Economic Propaganda

There was a propaganda op-ed in the NYT this morning by Robert Solow, another holder of the Myrdal prize. I couldn’t help but mark it up. My comments in bold, I cut much of the text, just follow the link.

THE significance of America’s national debt is a serious question, but you would not know this from the current political rhetoric, which consists mostly of vague apocalyptic warnings. I want to present a calmer view, by emphasizing six facts about the debt that many Americans may not be aware of.

Roughly half of outstanding debt owed to the public, now $11.7 trillion, is owned by foreigners.

Untrue, or at least unsupportable. Most of the debt held domestically is held by banks and investment companies, on whose behalf no-one knows. But anyway it doesn’t matter. Think of the debt payments as an entitlement, like Social Security, Medicare and so forth. The debt adds to the non-discretionary payments the Treasury must make out of tax revenues. GDP is not growing, which means that either taxes must go up (as a share of GDP) or other government spending must be cut. As the debt grows, this problem gets worse. Read the paragraph above and see if it makes any difference who holds the debt. It does not. This is the Keynesian BS intended to foll the thoughtless, “It is OK because we owe it to ourselves.”

The Treasury owes dollars, America’s own currency (unlike Greece or Italy, whose debt is denominated in euros).

True. The Treasury will not default.

One way to effectively repudiate our debt is to encourage inflation.

Untrue. Encouraging inflation is one thing, actually creating it another. The Fed is trying desperately to create inflation as I write and failing. Japan has been trying, and failing, to create inflation for more than twenty years. If either succeeds, against all odds, interest rates will inevitably rise to offset the reduction in the real value of the country’s debt, leaving the cost of debt service higher, not lower. Short of deliberately creating a recession, as Paul Volcker did, the Fed cannot stop inflation once started and it is very damaging to the economy. Reference John Hussman’s excellent work here.

Treasury bonds owned by Americans are different from debt owed to foreigners.

Untrue. This is the same “fact” as the first paragraph and is pure nonsense. It is an appeal to emotion, not common sense (that would be propaganda, of course).

The real burden of domestically owned Treasury debt is that it soaks up savings that might go into useful private investment.

Untrue. Essentially all Treasury debt now being issued is being purchased by the Fed. No savings are used to purchase the debt, instead the Fed issues (“prints”) the money to pay for the bonds.

But in bad times like now, Treasury bonds are not squeezing finance for investment out of the market.

Probably true but misleading. Excess savings? Please. The household savings rate is desperately low, which is why the Fed has to buy the bonds to keep rates low in the absence of demand from savers. Debt-financed government spending is primarily benefitting corporations, domestic and foreign, which are making extraordinary profits and investing overseas, where growth is better, costs lower and regulation lighter.

In the long run we need a clear plan to reduce the ratio of publicly held debt to national income. But for now the best chance to reinvigorate the economy, spur business investment and encourage consumer spending is through public borrowing and spending. Instead, we’re heading into an ill-advised, across-the-board austerity program.

A propaganda piece, pure and simple, directed at the uneducated and thoughtless by a politicized “economist,” holder of a Myrdal prize, created by economists to beef up their credibility.

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  • Tyro  On February 28, 2013 at 4:05 pm

    I’m still not sure what his point is.
    Government investment in infrastructure doesn’t mean that there will be additional economic output. It just means we spent money. The bridge or road has to go somewhere, Or the company needs to actually make a product instead of building a really expensive office complex and then realizing they couldn’t compete making solar panels.
    Private investment in the market sounds nice, if you weren’t paying an invisible algo tax and then competing against speculation.
    He makes a big discussion how borrowing is taking money away from “us” but then says we need to keep doing it, without making a clear argument for why. How does government spending encourage domestic consumption? If anything I could see it causing a bump in foreign goods and services.

  • reality  On February 28, 2013 at 4:12 pm

    Of course, you are correct. But as an individual capable of critical thinking and analysis, you are not part of his target audience. His target audience is supposed to (and does) accept his assertions as received truth without justification, based on his credentials. The fact that even his credentials are bogus doesn’t enter into it. The liberal political class is well aware that its clients do not understand math or logic.

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