Oh, this is hilarious.
On Monday’s broadcast of “Morning Joe,” New York Times columnist and Nobel Prize-winning economist Paul Krugman argued that “deficit things” aren’t something to be worried about, at least for the time being. But according to Steve Rattner, the Obama administration’s former “car czar,” Krugman’s analysis is the economic equivalent of climate change denial.
On Tuesday’s “Morning Joe,” Rattner reacted to Krugman’s remarks by making the analogy between climate change and the government’s long-term fiscal challenges, and suggested that both are problems requiring immediate attention.
“[T]o me, being a debt denier is the same thing as being a climate change denier,” Rattner said. “We’re putting millions of tons of carbon in our atmosphere every day that we are going to have to deal with, and we’re incurring billions of debt every day we have to deal with.
But which one actually affects people’s lives today? Or, should we just let the grandkids deal with it? Heh. h/t to Chris Horner.
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“Debt, if left alone, doesn’t go away.” Sure it does. Bankruptcy comes instantly to mind, shortly followed by quantitative easing.
Some economists hold the belief that it is much better to carry debt than not. And this is true, to a certain point. However, Krugman makes this argument often in order to make an argument for some liberal idea. In my view, his thinking goes like this: He supports a wide range of liberal ideas, including the global warming scam; it costs money; we can use debt since debt is not bad; therefore he can reassure us no liberal idea is wrong insofar as it might cost too much money.
Some debt is OK in two ways. First, the “money multiplier” effect. I put $110,000 in a bank for whatever interest. The bank, unregulated, would lend 100% of it. However, they have to hold a portion back to service requests for demand deposits, to civer bad debt, etc.
So, they lend $100,000 of my deposit to someone to buy a home for $100,000. That $100,000 goes partly to title firm, etc., but mostly to home seller. Home seller deposits $90,000 in the bank. $80,000 of that loaned out, and 10% holdback to service demands for demand deposits and to cover bad debt.
Now, bank has $200,000 in assets springing from $100,000.
Saving.lending money creates wealth.
The other way liberal economists can argue indefinitely for ever-increasing deficit spending is that a burgeoning economy creates wealth simply by expansion, development of new markets, development of efficiencies and scales of efficiencies, etc. As the economy grows, the tax base grows.
So, deficit spending leads to an ever-expanding economy, and so future tax revenue will cover the deficit.
This does work. To a certain point.
It fails in the same two ways. The housing market crashed because (in part) too many loans went bad; the banks were lending too liberally. The hold-back was not sufficient to cover the bad loans.
So, the way 100,000 can become 200,000 works as long as only a modest portion of the loans go bad.
So, that is where the liberal argument for spending supported by the money multiplier effect fails.
When good money is thrown after bad, the efficiency and market expansion line fails to work. Solyndra did not produce wealth. A few received their millions, shuffled th emoney over-seas, and our economy was constricted to that degree.
Welfare does not produce people who contribute to overall economic growth and efficiency. It will only in a round-about way. If welfare reciipents have children who grow up to have jobs and ddevelop businesses, then the ‘welfare’ was actually working as an investment: money spent to create more wealth.
Saving ourselves from disaster is merely safeguarding the economy; it is not building wealth. If an actual disaster is prevented, then the net effect will be positive. But the “precaution principle” can be applied to many feared but unrealistic disasters (global warming, overpopulation, and so on) that to spend money safeguarding every disaster scenario would bankrupt us.
If and when solar becomes cost-effective versus coal etc., the market will take off on its own.
Finally, a problem of debt is that the borrower is slave to the lender. When China sends us baby food with melamine in it, or baby toys with lead paint, or threatens the other China, how can we confront them? We are not international equals; we are their slaves. If we get mad at them and throw some trade embargoes for giving our kids lead-tainted toys, they simply jack with our economy.
So, Krugman and others can come up with the debt-is-good arguments. All are valid, to a certain point. But over-extended is over-extended, Adam Smith still prevails, and the borrower is always slave to the lender.
Wasting taxpayer money on a scam is wrong.
That’s spending money we don’t have on something we don’t need.
That’s called waste.
cn
I really have to wonder at these two palooka’s . Krugman thinks printing money will fix the economy. That being the case why doesn’t every country just print their way out of difficulty like Zimbabwe did. That should work.
The CO2 boogyman that worries Ratner is beyond pathetic.
Both of them are quite useless and in my opinion cocaine has a lot to answer for. You can substitute liberal/left ideology for cocaine if you like because they are both absurd in their outcomes but it really doesn’t make any difference. They are both dismantling everything good that has been built up over centuries.
The debate isn’t about economics or science it’s about ideology.
Terrible political sense.
In my experience:
Folks who worry about the debt tend to think AGW is nonsense. They will tune him out.
(These look at data relative to history, and don’t trust academics)
Folks who worry about AGW are also Keynesians. They will tune him out.
(These look at model output, and trust consensus)
I’m obviously (over)generalizing, but I believe there is truth in my observation. Both groups think this man is a fool.
Debt left alone grows with the intrest rate, compounded year on year.
But which one actually affects people’s lives today?
=================
both…..
They told me I had to give them my money to hold…..because I was too dumb to save it on my own
….they spent it on Solyndra
They told me I had to give them my money to pay for my health care…because I was too dumb again….they spent it on windmills
Now they tell me they spent all the money I gave them and there’s no more money…..but they have the money for new infrastructure projects and to hire more government employees…..
They told me we’re all going to die from the heat…..if they don’t make heating in the winter more expensive…..now people can’t afford to keep warm
The told me cheap energy was the problem….so they raise the price of everything I need
…and their mouth piece campaigned by telling me how irresponsible I had been with my spending, credit cards, savings, mortgage, etc
Here’s the linkage: Paul Krugman was an adviser to ENRON as it was developing it’s fraudulent accounting and energy trading schemes.
Tom J: ‘paper money’?
Tom, US currency is actually made from 25% cotton and 75% linen. No wood products were sacrificed in this. However, there is a rumor that growing cotton involves carbon dioxide.
What a joy to see Krugman get a taste of his own venom!
Who are the deniers? Those that pay no attention to the 16 year stall in temperatures.
chris y says:
January 29, 2013 at 11:35 am
Amazing how very very close the President came to making a great speech. But unlike horseshoes and hand grenades…
Interesting how he equates two issues that are on the political poles. Left wingers thing AGW is a problem, but debt is great. Right wingers thing debt is a problem but AGW is insignificant. He should have fun trying to find allies on this one…
thelastdemocrat says:
January 29, 2013 at 11:57 am
“So, they lend $100,000 of my deposit to someone to buy a home for $100,000. That $100,000 goes partly to title firm, etc., but mostly to home seller. Home seller deposits $90,000 in the bank. $80,000 of that loaned out, and 10% holdback to service demands for demand deposits and to cover bad debt.
Now, bank has $200,000 in assets springing from $100,000.”
That’s not the only way it works. Fractional reserve banking allows the bank to lend a multiple of your deposit, because it is assumed that not all lenders (you and other depositors) will want their deposits back at the same time.
“Exceeding $79.5 million must have a liquidity ratio of 10%”
http://en.wikipedia.org/wiki/Reserve_requirement#United_States
When you deposit 100k, they can lend a million.
When the home seller in your example deposits his 100K, they can lend another million.
It’s very good business as long as there’s no bust.
“We’re putting millions of tons of carbon in our atmosphere every day that we are going to have to deal with, and we’re incurring billions of debt every day we have to deal with.”
Regardless of whether CO2 is bad or not? Watch and share this key 3 minute video (which converted me from a warmist to a skeptic) for a concise convincing rebuttal of the nearly universally held position that CO2 drives climate temperatures: http://www.youtube.com/watch?v=WK_WyvfcJyg&info=GGWarmingSwindle_CO2Lag
Anyway, in the long term, we are going to move away from carbon based fuels, naturally. In the meantime, the real concern is that we maintain and build our resource base (energy) so that we remain productive as a society, so that we don’t degrade into chaos as a society, and our population doesn’t crash. On the other hand, that seems to be the warmist goal:
“If I were reincarnated, I would wish to be returned to Earth as a killer virus to lower human population levels.” -Prince Phillip, World Wildlife Fund [note that the WWF is now spending millions of effective dollars on an ad campaign promoting AGW, and we need a counter to this {!}]
“We have wished, we ecofreaks, for a disaster… to bomb us into the stone age, where we might live like Indians, with our localism, .. our gardens, our homemade religion, guilt free at last.” -Stewart Brand, Whole Earth Catalogue
Trouble is, 97% of money is created by commercial banks out of nothing. They can do it because they have a license to do it from govt/legislature. Best business on earth, why, one gets something for nothing, also, utterly destructive to the economy.
Government does not create money, it borrows it. This is how public debt is created.
apachewhoknows says:
January 29, 2013 at 12:27 pm
“Debt left alone grows with the intrest rate, compounded year on year.”
That’s the reason for Bernanke’s zero interest rate policy – and why he will not allow it to rise ever again (He will fail, though).
Latitude says:
January 29, 2013 at 12:34 pm
Yet their “mouth piece” forgot to add how irresponsible his supporters would be with their votes.
How convenient.
Once a precedent is established that a government can spend more than it has already received in tax revenues then there is no built-in braking effect preventing it from justifying a little bit more deficit spending . . . endlessly. All the time ignoring the inevitable systemic collapse in the long run. My advice is individually we withdraw and take individually the severe economic pain now for our own individual total solvency, do not procrastinate.
In the scenario of the politically directed pseudo-science of alarming AGW from CO2, once the precedent of having government virtually dominate the scientific process (as it currently does) in climate research and assessment, then there is no built in braking effect on escalating climate alarmism . . . . but there is a trust calibration mechanism called the skeptical blogosphere to remind the public that untrustworthy climate science is no basis for destroying to modern world.
John
So Krugman is denier who is in denial and castigates those he sees as in denial whilst the government who are in denial are not in denial? My head hurts.
/sarc
Meanwhile…Up North.
We are also being challenged from abroad by those who would seek to end our way of life for the supposed benefit of the animals that share our environment. Seals are not endangered, and polar bear populations are increasing under our successful co-management. That’s an inconvenient truth that animal-rights activists and environmentalists don’t want you to know about.
http://fullcomment.nationalpost.com/2013/01/29/terry-audla-on-idle-no-more-the-view-from-the-far-far-north/
The problem is quite simple to those who deny denial deniers deny denying deniers deny denying denial denying.
Although I am not a USA ciitzen I used the share of debt calculator to see what a person turning 21 in 2013, would be faced with, before setting out in life, all bright eyed and bushy tailed
Ans: $750,000.
But mind you, most Australians think their Government is also run by stupid people.
thelastdemocrat says:
January 29, 2013 at 11:57 am
—
There’s an old saying. When you owe the bank $1000, the bank owns you. When you owe the bank $1,000,000 you own the bank.
Yes we owe China a lot of money, but what are they going to do about it. If they do anything to hurt our economy, we will never be able to pay them back. And if you don’t believe the loss of that money would be devastating to the Chinese economy, then you havent been paying attention to the CHinese economy lately. Right now China and the US are two legs of a two legged stool. If either of us collapses, we take the other down with us.
Well, of course climate change is real. The climate is supposed to change. He surely means to say “anthropogenic climate change.” Some people know the difference and some don’t, which is normally one way to see if somebody has an idea what they’re talking about or not.
But as far as Krugman goes, if Krugman was right about spending, deficits, stimulus, etc., Greece would have the best economy in the world.