Polemic®

For everyone out there ready to give you a lecture on economics and the free market, there is a person that will talk about government debt as if it was AIDS. Bob Reich has an article on the subject today. Here’s the salient point for water cooler conversations:

Deficit and debt numbers mean nothing in and of themselves. They take on meaning only in relation to something else. And the most important something else, in terms of deciding whether the nation can afford such deficits or debts, is the size of the national economy.

In other words, if you destroy the economy by raising taxes or cutting spending in a contraction, you’re always going to increase the deficit. If on the other hand, you do some stimulative spending and grow the economy, the economy’s capacity to repay the debt will increase instead of decline, and, in the not-so-long run, everything is better off.

Despite this being well known to anyone who has actually studied economics, you still hear tired tropes about the government needing to run itself like a business (which is fatuous: businesses use debt—you know, bonds—to finance expansions all the time) and not spend more than they take in. Sometimes you hear it put “like my family.” How many families don’t use credit cards, student loans, or home equity lines?

Balanced budgets are ideal whenever monetary expansion and contraction are effective. In case you haven’t noticed, the Fed bottomed out their rate a while ago and things are still in a crash. Stimulative spending is the prescription. Washington seemed to have understood that until health care reform came up.

Too bad they have no idea how this works in Sacramento.