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Comparing a government's debt to its GDP is like comparing a couple's debt to their employers' total revenues. The country's government doesn't own all its resi

by nickff 3y ago

Comparing a government's debt to its GDP is like comparing a couple's debt to their employers' total revenues. The country's government doesn't own all its residents' property, and is usually unable take their income streams. MMT says a lot of things, but people only seem to follow it when convenient.

ot 3y ago
Comparing debt to GDP is very much mainstream economics, not MMT. https://en.wikipedia.org/wiki/Debt-to-GDP_ratio https://en.wikipedia.org/wiki/Debt-to-GDP_ratio > is usually unable take their income streams It takes a percentage of that, through taxes. https://en.wikipedia.org/wiki/List_of_sovereign_states_by_tax_revenue_to_GDP_ratio#/media/File:Total-tax-revenues-gdp.png https://en.wikipedia.org/wiki/List_of_sovereign_states_by_ta...
- coffeemug 3y ago
  Comparing debt to GDP is mainstream economics, but it's very much different from the analogy of homeowners debts and their salaries. The proper analogy there would be government revenues, not GDP.
  - PaulDavisThe1st 3y ago
    The government doesn't owe the debt, we the people do. We authorized & enabled the government to incur that debt on our behalf.
    - hamilyon2 3y ago
      This is pretty non-mainstream macroeconomic point of view. It did not correspond to reality when latest sovereign debt default occurred in Greece. Then it was government, foreign banks who bought the debt and European Central Bank who was on the hook for restructuring, not citizens or general public.
      - PaulDavisThe1st 3y ago
        Who was on the hook for the effects of the debt restructuring deal?
cbsmith 3y ago
> Comparing a government's debt to its GDP is like comparing a couple's debt to their employers' total revenues. No. It's more like comparing a merchant's debts to the value of the turnover of their inventory. Sure, their revenue isn't the same as their income, but their income tends to be proportional to their revenue. Similarly, while GDP isn't representative of federal income, because most federal income is derived from taxation of activities that contribute to GDP, they tend to be closely correlated. Per Hauser's Law (https://en.wikipedia.org/wiki/Hauser%27s_law https://en.wikipedia.org/wiki/Hauser%27s_law), federal tax revenues have been roughly consistent with 20% of the GDP. Since increasing the share the government extracts from the economy produces net drag on the economy, you don't want to get in to a situation where you have to increase that ratio significantly without a dramatic change in what the federal government puts back in to the economy (which also generally doesn't happen). So yeah, the experts who look at debt to GDP ratios aren't crazy.
deleted 3y ago
[deleted]
PaulDavisThe1st 3y ago
The debt is owed by us, the American people. Thus we compare to the total (economic) resources available to us, the American people.
- dkjaudyeqooe 3y ago
  That's not true, it's not like if the US defaults you become personally liable. We're more like shareholders, and they are never debtors.
  - PaulDavisThe1st 3y ago
    "We the American people" is the corporation.
  - coldtea 3y ago
    >That's not true, it's not like if the US defaults you become personally liable. Citizens might not become "personally liable" in a legal sense, but they get similar consequences, reduction in wealth, poverty increase, etc, that somebody "personally liable" for their personal debt would get. A country wide failure of economy can be even more devastating to individuals than some personal debt they default on.
casercaramel144 3y ago
Except it can. The way it does that is by printing and taxing. Both can be used to pay debt and are "taking income streams" / "seizing property" in disguise.
coldtea 3y ago
>Comparing a government's debt to its GDP is like comparing a couple's debt to their employers' total revenues. The country's government doesn't own all its residents' property, and is usually unable take their income streams. Doesn't matter, since it's a relative comparison, not an absolute one. And as a proxy of the severity of the issue it's good. The government might not take "all its residents' property, and is usually unable take their income streams", but getting part of those is exactly where it gets the money to pay the debt (plus printing money, with its own side-effects).

by nickff 3y ago

ot 3y ago

Comparing debt to GDP is very much mainstream economics, not MMT. https://en.wikipedia.org/wiki/Debt-to-GDP_ratio https://en.wikipedia.org/wiki/Debt-to-GDP_ratio > is usually unable take their income streams It takes a percentage of that, through taxes. https://en.wikipedia.org/wiki/List_of_sovereign_states_by_tax_revenue_to_GDP_ratio#/media/File:Total-tax-revenues-gdp.png https://en.wikipedia.org/wiki/List_of_sovereign_states_by_ta...

coffeemug 3y ago
Comparing debt to GDP is mainstream economics, but it's very much different from the analogy of homeowners debts and their salaries. The proper analogy there would be government revenues, not GDP.
- PaulDavisThe1st 3y ago
  The government doesn't owe the debt, we the people do. We authorized & enabled the government to incur that debt on our behalf.
  - hamilyon2 3y ago
    This is pretty non-mainstream macroeconomic point of view. It did not correspond to reality when latest sovereign debt default occurred in Greece. Then it was government, foreign banks who bought the debt and European Central Bank who was on the hook for restructuring, not citizens or general public.
    - PaulDavisThe1st 3y ago
      Who was on the hook for the effects of the debt restructuring deal?

cbsmith 3y ago

> Comparing a government's debt to its GDP is like comparing a couple's debt to their employers' total revenues. No. It's more like comparing a merchant's debts to the value of the turnover of their inventory. Sure, their revenue isn't the same as their income, but their income tends to be proportional to their revenue. Similarly, while GDP isn't representative of federal income, because most federal income is derived from taxation of activities that contribute to GDP, they tend to be closely correlated. Per Hauser's Law (https://en.wikipedia.org/wiki/Hauser%27s_law https://en.wikipedia.org/wiki/Hauser%27s_law), federal tax revenues have been roughly consistent with 20% of the GDP. Since increasing the share the government extracts from the economy produces net drag on the economy, you don't want to get in to a situation where you have to increase that ratio significantly without a dramatic change in what the federal government puts back in to the economy (which also generally doesn't happen). So yeah, the experts who look at debt to GDP ratios aren't crazy.

deleted 3y ago

[deleted]

PaulDavisThe1st 3y ago

The debt is owed by us, the American people. Thus we compare to the total (economic) resources available to us, the American people.

dkjaudyeqooe 3y ago
That's not true, it's not like if the US defaults you become personally liable. We're more like shareholders, and they are never debtors.
- PaulDavisThe1st 3y ago
  "We the American people" is the corporation.
- coldtea 3y ago
  >That's not true, it's not like if the US defaults you become personally liable. Citizens might not become "personally liable" in a legal sense, but they get similar consequences, reduction in wealth, poverty increase, etc, that somebody "personally liable" for their personal debt would get. A country wide failure of economy can be even more devastating to individuals than some personal debt they default on.

casercaramel144 3y ago

Except it can. The way it does that is by printing and taxing. Both can be used to pay debt and are "taking income streams" / "seizing property" in disguise.

coldtea 3y ago

>Comparing a government's debt to its GDP is like comparing a couple's debt to their employers' total revenues. The country's government doesn't own all its residents' property, and is usually unable take their income streams. Doesn't matter, since it's a relative comparison, not an absolute one. And as a proxy of the severity of the issue it's good. The government might not take "all its residents' property, and is usually unable take their income streams", but getting part of those is exactly where it gets the money to pay the debt (plus printing money, with its own side-effects).