Wednesday, March 3, 2010

What's wrong with the deficit???

Republicans are making a lot of noise about the deficit of late.
(They didn't care too much about it when W launched two (2) off-budget wars.)

Even a few Dems are starting to make 'deficit hawk' noises.
"If we continue unrestrained deficit spending, bad things will happen!"

Like what?
This simple question is never answered.

The most common analogy used is household debt.
"We all know how to balance a household budget.
If we live beyond our means, we'll go bankrupt!"
(Admittedly, with current personal bankruptcy laws in which creditors get all the breaks, this is a bad thing. [Ed - feel free to chime in!])

BUT: the U.S. government is NOT a personal household.
What are the 'bad things' that will happen if we continue to run national deficits?
Oh, yeah: "Our children will be saddled with this huge debt!"
Just as we are today saddled with St. Reagan's huge debt.
So what?

As far as I can tell, the only plausible really "Bad Thing" that could happen is that we - the United States - will someday default.
We will become non-credit-worthy.
We won't be able to borrow any more money, from anyone.
Is ANYONE seriously predicting this?

When my wife & I die, our estate will be liable for any and all outstanding debts we hold at the time of our deaths.
Is the U.S. Government going to die anytime soon???

Ah - but Government borrowing competes with private borrowing, driving up interest rates!
I'm old enough to remember 12%-15% mortgage rates.
The country survived.
In fact, this was the Golden Era under St. Reagan!
(And - just out of curiosity - what private sector entities are now scrambling to borrow tons of $$$?????... TARP has been criticized for not freeing up lending, but the truth of the matter is that there aren't any folks out there desperately seeking new credit! [note: there are other legitimate reasons to criticize TARP! - lack of oversight, transparency, and accountability among them.])

So, tell me again: when the private sector is not spending and not hiring, when unemployment is running 10%, and when inflation is close to historical lows... WHY is the U.S. Government deficit a bad thing???
What, exactly, are the horrible things that will befall us if we spend more Government $$$ putting people to work?


  1. The analogy between the United States Government and a family as debtors is silly.

    There are a number of logical flaws in the attacks:

    1) Cash basis accounting:
    Seriously. Cash basis accounting. If the government had to live by the rules the government imposes on others, it would be required, because of its size, to consider its income and expenditures on the date they became fixed rather than the day the money changed hands. An obligation that was triggered by a purchase this year would be "spent" at that moment rather than the day a check was delivered.
    This would not necessarily improve the picture. The government would need to "reserve losses" for my expected Social Security benefits this year since I have paid into the system already and am nearing retirement. An accountant might raise the quibble that Congress could alter my benefits down to zero before I begin to collect and that, therefore, that expense is not properly accruable so long as the Feds have it in their power to zero out my account, but given how absurdly unlikely that is, it seems to me to give a MUCH better picture of reality than to have the Social Security and Medicare systems treated as cash cows since, in 2010, they collected more than they paid out.

    2) Assets are never counted.
    The United States purchases a building, and, from a deficit spending point of view, it is a wholly negative transaction without regard to the value of the asset purchased. Same with sales. If the United States auctions off drilling rights to pump oil out of federal lands in Alaska, we just consider the income this year rather than comparing the value of the asset sold. "Seward's Folly" was, from a deficit spending point of view, a total disaster.
    But consideration of this point gives one some idea of what would happen in the case of a bankruptcy of the United States. There, an estate would be created consisting of everything the Government owned and owed, and, in the case of a Chapter 7, a trustee would be appointed to sell the assets.
    What am I bid for naming rights for the "Taco Liberty Bell" or the "Halliburton Defense Department"? Do you suppose we could sell the past due receivables that IRS owns for a profit?
    Idle speculation. It could never happen, of course, but it illustrates how hopeless is the analogy.

  2. Anarchists don't mind spending money, they just don't want anyone else to do the same.