Wednesday, May 22, 2013

Why people don't like deficits

I think Robert Vienneau is being disingenuous when he asks claims "our rulers don't know why they don't like deficits". Furthermore, I think his arguments about conspiracies by evil capitalists hoping to keep down the common man reflect his (and Krugman's) politics more than anything real. Not that politics isn't real.

People don't like deficits because they've 1) been told that deficits are bad, and 2) it's easy to make an analogy between an overly indebted family and an overly indebted nation. I think we need to address these matter-of-fact concerns first -- going straight to conspiracy explanations are political, and that's a shame because this core misunderstanding is causing real economic hardship right now.

I think anyone reading this would see the obvious partisanship dissmiss Vienneau:
They report views on many areas of public policy. Generally, our rulers are reactionary and the opposite of benevolent. Business backgrounds in finance or industry, inherited wealth or "earned" wealth, were not correlated with differences in views. The sample size might be too small to provide enough power to distinguish, among the wealthy, effects of where they sit on where they stand. Professionals, mainly lawyers and doctors, tended to be slightly less reactionary. 
Really? Our current President does not have a background in finance or industry, nor did he inherit much wealth (you can decide whether he's "earned" the wealth that he has). Looking through most of Congress, by and large their members are professional politicians. And let us not overstate their power, given how independent most Government agencies are in their operations. Finally, the antonym of "benevolent" is "cruel". Enough said.

Professional Economists are generally poorly versed in accounting, and so do not understand how the balance sheet of a currency issuer operates and is different from the balance sheet of a currency user. Accounting entries like "negative capital" are rare birds, but important in understanding sovereign monetary operation. But since this is a blind spot, they too are guided by their familiarity with household finance and we are told deficits are bad.

Keynesians, are slightly more nuanced and say that deficits aren't bad now, but will be bad in the future, so therefore we should let the Government spend more immediately. However, there is a second way to generate deficits which is to cut taxes, and Keynesians do not put this option on the table. As such, their prescription is partisan in nature and observed as such. Much like Vienneau.

2 Comments:

Blogger The Arthurian said...

Winterspeak: "it's easy to make an analogy between an overly indebted family and an overly indebted nation."

Yes. Truth and relevance aside, it is easy to understand that analogy. Therefore it is popular.

By contrast: "Professional Economists are generally poorly versed in accounting, and so do not understand how the balance sheet of a currency issuer operates and is different from the balance sheet of a currency user."

Truth and relevance aside, you are trying to sell an argument that even economists do not understand -- your words.

3:07 AM  
Blogger The Arthurian said...

To be clear... I should have said "you are trying to sell an argument that even economists do not understand -- to use your words." (I didn't mean your words are the prob!)

3:39 AM  

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