“We owe it to ourselves”

Economists/bloggers have been having an Internet debate over whether government debt has any true impact on an economy.

I know to us laypeople that sounds kind of crazy.  Of course it would.  But, us laypeople also give a lot of rope to economists — especially ones who have been adorned with Nobel prizes and write columns in newspapers — assuming they know their stuff, so I thought the topic might be worth addressing and might further my understanding of the topic as well.

Unfortunately, I don’t feel like many of the economists have done a good job of making the debate palatable for the general public.

I’ll try to lay it out the two key positions, as best as I understand, and would love to know if I got any of this wrong.

Position 1:  Government debt has no impact on the economy.  Since the government debt is borrowed from citizens (much of it, at least) and paid back by citizens, then it really “costs” nothing because we owe it to ourselves.

Position 2:  Government debt does create a burden, but it’s not what us rube laypeople think.  It’s not the debt that’s the burden.  Rather, it’s our reaction to the debt.  Because I know that my grandkids will have to pay back this debt, I save a more to pass on to them. That additional savings now is the true burden (which I think is actually equivalent to what us laypeople think too, but I’ll leave that one alone for now).

Here’s my take and I’d love to hear what I’m missing, because I’ll admit that I’m sure I’m missing something.

I believe Position 1 is wrong because it has one key flaw.  It’s the word “ourselves.”  What’s wrong with this line of thinking is what’s wrong with the field of macroeconomics, in general.

“Ourselves” is fiction.  It’s an aggregate, or sum, that means nothing.  Add up mine and Bill Gates’ wealth and you’ll find that our average wealth per person is around $20 billion.  The problem is that $20 billion exists nowhere in our reality.  I don’t have anywhere close to that wealth and Gates has all of it.  So, saying that Bill and I have $20 billion on average means nothing.

Let’s give a closer look to the fiction in Position #1.  I get a loan from Joe and force you to pay him back.  In macroeconomics, I would lump me, you and Joe, together and try to make you feel better about saddling you with the debt by telling you “We owe it to ourselves, so in net, we‘re not worse off.”

The only problem is that “in net” doesn’t exist anywhere except in my head.

You obviously are not better off.

Even if I did something spectacular with Joe’s loan that somehow benefited you, that doesn’t mean that Joe couldn’t have done something just as spectacular if he hadn’t loaned it to me.

So, what am I missing?

I’ve been working on this draft for a while.  I came across Don Boudreaux’s column on the subject and found that he makes the same argument here, which makes me feel  better that I’m on the right track.

I’d love to hear if I am missing something.  But, please do not use any examples that includes pizza deliveries from the future.


We have high tolerance for disatrous gambles

In his column this week, Walter Williams discusses a Ron Paul/Wolf Blitzer debate moment and NY Times columnist Paul Krugman’s reaction to it.

He [Krugman] was referring to a GOP presidential debate in which Rep. Ron Paul was asked what should be done if a 30-year-old man who chose not to purchase health insurance found himself in need of six months of intensive care. Paul correctly, but politically incorrectly, replied, “That’s what freedom is all about — taking your own risks.” CNN moderator Wolf Blitzer pressed his question further, asking whether “society should just let him die.” The crowd erupted with cheers and shouts of “Yeah!”, which led Krugman to conclude that “American politics is fundamentally about different moral visions.”

This is a good example of why I don’t care to watch election debates.  This topic deserves more in depth exploration, but the debate format only allows for sound bite responses.

I agree with Williams and Ron Paul.  But, I doubt those answers will do much for people who disagree with us. I’m not sure if my responses will either, but here are some other things to consider.

First, I’d like Wolf to clarify what he means by “society.”  Members of society are free to do what they like for this hypothetical 30-year-old.  Who’s stopping them?  Why do they need to be forced through government?

Medical practitioners could donate their time for his benefit.  Individuals can choose to donate their money to cover his costs.  People can form organizations that raise funds to help folks like him.

But, I think what Wolf really means by “society” is “government”.

It’s a pet peeve of mine when folks use “society” in place of “government”.  The underlying assumption is that there are only two options — either the 30-year-old buys insurance or the government comes to the rescue.  When you say “society” and really mean “government”, just say “government.”

Second, I’d ask why the 30-year-old decided to not buy insurance?  This is rarely discussed, but the answer is important.

Certainly, we could just say the 30-year-old made a bad gamble, but that doesn’t give the root cause.  It’s not only a bad gamble, it’s a disastrous gamble. Why he would make such a disastrous gamble?   Running red lights is a disastrous gamble also and very few people intentionally make this gamble.  Why not?

What if he made his health insurance gamble because he knew government would back him up?  That’s called a moral hazard and we find ourselves in a bad position when what is believed to be compassionate government policy actually causes more people to make disastrous gambles.  That also drives up the cost of insurance, medical care and government for everyone, as they are left paying for those disastrous gambles (which is exactly one of the key underlying problems driving medical costs in the U.S.).

Third, I’d ask for more information about this 30-year-old.  What’s his income?  What kind of car does he drive?  What phone plan does he have?  Where does he live?  How much did his TV cost?  Which TV service does he have?  How much would a catastrophic insurance policy cost him?  Enter your zip code on this website to find out.  In my zip code, a $5,000 deductible policy for a 30-year-old single male with Blue Cross Blue Shield is quoted at $53 per month.

I wonder, if “society” would have less compassion for him if it found out that he could afford the $50 / month insurance insurance policy, but chose not to buy it so he could have the best data plan for his smartphone.

Apparently, “society” didn’t think much of this woman’s efforts to raise money for her cancer treatments with yard sales, since the local government shut her down.  But, it appears that individuals in society have privately and voluntarily taken it upon themselves to help her out.  Good for them.

Third, I might ask why “society” should value the 30-year-old’s life more than he valued it himself, as demonstrated by his own unwillingness to insure himself?

I can’t imagine “society” having much sympathy for a driver who died in a car accident because he recklessly chose to run red lights.

This is just another example of where we let poor logic lead us to make bad decisions.

Poor logic: That guy made a disastrous gamble, let’s help him.

Better logic:  Let’s encourage that guy to not make disastrous gambles and let’s, through our private actions, help the truly needy.

So, I can well imagine someone like Blitzer saying, “so what do we do when we have a 30-year-old male dying who didn’t buy insurance?”

First, “we” do like the people did for the lady having yard sales.  We take private actions to help him, because we are good people.

Then, if he recovers, we take him by the ear and let him know that he should be ashamed of himself for making such poor choices that others had to come to his aid and take away resources for the truly needy.

We let him know that he will be expected to make responsible choices, because next time there are no guarantees of help.  He played us for fools once.

Maybe he goes on a speaking tour or gets interviewed by the local news and sends the message to other able-bodied and able-minded folks to not take disastrous gambles because it’s selfish and not worth it.

And, maybe one day he will come across someone who took a disastrous gamble and lost and will do the same for her that others did for him.

Maybe, in the process, he picks up some dignity and reinforces it others.

McJobs Revisited

Krugman asserts.

Kevin Williamson does an apt job at responding.

I personally don’t spend much time on Krugman’s columns. I find his lapses in logic laughable and the fact that he gets so much attention as evidence of a nation lacking in critical thinking skills.

Just as an example, first Kruman writes (emphasis-added):

Several factors underlie this rapid population growth: a high birth rate, immigration from Mexico, and inward migration of Americans from other states, who are attracted to Texas by its warm weather and low cost of living, low housing costs in particular.

A few paragraphs later he writes:

What Texas shows is that a state offering cheap labor and, less important, weak regulation can attract jobs from other states.

The point is that arguing from this experience that depressing wages and dismantling regulation in America as a whole would create more jobs…involves a fallacy of composition: every state can’t lure jobs away from every other state.

Wouldn’t you think it plausible that a state with a lower cost of living, and ‘low housing costs in particular’, would also have lower wages?  Just sayin…

And as far as the McJobs argument goes, I’ve never understood it.

If folks are willing to work, let them.  They may learn something. They may acquire skills and get a chance to earn more as they get better. That’s much more productive than waiting.

I started out for less than minimum wage.  I learned a great deal and built experience that I still draw on today.   That was much more valuable than watching reruns of the Beverly Hillbillies.

Though, Williamson’s response casts doubt on the accuracy of Krugman’s claim in that regard as well.

The Emperor’s New Clothes

While reading Paul Krugman Gives Up (thank you to Don Boudreaux for the link) and thinking about the comments on the previous post, some thoughts occurred to me.

A few years ago, many of the rational thinkers were gainfully employed in a rocking economy.  They were too busy creating value for others and making money to pay much attention to Krugman or his critics.   That was more or less sidebar entertainment for die hards.

Additionally, while the Democrats were out of power, Krugman could spout what he wanted without consequences.  There was no way of validating whether his solutions worked.

But, then the bad economy happened.  Some rational people were put out of work.  They have some extra time on their hands.  They started looking around at the changes happening, they started teaching themselves some basics and then they started getting more vociferous at looking at the bad reasoning like much of Krugman’s, especially reasoning that seemed to be producing negative consequences.

Change brings in the new crowd to put Krugman’s thoughts to the test.  The rational folks with more time on their hands start to get a bead on what’s going on and they start questioning the reasoning of folks like Krugman.

We seem to still be near the beginning of that trend, but it’s refreshing to see the the shifting back to rational thinking and folks to call out arguments that wouldn’t pass muster in 10th grade debate.  People are starting to the realize the Emperor’s new clothes were a ruse.

Straw Man – Krugman Style

This is one excellent description of how Paul Krugman argues.  It also describes how many others avoid arguing the legitimate points and counterpoints of an issue.

It’s from Steven Landsburg’s blog at the The Big Questions:

Let me summarize my complaint in a paragraph: Krugman has some policies he’d like to see enacted. Some people oppose those policies for silly reasons and others oppose them for sensible reasons. Krugman habitually ridicules the silly reasons and pretends that he has therefore dispensed with the sensible reasons.

I would add to Landsburg’ paragraph that those who oppose Krugman’s policies for silly reasons are usually very few in number, while those who oppose for sensible reasons are much greater.

Because the reasons Krugman chooses to debate are silly, and few, if any, people truly believe those reasons, Krugman utilizes nothing more than a very common, but accepted, fallacy – the straw man.

An example that Landsburg provided in an earlier post refers to a column where Krugman debunks the position of a “deficit hawk”.  Personally, I don’t know many pure “deficit hawks”, that is , I don’t know many (or know of many economists) who believe that the most important thing is controlling the deficit.

Do I think deficits are necessary?  Not really.  Do I think they represent in many cases the inability of politicians to make tough choices?  Yes.  But, do I think that’s the only thing that matters?  Nope.

UPDATE: In this post, Landsburg claims that politicians do often claim that deficits are all that matters.  Perhaps they do.  Maybe I don’t hear them or I filter them out because I know they’re politicians and they’re saying something they think will be consumable by the people watching Lindsay Lohan coverage.  Either way, if they do say that, I agree with Landsburg.  That’s silly.

Paul Krugman – Thumbs Down

Every once in awhile I try reading a Paul Krugman column to see if I’m missing anything.

I know I’m just a lowly non-Nobel Prize winning crank with a little voice out here, but years ago when I encountered one of Krugman’s columns for the first time I found it to be remarkably dumb and decided that he wasn’t worth my time.

Apparently others don’t find him his columns dumb since he keeps getting published.  So, every once in awhile I try reading again to see if it’s just me.  His May 13 column, We’re Not Greece appeared in my local newspaper and I gave it a read.

He didn’t disappoint.  The dumbness started just one paragraph in:

Everywhere you look there are editorials and commentaries, some posing as objective reporting, asserting that Greece today will be America tomorrow unless we abandon all that nonsense about taking care of those in need.

I added the emphasis to show Krugman’s straw man.  A straw man is a false representation of the opponent’s position.

No conservative or libertarian I know of thinks we shouldn’t take care of those in need.  This is a false representation of our position.  Representing our position like this is either a lie or stupidity.

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