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Krugman presents this as a dilemma between two choices. 1. Institute austerity now. 2. Institute stimulus now, pay down debt responsibly once the good times ro

by thoward 11y ago

Krugman presents this as a dilemma between two choices. 1. Institute austerity now. 2. Institute stimulus now, pay down debt responsibly once the good times roll. This is a sham dilemma. The real options appear to be. 1. Institute austerity now. 2. Institute stimulus now, but half-ass the debt paydown in the future, condemning future generations to a high debt to GDP ratio. Given this real dilemma, which is worse? I don't pretend to know the answer. I know austerity sucks. I also know that governments lack the self discipline to pay down debt significantly in the future. Which option is actually worse?

Amezarak 11y ago
> Given this real dilemma, which is worse? I don't pretend to know the answer. I know austerity sucks. I also know that governments lack the self discipline to pay down debt significantly in the future. What real-world problems do high debt/GDP ratios cause? Isn't the whole point of stimulus to kick-start the denominator in the debt/GDP equation? At any rate, governments don't need to "pay down debt" (which is kind of a strange thing to say, since the government is always paying off bonds.) They just need to grow the economy such that the debt is less substantial, which pretty much everyone has always done. I mean, the US wasn't going through times of tribulation paying off its 100%+/GDP debt after WWII, we just inflated it away.
- thoward 11y ago
  Here's an interesting meta-study about the effects of a high debt to gdp ratio. http://www.nber.org/papers/w16827 http://www.nber.org/papers/w16827 I admire the candor of your second point ("we just inflated it away.") I think this is ultimately what will happen here in the USA. I think that most people would choose austerity now over higher inflation down the road, but maybe I'm delusional. Our consumer savings rates continue to trend down so maybe people just wouldn't care much. http://www.tradingeconomics.com/united-states/personal-savings http://www.tradingeconomics.com/united-states/personal-savin...
  - Amezarak 11y ago
    > Here's an interesting meta-study about the effects of a high debt to gdp ratio. I know you're sincere, but I kind of had to laugh. Reinhart and Rogoff have been through the ringer for publishing that paper, which is almost entirely bunk. There was a huge storm that made it even to the mainstream media about how truly flawed that paper was (with errors getting as basic as "they can't use Excel.") It's even mentioned in the OP. To be fair, the claim that slower economic growth is correlated with high debt is somewhat true. But most argue causation is in the other direction: slow growth causes high debt. > I admire the candor of your second point ("we just inflated it away.") You might recall that the time period in which we inflated that debt away was one of the most prosperous for all Americans. Meanwhile, austerity will directly lead to people losing their jobs and an economic slowdown that will prolong the suffering people are already going through...for what?
    - thoward 11y ago
      I'll concede the point on the R&R paper. Didn't know there was so much controversy about it, and the accusations that some of their findings were due to a technology glitch are pretty damning. But still, the median age of the US population in 1950 was 30 years old. Today it's over 37 and climbing. And (not to beat a dead horse) the savings rate is half what it was then. To me that indicates that a far larger percentage of our population is going to be living on (paltry) fixed incomes than at any other time. Inflation would be crushing to our aging population. I just don't think you can compare our situation to the 1950's.

by thoward 11y ago

Amezarak 11y ago

> Given this real dilemma, which is worse? I don't pretend to know the answer. I know austerity sucks. I also know that governments lack the self discipline to pay down debt significantly in the future. What real-world problems do high debt/GDP ratios cause? Isn't the whole point of stimulus to kick-start the denominator in the debt/GDP equation? At any rate, governments don't need to "pay down debt" (which is kind of a strange thing to say, since the government is always paying off bonds.) They just need to grow the economy such that the debt is less substantial, which pretty much everyone has always done. I mean, the US wasn't going through times of tribulation paying off its 100%+/GDP debt after WWII, we just inflated it away.

thoward 11y ago
Here's an interesting meta-study about the effects of a high debt to gdp ratio. http://www.nber.org/papers/w16827 http://www.nber.org/papers/w16827 I admire the candor of your second point ("we just inflated it away.") I think this is ultimately what will happen here in the USA. I think that most people would choose austerity now over higher inflation down the road, but maybe I'm delusional. Our consumer savings rates continue to trend down so maybe people just wouldn't care much. http://www.tradingeconomics.com/united-states/personal-savings http://www.tradingeconomics.com/united-states/personal-savin...
- Amezarak 11y ago
  > Here's an interesting meta-study about the effects of a high debt to gdp ratio. I know you're sincere, but I kind of had to laugh. Reinhart and Rogoff have been through the ringer for publishing that paper, which is almost entirely bunk. There was a huge storm that made it even to the mainstream media about how truly flawed that paper was (with errors getting as basic as "they can't use Excel.") It's even mentioned in the OP. To be fair, the claim that slower economic growth is correlated with high debt is somewhat true. But most argue causation is in the other direction: slow growth causes high debt. > I admire the candor of your second point ("we just inflated it away.") You might recall that the time period in which we inflated that debt away was one of the most prosperous for all Americans. Meanwhile, austerity will directly lead to people losing their jobs and an economic slowdown that will prolong the suffering people are already going through...for what?
  - thoward 11y ago
    I'll concede the point on the R&R paper. Didn't know there was so much controversy about it, and the accusations that some of their findings were due to a technology glitch are pretty damning. But still, the median age of the US population in 1950 was 30 years old. Today it's over 37 and climbing. And (not to beat a dead horse) the savings rate is half what it was then. To me that indicates that a far larger percentage of our population is going to be living on (paltry) fixed incomes than at any other time. Inflation would be crushing to our aging population. I just don't think you can compare our situation to the 1950's.