4 ms·

> Student: How does a nation avoid this outcome when the math is the same? Economist: As I have told you multiple times by now, it isn't. That is what we taugh

> Student: How does a nation avoid this outcome when the math is the same? Economist: As I have told you multiple times by now, it isn't. That is what we taught you in first year. You can't simply arbitrarily scale up models from lemonade stand to international trade. Things are not all linear, simplifications in one model are simply not valid in another model. Arguments like these always strike me as similar to "if evolution, then why are there still monkeys". Maybe you are right, everything is really simple and everybody else has been too stupid to see it. Or maybe people are right when they tell you that you don't quite understand what you are talking about.

leetcrew 8y ago
there are many facts about computers that seem trivial to me, but would take weeks of background to even begin to explain to my intelligent friends in other fields, so i can accept that there might be some complex topics in other disciplines where you just have to take the experts at their word. that being said, are there any economists here who can ELI5 the actual difference between private and public debt?
- roenxi 8y ago
  I've been experimenting with explaining this - here is the current draft. An ordinary borrower has a number of ways they can get in to trouble - like losing their job and so being unable to repay a loan. The government avoids all that because government writes the law and it controls the creation of currency so it can always choose to technically not have a problem. These changes make it almost meaningless to assess a government's debt in norminal terms (eg, 'the debt is $x trillion!' isn't actually a concern, because the government as a body can simply create $x trillion if it wants. Wish I could do that :P). So we have to look at the governments debt in real terms, at which point we need a completely different model than a small time player, who is mostly concerned with by nominal issues. Then you run in to the issue that in real terms, nobody agrees on anything - which is why the economy is run with a nominal currency system. But there are people, like me, who think in real terms the US of today is a completely different beast from the US of the 1970s. There are massive demographic and political differences.
  - leetcrew 8y ago
    thanks for the stab at an explanation. it sounds like you're saying that the debt load vs GDP is important, but the relationship in nominal terms doesn't say much. is that an accurate reading?
    - roenxi 8y ago
      Yes. But even then it is a bit difficult to speak with certainty because governments choose the tax rate and as long as the army stays intact can recover from nearly anything. In this context, I believe debt load to GDP for the US after WWII, and that didn't cause a problem. The concern is that the US has a debt load consistent with a world war and conditions that are really quite favorable. So the obvious questions are "at what point does this get paid back?" and "in like-for-like real terms, assuming politicians are cynical and greedy, is there any reason to believe this debt will be honored?".
      - someguydave 8y ago
        You make it sound like the answer to the student’s question is something like: “Government debt is different because it’s in a currency that the government can arbitrarily create. The government can force its subjects to use this currency through the power of taxation and in the worst case, military occupation and martial law”
deleted 8y ago
[deleted]

leetcrew 8y ago

there are many facts about computers that seem trivial to me, but would take weeks of background to even begin to explain to my intelligent friends in other fields, so i can accept that there might be some complex topics in other disciplines where you just have to take the experts at their word. that being said, are there any economists here who can ELI5 the actual difference between private and public debt?

roenxi 8y ago
I've been experimenting with explaining this - here is the current draft. An ordinary borrower has a number of ways they can get in to trouble - like losing their job and so being unable to repay a loan. The government avoids all that because government writes the law and it controls the creation of currency so it can always choose to technically not have a problem. These changes make it almost meaningless to assess a government's debt in norminal terms (eg, 'the debt is $x trillion!' isn't actually a concern, because the government as a body can simply create $x trillion if it wants. Wish I could do that :P). So we have to look at the governments debt in real terms, at which point we need a completely different model than a small time player, who is mostly concerned with by nominal issues. Then you run in to the issue that in real terms, nobody agrees on anything - which is why the economy is run with a nominal currency system. But there are people, like me, who think in real terms the US of today is a completely different beast from the US of the 1970s. There are massive demographic and political differences.
- leetcrew 8y ago
  thanks for the stab at an explanation. it sounds like you're saying that the debt load vs GDP is important, but the relationship in nominal terms doesn't say much. is that an accurate reading?
  - roenxi 8y ago
    Yes. But even then it is a bit difficult to speak with certainty because governments choose the tax rate and as long as the army stays intact can recover from nearly anything. In this context, I believe debt load to GDP for the US after WWII, and that didn't cause a problem. The concern is that the US has a debt load consistent with a world war and conditions that are really quite favorable. So the obvious questions are "at what point does this get paid back?" and "in like-for-like real terms, assuming politicians are cynical and greedy, is there any reason to believe this debt will be honored?".
    - someguydave 8y ago
      You make it sound like the answer to the student’s question is something like: “Government debt is different because it’s in a currency that the government can arbitrarily create. The government can force its subjects to use this currency through the power of taxation and in the worst case, military occupation and martial law”

deleted 8y ago

[deleted]