Post-Keynesian Observations

Understanding the Macroeconomy

The Debt, Deficits, and “Fake” Jobs

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I have been terrified by the many calls for the reducing the debt and the deficit over the past several months. These very same calls were made in 1936, after we had reduced unemployment from around 25% to 14%, because of their horrible deficits (<== sarcasm–they were tiny by today’s standards). The government heeded them, and the economy slipped right back into recession. It took three more years to get back to 14% again.

I think the person on the street thinks that we owe the debt to some evil Mr. Potter in China:

Mr. Potter

As mentioned below, around 70 percent is owed to other Americans, and the bulk of that is owed to government agencies–our government agencies! The remainder is owed to foreign citizens, firms, and government agencies. It’s one of the many forms in which they hold their savings. Unless they suddenly decided not to save any more or they figured to shift into another asset, both of which are exceedingly unlikely, then it’s not something to get all hot and bothered about. The national debt has been much larger (120% of GDP during WWII, compared to around 75% now) and it certainly did not cause the US economy to collapse. Is it worth keeping an eye on? Sure. Should we pull the rug out from underneath the slight recovery we are experiencing? Lord no!

Here’s a nice piece by Eric Tymoigne on the debt and deficit:

Eric Tymoigne

And here is Mike Norman showing that our deficits actually haven’t been much different that under Bush:

Mike Norman

I don’t really care if they were or not, we need them (and I was arguing that the debt was no big deal under Bush, too, when the Democrats were complaining about it–politics!). But, I found it interesting.

Another thing that has concerned me is all this stuff about the rapid fourth-quarter growth being somehow artificial because it was created by the government. First off, what in the hell did these people think we were trying to do with the stimulus package?! Of course it was caused by the government, that was the point. Second, why is that “artificial?” That implies that a market system is somehow natural, which it is not. It evolved in western Europe, first taking hold in England (with the encouragement of a guy named Adam Smith; this is discussed in one of the other posts below). Furthermore, does this mean that we, on a regular basis, consider the employment of policemen, firemen, teachers, soldiers, sailors, airmen, librarians, etc. as somehow false because they are all part of that artificial government sector? Of course not. What those employed by the government create can be every bit as valuable (and useless) as what those employed in the market make. They provide goods and services, and in exchange for that they get to have some goods and services. That’s what I do, too, in my private-sector job. While we like to make fun of the government, most of those people are damn hard working and actually contribute to our lives in a more direct and tangible way than certain folks in the private sector. Just to take two of those government groups I listed, do you really begrudge the salaries earned by teachers and soldiers? Is what they do less valuable than the folks on Wall Street?

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Written by rommeldak

February 5, 2010 at 8:49 am

Posted in Uncategorized

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