Seriously, I think hell just froze over. An American Enterprise Institute “stink tanker” publicly breaking with the party line and telling conservatives the debt is no big deal — based on actual facts n’ stuff? The AEI, home to Lynne Cheney, Paul Wolfowitz, Newt Gingrich and John Bolton?
There’s always the possibility this is merely a public relations move in reaction to the sound drubbing conservatives took in the November election, but even if it is, it’s going to make our job of stopping austerity a lot easier:
You know the deficit argument is all but over when one conservative tells other conservatives to shut up about it, already.
American Enterprise Institute’s John H. Makin has a long new argument today, in which he said that worrying about national debt is a nonsensical idea because Japan’s national debt isn’t hurting them any, and really, the U.S. has other stuff to worry about. Like fixing the tax code, or reforming entitlement programs.
The debt-to-GDP ratio, which is what many conservatives tout as a metric of how “unsustainable” U.S. debt is, means absolutely nothing, he said. Japan, for instance, has a debt-to-GDP ration of 140, which is way above the U.S. number, and it really hasn’t had any effect whatsoever on their economy. In fact, the interest rate for 10-year Japanese bonds are half that of the American equivalent, in part because of Japanese deflation.
From his notes:
Congress, take note. Although American deficits do need to be reduced and debt accumulation does need to be slowed and eventually reversed, cries of imminent disaster from “unsustainable” deficits and a supposed bond market collapse will not accomplish this goal. Persistently rising bond prices in Japan and the United States have undercut the “sky-is-falling” rationale for deficit reduction.
In fact, austerity could just about be the silliest thing to do, if Congress wants the debt-to-GDP ratio to fall:
If fiscal austerity is applied too rapidly, US growth will drop and the debt-to-GDP ratio will rise, boosting the nation’s debt burden. If the Fed tries to stem the rise with too much money printing, inflation could rise and drive up interest rates, exacerbating the US debt burden.Congress and the president need to avoid excessive austerity with respect to changes in fiscal policy this year. Over the past four years, on average, the fiscal boost applied to the American economy has been worth about 3 percent of GDP. This year, with tax increases and sequestration, fiscal drag will be about 1.5 percent of GDP.
According to Makin, instead of yelling about how the world is going end and whatnot, which would only serve to sap the momentum to sound fiscal policy, Congress should be cutting deficits gradually, through tax reform and by rethinking how entitlement programs work.
When an AEI scholar and Paul Krugman are telling you the same thing, these are strange days indeed!
Debt has never been a problem. At least not to the debt holders. Those would be the 1%. It’s debt servicing which is the problem. That’s the ‘interst’ paid to those holding our debt. Currently we pay $350 billion dollars a year in interest to the debt holders. That’s about 12% of our total yearly budget. It’s one hellava fine way for the 1% to make a safe living. What the 1% who owns our debt doesn’t like is inflation. That’s because inflation eats away at their ‘interest’ profits. Wage earners love inflation. For the most part. Beacuse it indicates that their wages are increasing. What this is is a battle between the Capitalists who are trying to keep our wages low and inflation in check to protect their unearned income. And workers who want to increase their standard of living through higher wages. Me, I’m on the side of the workers.
Mirabile dictu. Someone tell David Cameron and Angela Merkel.
P.S. Ya might give a shout-out to Duncan; he’s been down on this like a wet suit forever. Krugman gets enough attention, although this probably drives a stake into the hearts of advocates of the bond vigilantes and the confidence fairies. Also, too, Paul Ryan, that lugubrious fraud.
I assume because it’s a conservative puke realizing the supply side clown car is fast approaching complete discredit that Scarbro et. al. will count him among the Very Serious Economists. Or , more likely, they’ll renounce him to continue their destructive commitment to covering their own asses. And what chaps is that even if we’re all Keynesian now, they’ll NEVER admit that Krugman was right all along.