6 ms·

Krugman: Debt Is Good

16 points by bpolania 11y ago

rebootthesystem 11y ago
It's a good article for a topic that needs to be discussed from a factual perspective at all levels. Yet that is precisely where this article fails to some degree. It presents a sensible take on the value of debt. Namely, you can use debt to do great things. Krugman says: "issuing debt is a way to pay for useful things" And that is absolutely true. However, he, through the rest of the article, absolutely ignores the elephant in the room: Issuing debt (or accepting debt) should be the absolute last resort and one that demands operating efficiently before and after taking-on debt. Taking on debt to pay for billion dollar websites (pick a number, anything north of low 10^6 is obscene), stupid wars, nation building and, to lump it all together, government waste, is not just wrong, it's dumb and irresponsible. Plug the leaks first before borrowing money to buy more water. To put it in HN terms, it's like taking VC money and utterly wasting a huge chunk of it by throwing parties, buying boats, giving out exorbitant salaries and, rather than doing the work in-house for a reasonable cost, outsourcing all of the coding to really bad coders who proceed to burn all the VC money you got. And then, after that, you go out to raise more money (more debt, in the context of the national discussion) and justify it by claiming it is "to pay for useful things". I would be blown away if anyone would look at such a hypothetical scenario and concluded this was a good way to run your life, startup, business or the nation. In fact, it goes without saying that no VC would give money (for equity or a loan) to a group who proved to be irresponsible about the utilization of funds prior to their request for further funding. In other words, in the real world this would not happen because nobody would give such fools a dime. Let's ignore the age of "irrational exuberance", during which the earth's poles might as well have been inverted. When you add that metric to the question of debt being good or not --whether it is in a personal, entrepreneurial or national context-- the answer has to be very different from Krugman's: Yes, debt is good provided it is well justified and the person, organization or nation make smart decisions and efficient use of capital. Case in point: California's ridiculous high speed train. I don't think I need to explain that further. If you live in California and are aware of what's going on you should be horrified of the waste and lack of common sense being exhibited. I like the article, but I wish it weren't so one-sided by means of excluding a very important side of the financial equation which is a metric representing the efficiency of the organization and the use of capital. I have no clue how wasteful our governments are (from local to federal). I would not be surprised if the number is somewhere between 35% and 65%. That they are wasteful is absolutely uncontested fact. It's only a matter of the degree. And it is going to be a large number.
- biehl 11y ago
  Taking on debt to pay for billion dollar websites (pick a number, anything north of low 10^6 is obscene), stupid wars, nation building and, to lump it all together, government waste, is not just wrong, it's dumb and irresponsible. Plug the leaks first before borrowing money to buy more water. It seems to me that spending on those things are dumb financed by debt or not...and therefore not really relevant to whether debt itself is sensible.
  - spinchange 11y ago
    You raise a fair point, but it is relevant to that extent that dumb spending, when financed, adds interest expense to the stupidity, and is often the catalyst / what facilitated the dumb spending to begin with. It can be a multiplier of 'dumb.'
  - rebootthesystem 11y ago
    The question here was "Is debt good?". My observation was that debt is acceptable --and even good-- if, and only if, the person or organization has a historical track record and culture of efficient use of capital and will, in fact, continue to use capital efficiently after incurring further debt. The examples I provided are but a few from a huge list showing we are not efficient. In that context, yes, the examples are absolutely relevant. I have personally been involved in several government contract bids where I saw how government actors, systems and procedures managed to pay twice as much than market rate for items being procured. The waste present in government spending is likely to be of staggering proportions. It's like borrowing money to buy a truck for your business and paying twice market rate for the truck. The reality is that this hypothetical business probably wouldn't have needed extra cash had it been responsible about capital utilization throughout it's history.
- SamReidHughes 11y ago
  Issuing bonds is an entirely appropriate and just way to pay for infrastructure improvements. The future residents receive the benefits of the infrastructure, so they should have to pay the costs.
albertop 11y ago
“With war looming, it’s time to be prepared. So last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I’m terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits. From a fiscal point of view the impending war is a lose-lose proposition. If it goes badly, the resulting mess will be a disaster for the budget. If it goes well, administration officials have made it clear that they will use any bump in the polls to ram through more big tax cuts, which will also be a disaster for the budget. Either way, the tide of red ink will keep on rising.”—Paul Krugman, New York Times, March 11, 2003
- UnWiseM4n 11y ago
  I'm new here, so maybe I'm missing something, but how is this comment a substantial contribution? Are you calling him a hypocrite? A specialist in the field changed their mind after 12 years? The inputs were much different 12 years ago. Brink of invading a country, still in a meh state after the dot bomb... A wise person, given sufficient evidence to do so, will change their mind. In the new article he clearly states reasons for having this new opinion. Things change.
  - zaitcev 11y ago
    Krugman is a specialist in the field of licking a certain kind of bottom.
    - cryptoglyph 11y ago
      Absolutely. He's a charlatan.
- the_why_of_y 11y ago
  The Krugman of 2003 was clearly a Keynesian; the Krugman that wrote today's column argues for higher debt during good times and so almost sounds like he's joined the Modern Monetary Theory camp.
jakeogh 11y ago
It is fundamentially wrong to spend the money (and therefore time) of people who are not born.
- rsanders 11y ago
  How are the people who are not born going to pay the currently existing for their use of infrastructure you suggest we wholly pay for now?
  - jakeogh 11y ago
    What's wrong with living within our means? Can we not build a road without taking from people who can't yet have a say in it? Most people accept that we don't owe the debts of our ancestors, but for some reason, the most corrupt organizations somehow get a pass. A baby today in the US is born owing north of $40k to banks she has never done business with. If she does not like it, that money will be taken with the threat of force.
    - the_why_of_y 11y ago
      Not only does the newborn owe $54k share of public debt on average, the baby also owns (directly or indirectly) $54k worth of government bonds on average.
      - jacquesm 11y ago
        The debt is public, the bonds are held in a non-public fashion so there is a definite asymmetry there.
digi_owl 11y ago
Always with the government debt, when the real devil is private debt. Private debt is what puts the economy to a halt, when it has been used for asset speculation rather then investment in expanded production capacity.

16 points by bpolania 11y ago

It's a good article for a topic that needs to be discussed from a factual perspective at all levels. Yet that is precisely where this article fails to some degree. It presents a sensible take on the value of debt. Namely, you can use debt to do great things. Krugman says: "issuing debt is a way to pay for useful things" And that is absolutely true. However, he, through the rest of the article, absolutely ignores the elephant in the room: Issuing debt (or accepting debt) should be the absolute last resort and one that demands operating efficiently before and after taking-on debt. Taking on debt to pay for billion dollar websites (pick a number, anything north of low 10^6 is obscene), stupid wars, nation building and, to lump it all together, government waste, is not just wrong, it's dumb and irresponsible. Plug the leaks first before borrowing money to buy more water. To put it in HN terms, it's like taking VC money and utterly wasting a huge chunk of it by throwing parties, buying boats, giving out exorbitant salaries and, rather than doing the work in-house for a reasonable cost, outsourcing all of the coding to really bad coders who proceed to burn all the VC money you got. And then, after that, you go out to raise more money (more debt, in the context of the national discussion) and justify it by claiming it is "to pay for useful things". I would be blown away if anyone would look at such a hypothetical scenario and concluded this was a good way to run your life, startup, business or the nation. In fact, it goes without saying that no VC would give money (for equity or a loan) to a group who proved to be irresponsible about the utilization of funds prior to their request for further funding. In other words, in the real world this would not happen because nobody would give such fools a dime. Let's ignore the age of "irrational exuberance", during which the earth's poles might as well have been inverted. When you add that metric to the question of debt being good or not --whether it is in a personal, entrepreneurial or national context-- the answer has to be very different from Krugman's: Yes, debt is good provided it is well justified and the person, organization or nation make smart decisions and efficient use of capital. Case in point: California's ridiculous high speed train. I don't think I need to explain that further. If you live in California and are aware of what's going on you should be horrified of the waste and lack of common sense being exhibited. I like the article, but I wish it weren't so one-sided by means of excluding a very important side of the financial equation which is a metric representing the efficiency of the organization and the use of capital. I have no clue how wasteful our governments are (from local to federal). I would not be surprised if the number is somewhere between 35% and 65%. That they are wasteful is absolutely uncontested fact. It's only a matter of the degree. And it is going to be a large number.

biehl 11y ago
Taking on debt to pay for billion dollar websites (pick a number, anything north of low 10^6 is obscene), stupid wars, nation building and, to lump it all together, government waste, is not just wrong, it's dumb and irresponsible. Plug the leaks first before borrowing money to buy more water. It seems to me that spending on those things are dumb financed by debt or not...and therefore not really relevant to whether debt itself is sensible.
- spinchange 11y ago
  You raise a fair point, but it is relevant to that extent that dumb spending, when financed, adds interest expense to the stupidity, and is often the catalyst / what facilitated the dumb spending to begin with. It can be a multiplier of 'dumb.'
- rebootthesystem 11y ago
  The question here was "Is debt good?". My observation was that debt is acceptable --and even good-- if, and only if, the person or organization has a historical track record and culture of efficient use of capital and will, in fact, continue to use capital efficiently after incurring further debt. The examples I provided are but a few from a huge list showing we are not efficient. In that context, yes, the examples are absolutely relevant. I have personally been involved in several government contract bids where I saw how government actors, systems and procedures managed to pay twice as much than market rate for items being procured. The waste present in government spending is likely to be of staggering proportions. It's like borrowing money to buy a truck for your business and paying twice market rate for the truck. The reality is that this hypothetical business probably wouldn't have needed extra cash had it been responsible about capital utilization throughout it's history.
SamReidHughes 11y ago
Issuing bonds is an entirely appropriate and just way to pay for infrastructure improvements. The future residents receive the benefits of the infrastructure, so they should have to pay the costs.

albertop 11y ago

“With war looming, it’s time to be prepared. So last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I’m terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits. From a fiscal point of view the impending war is a lose-lose proposition. If it goes badly, the resulting mess will be a disaster for the budget. If it goes well, administration officials have made it clear that they will use any bump in the polls to ram through more big tax cuts, which will also be a disaster for the budget. Either way, the tide of red ink will keep on rising.”—Paul Krugman, New York Times, March 11, 2003

UnWiseM4n 11y ago
I'm new here, so maybe I'm missing something, but how is this comment a substantial contribution? Are you calling him a hypocrite? A specialist in the field changed their mind after 12 years? The inputs were much different 12 years ago. Brink of invading a country, still in a meh state after the dot bomb... A wise person, given sufficient evidence to do so, will change their mind. In the new article he clearly states reasons for having this new opinion. Things change.
- zaitcev 11y ago
  Krugman is a specialist in the field of licking a certain kind of bottom.
  - cryptoglyph 11y ago
    Absolutely. He's a charlatan.
the_why_of_y 11y ago
The Krugman of 2003 was clearly a Keynesian; the Krugman that wrote today's column argues for higher debt during good times and so almost sounds like he's joined the Modern Monetary Theory camp.

jakeogh 11y ago

It is fundamentially wrong to spend the money (and therefore time) of people who are not born.

rsanders 11y ago
How are the people who are not born going to pay the currently existing for their use of infrastructure you suggest we wholly pay for now?
- jakeogh 11y ago
  What's wrong with living within our means? Can we not build a road without taking from people who can't yet have a say in it? Most people accept that we don't owe the debts of our ancestors, but for some reason, the most corrupt organizations somehow get a pass. A baby today in the US is born owing north of $40k to banks she has never done business with. If she does not like it, that money will be taken with the threat of force.
  - the_why_of_y 11y ago
    Not only does the newborn owe $54k share of public debt on average, the baby also owns (directly or indirectly) $54k worth of government bonds on average.
    - jacquesm 11y ago
      The debt is public, the bonds are held in a non-public fashion so there is a definite asymmetry there.

digi_owl 11y ago

Always with the government debt, when the real devil is private debt. Private debt is what puts the economy to a halt, when it has been used for asset speculation rather then investment in expanded production capacity.