Thursday, February 7, 2019

Brad DeLong — Debt Derangement Syndrome

"We knew it all along."

Project Syndicate
Debt Derangement Syndrome
Brad DeLong | Professor of Economics, UCAL Berkeley


Konrad said...

“Whenever the private sector stops spending enough to keep unemployment low and jobs easy to find, the public sector needs to fill the gap in aggregate demand. The normal way to do this is for the central bank to buy bonds for cash, inducing those who then have the extra cash to boost their spending.”

No. The normal way for the public sector to fill the gap in aggregate demand is for the US government to simply create more money out of thin air, and spend it into the economy.

As you can see, most people continue to falsely believe that money is physical and limited, even when people claim to understand MMT.

“This may lead to fears that public debt would rise ‘too high,’ so that issuing more debt to finance additional government purchases would represent a bad deal, even if it boosted employment.”

This author falsely thinks the US government borrows its spending money (i.e. “issues debt”).

“The deal would be bad only if the government had to borrow at a high interest rate, as was the case at the start of the 1990s.”

The US government does not have to borrow at any interest rate, since the US government does not borrow its spending money.

Regarding the interest paid on T-securities, that is a Fed decision. There is no “have to.”

Ralph Musgrave said...

I like the way DeLong ends by saying "It is still not clear to me why the Global North fell into this fit of denial of basic economic principles."

Well he answered that question himself. Reason is, as he rightly says, that there are numerous idiots at the top of the economics profession, especially Kenneth Rogoff and Olivier Blanchard.

But of course DeLong as a respectable member of a respectable middle class profession cannot say so in so many words. As Adam Smith rightly said long ago, members of each profession look after the own (or perhaps I should say "own idiots").

AXEC / E.K-H said...

The day when WeThePeople sends debt-deranged economists to hell
Comment on Bradford DeLong on ‘Debt Derangement Syndrome’

After some name-dropping (Rogoff, Blanchard) and false-hero-worshiping (eminent, highly knowledgeable) the applause-troll Bradford DeLong offers a piece of economic wisdom: “Whenever the private sector stops spending enough to keep unemployment low and jobs easy to find, the public sector needs to fill the gap in aggregate demand.”

Now, good old Keynesianism stood under the premise of temporary deficit spending with budget balancing over the business cycle. Somehow this did not happen and government debt rose worldwide faster than GDP. A permanently growing public debt means that a market economy is on the permanent life-support of the state. Some people got the uneasy feeling that permanent debt growth is unhealthy and cannot go on forever. They blew the panic whistle several times in the past decade but were always proven wrong.

At present, the loudspeakers of the profession are deeply relaxed and Bradford DeLong scolds the scaremongers: ”I now have hope that future economists will remember the sorry history of this past decade and prevent it from being repeated.”

In his utter scientific incompetence, Bradford DeLong completely ignores the massive immediate and delayed distributional effects of growing public debt.

To make the argument short, the macroeconomic Profit Law is given as Q=Yd+(I−S)+(G−T)+(X−M) which reduces to Q=(G−T) with Yd, I, S, X, M blanked out for a moment. The reduced Profit Law says that the profit of the business sector as a whole Q is equal to the deficit (G−T) of the public sector. In a nutshell: Public Deficit = Private Profit. In other words, permanent public deficit-spending is a permanent free lunch for the Oligarchy.

As a rule of thumb, the financial wealth of the Oligarchy grows in lockstep with the public debt. In other words, fabulous wealth is the mirror image of fabulous public debt ($21.5 trillion).

The deficit spending on social measures does NOT benefit WeThePeople as a whole because the benefits of one group are paid for in real terms through unnoticeable stealth taxation via the price mechanism by the complementary group.

The permanent free lunch for the Oligarchy is beefed up with interest on a permanently rolled-over growing public debt. This amounts to reversed progressive taxation of WeThePeople by the IRS on behalf of the Oligarchy.

Finally, the national debt is NOT savings of WeThePeople but deferred taxes. In order to eventually redeem the national debt, the government has to eventually tax WeThePeople. This will be the day when WeThePeople sends debt deranged economists to hell.

Egmont Kakarot-Handtke