that real people want to buy. Real private investment then creates real growth which helps real people gain income to grow out of real poverty. Government, yes, does buy things with the money it borrows, nonetheless it should be noted that how this money is spent is not determined through voluntary exchange, but rather through politics, alot (most? all? ) of which is special interest group lobbying.

Other economists say that government debt doesn't matter. Yet hopefully perhaps now the debt has gotten so large that the logic of "crowding out" can no longer be papered-over throught the use of fancy econometric models by those already predisposed to government intervention into our lives.

To paraphrase the photographer in Antononi's Blow-Up, sometimes it takes tragedy to resolve a bad situation. Life is not always like the movies though and we (and our children and our children's children and...) are still stuck with this debt. At least the problem is now out in the open and knowledge is the first step towards wisdom.

Econometrics can be fun by the way, just like can be the use of math in economics, however neither should take the place of logical reasoning, nor should the economics of government spending on public goods "crowd-out" the ethical considerations of passing along public debt to those too young to vote.