Thursday, October 25, 2012

Debt, the big picture

Via: Felix Salmon

CEOs’ self-serving deficit manifesto

Felix Salmon

OCT 25, 2012 13:26 UTC


The WSJ has what it calls “CEOs Deficit Manifesto ” — a copy of the letter, signed by 80-something US CEOs, urging action on the debt and deficit. It’s not a particularly impressive document. It starts like this:

Policy makers should acknowledge that our growing debt is a serious threat to the economic well-being and security of the United States.

It is urgent and essential that we put in place a plan to fix America’s debt.


This is ridiculous. There are lots of serious threats out there to the economic well-being and security of the United States, and the national debt is simply not one of them. Nor is it growing. The chart on the right, from Rex Nutting, shows what’s actually going on: total US debt to GDP was rising alarmingly until the crisis, but it has been falling impressively since then. In fact, this is the first time in over half a century that US debt to GDP has been going down rather than up.

So when the CEOs talk about “our growing debt”, what they mean is just the debt owed by the Federal government. And when the Federal government borrows money, that doesn’t even come close to making up for the fact that the CEOs themselves are not borrowing money.

In fairness, here is the picture of *federal* debt to GDP:


I am in favor of redistributive social policy in an era when the market system fails to provide a living for people who desire work and can’t find it.  The Benign Brodwicz program has always been, “poverty level workfare and health care for the unemployed.”  The conservatives will say such government spending doesn’t “produce” anything, but in first round of spending after the transfer all that money goes into the spending stream for consumer goods that are some business’s revenue.  My story is that with sufficient redistribution (requiring work in exchange for benefits; to some extent as FDR recognized the government will have to act in loco parentis) the constipation of aggregate demand we now face—falling incomes for the majority, exploding incomes for those at the top of the socioeconomic pecking order—can be unblocked.

The rich, however, seem to be willing to create a separate country for themselves within a South American-style society in which the people in the barrios are simply ignored. 

But this is self-serving only in the narrowest sense, and in the short run.  See the recent post on the evidence for the societal benefits of greater equality.

The current mantra is, “You first, after me.”  Social Darwinism is back.  The self-regarding CEOs don’t like freeloaders, and want to cut them off, but their CAPEX spending plans reveal what they think that will do to the economy.

If Mitt wins, one hopes the old “moderate Mitt” will come out and move slowly. 

There’s no better welfare state than the Mormon church, with its income guarantee for unemployed members.  Perhaps Mitt’s secret plan is to get everyone to convert to Mormonism….

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