Krugman: Debt Is Good(nytimes.com)
nytimes.com
Krugman: Debt Is Good
http://www.nytimes.com/2015/08/21/opinion/paul-krugman-debt-is-good-for-the-economy.html
4 comments
“With war looming, it’s time to be prepared. So last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I’m terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits. From a fiscal point of view the impending war is a lose-lose proposition. If it goes badly, the resulting mess will be a disaster for the budget. If it goes well, administration officials have made it clear that they will use any bump in the polls to ram through more big tax cuts, which will also be a disaster for the budget. Either way, the tide of red ink will keep on rising.”—Paul Krugman, New York Times, March 11, 2003
I'm new here, so maybe I'm missing something, but how is this comment a substantial contribution? Are you calling him a hypocrite?
A specialist in the field changed their mind after 12 years? The inputs were much different 12 years ago. Brink of invading a country, still in a meh state after the dot bomb...
A wise person, given sufficient evidence to do so, will change their mind.
In the new article he clearly states reasons for having this new opinion.
Things change.
A specialist in the field changed their mind after 12 years? The inputs were much different 12 years ago. Brink of invading a country, still in a meh state after the dot bomb...
A wise person, given sufficient evidence to do so, will change their mind.
In the new article he clearly states reasons for having this new opinion.
Things change.
Krugman is a specialist in the field of licking a certain kind of bottom.
Absolutely. He's a charlatan.
The Krugman of 2003 was clearly a Keynesian; the Krugman that wrote today's column argues for higher debt during good times and so almost sounds like he's joined the Modern Monetary Theory camp.
Always with the government debt, when the real devil is private debt. Private debt is what puts the economy to a halt, when it has been used for asset speculation rather then investment in expanded production capacity.
It's a good article for a topic that needs to be discussed from a factual perspective at all levels. Yet that is precisely where this article fails to some degree. It presents a sensible take on the value of debt. Namely, you can use debt to do great things. Krugman says:
"issuing debt is a way to pay for useful things"
And that is absolutely true.
However, he, through the rest of the article, absolutely ignores the elephant in the room:
Issuing debt (or accepting debt) should be the absolute last resort and one that demands operating efficiently before and after taking-on debt.
Taking on debt to pay for billion dollar websites (pick a number, anything north of low 10^6 is obscene), stupid wars, nation building and, to lump it all together, government waste, is not just wrong, it's dumb and irresponsible. Plug the leaks first before borrowing money to buy more water.
To put it in HN terms, it's like taking VC money and utterly wasting a huge chunk of it by throwing parties, buying boats, giving out exorbitant salaries and, rather than doing the work in-house for a reasonable cost, outsourcing all of the coding to really bad coders who proceed to burn all the VC money you got. And then, after that, you go out to raise more money (more debt, in the context of the national discussion) and justify it by claiming it is "to pay for useful things".
I would be blown away if anyone would look at such a hypothetical scenario and concluded this was a good way to run your life, startup, business or the nation. In fact, it goes without saying that no VC would give money (for equity or a loan) to a group who proved to be irresponsible about the utilization of funds prior to their request for further funding. In other words, in the real world this would not happen because nobody would give such fools a dime. Let's ignore the age of "irrational exuberance", during which the earth's poles might as well have been inverted.
When you add that metric to the question of debt being good or not --whether it is in a personal, entrepreneurial or national context-- the answer has to be very different from Krugman's:
Yes, debt is good provided it is well justified and the person, organization or nation make smart decisions and efficient use of capital.
Case in point: California's ridiculous high speed train. I don't think I need to explain that further. If you live in California and are aware of what's going on you should be horrified of the waste and lack of common sense being exhibited.
I like the article, but I wish it weren't so one-sided by means of excluding a very important side of the financial equation which is a metric representing the efficiency of the organization and the use of capital. I have no clue how wasteful our governments are (from local to federal). I would not be surprised if the number is somewhere between 35% and 65%. That they are wasteful is absolutely uncontested fact. It's only a matter of the degree. And it is going to be a large number.
"issuing debt is a way to pay for useful things"
And that is absolutely true.
However, he, through the rest of the article, absolutely ignores the elephant in the room:
Issuing debt (or accepting debt) should be the absolute last resort and one that demands operating efficiently before and after taking-on debt.
Taking on debt to pay for billion dollar websites (pick a number, anything north of low 10^6 is obscene), stupid wars, nation building and, to lump it all together, government waste, is not just wrong, it's dumb and irresponsible. Plug the leaks first before borrowing money to buy more water.
To put it in HN terms, it's like taking VC money and utterly wasting a huge chunk of it by throwing parties, buying boats, giving out exorbitant salaries and, rather than doing the work in-house for a reasonable cost, outsourcing all of the coding to really bad coders who proceed to burn all the VC money you got. And then, after that, you go out to raise more money (more debt, in the context of the national discussion) and justify it by claiming it is "to pay for useful things".
I would be blown away if anyone would look at such a hypothetical scenario and concluded this was a good way to run your life, startup, business or the nation. In fact, it goes without saying that no VC would give money (for equity or a loan) to a group who proved to be irresponsible about the utilization of funds prior to their request for further funding. In other words, in the real world this would not happen because nobody would give such fools a dime. Let's ignore the age of "irrational exuberance", during which the earth's poles might as well have been inverted.
When you add that metric to the question of debt being good or not --whether it is in a personal, entrepreneurial or national context-- the answer has to be very different from Krugman's:
Yes, debt is good provided it is well justified and the person, organization or nation make smart decisions and efficient use of capital.
Case in point: California's ridiculous high speed train. I don't think I need to explain that further. If you live in California and are aware of what's going on you should be horrified of the waste and lack of common sense being exhibited.
I like the article, but I wish it weren't so one-sided by means of excluding a very important side of the financial equation which is a metric representing the efficiency of the organization and the use of capital. I have no clue how wasteful our governments are (from local to federal). I would not be surprised if the number is somewhere between 35% and 65%. That they are wasteful is absolutely uncontested fact. It's only a matter of the degree. And it is going to be a large number.
Taking on debt to pay for billion dollar websites (pick a number, anything north of low 10^6 is obscene), stupid wars, nation building and, to lump it all together, government waste, is not just wrong, it's dumb and irresponsible. Plug the leaks first before borrowing money to buy more water.
It seems to me that spending on those things are dumb financed by debt or not...and therefore not really relevant to whether debt itself is sensible.
It seems to me that spending on those things are dumb financed by debt or not...and therefore not really relevant to whether debt itself is sensible.
The question here was "Is debt good?". My observation was that debt is acceptable --and even good-- if, and only if, the person or organization has a historical track record and culture of efficient use of capital and will, in fact, continue to use capital efficiently after incurring further debt.
The examples I provided are but a few from a huge list showing we are not efficient. In that context, yes, the examples are absolutely relevant. I have personally been involved in several government contract bids where I saw how government actors, systems and procedures managed to pay twice as much than market rate for items being procured. The waste present in government spending is likely to be of staggering proportions.
It's like borrowing money to buy a truck for your business and paying twice market rate for the truck. The reality is that this hypothetical business probably wouldn't have needed extra cash had it been responsible about capital utilization throughout it's history.
The examples I provided are but a few from a huge list showing we are not efficient. In that context, yes, the examples are absolutely relevant. I have personally been involved in several government contract bids where I saw how government actors, systems and procedures managed to pay twice as much than market rate for items being procured. The waste present in government spending is likely to be of staggering proportions.
It's like borrowing money to buy a truck for your business and paying twice market rate for the truck. The reality is that this hypothetical business probably wouldn't have needed extra cash had it been responsible about capital utilization throughout it's history.
You raise a fair point, but it is relevant to that extent that dumb spending, when financed, adds interest expense to the stupidity, and is often the catalyst / what facilitated the dumb spending to begin with. It can be a multiplier of 'dumb.'
> taking VC money
Usually this argument is phrased as a "household debt", but the problem is the same: you're mixing up private debt mechanics with sovereign debt, which follows a completely different set of rules. Consider that startup with VC money in a situation where they can print money or define base interest rates.
Sovereigns have a lot more flexibility in how they handle debt. A successful tool used in the past with long-term thinking governments has been to simply inflate away debt. For the same reason a mortgage is sometimes considered "good debt" when it becomes cheaper with inflation, the US is still paying off debts from the Civil War.
> concluded this was a good way to run your life
It's not, but nations are different, and ignoring those differences is foolish.
> I have no clue how wasteful our governments are
In general, they are surprisingly efficient for what they are trying to do. We may disagree on what those goals should be - which is why being involved in politics is important - but we do generally get a very good value for our money in implementing those goals.
A big part of that is the fact that a government doesn't take a large initial cut as profit. An easy example of this is paying for healthcare: a government can legislate how much money is wasted in the implementation (Medicare is incredibly efficient), while private insurance companies used to take a significant percentage (15%-50%, if I remember correctly) as profit.
The phrase "government waste" is usually a euphemism for "I hate that project and don't want to see money spent on Those People" (which varies with political affiliation and opinion). Sometimes this has racist or similar tribal origins, and sometimes this has class origins. Regardless, simply calling things "waste" usually oversimplifies the situation.
Usually this argument is phrased as a "household debt", but the problem is the same: you're mixing up private debt mechanics with sovereign debt, which follows a completely different set of rules. Consider that startup with VC money in a situation where they can print money or define base interest rates.
Sovereigns have a lot more flexibility in how they handle debt. A successful tool used in the past with long-term thinking governments has been to simply inflate away debt. For the same reason a mortgage is sometimes considered "good debt" when it becomes cheaper with inflation, the US is still paying off debts from the Civil War.
> concluded this was a good way to run your life
It's not, but nations are different, and ignoring those differences is foolish.
> I have no clue how wasteful our governments are
In general, they are surprisingly efficient for what they are trying to do. We may disagree on what those goals should be - which is why being involved in politics is important - but we do generally get a very good value for our money in implementing those goals.
A big part of that is the fact that a government doesn't take a large initial cut as profit. An easy example of this is paying for healthcare: a government can legislate how much money is wasted in the implementation (Medicare is incredibly efficient), while private insurance companies used to take a significant percentage (15%-50%, if I remember correctly) as profit.
The phrase "government waste" is usually a euphemism for "I hate that project and don't want to see money spent on Those People" (which varies with political affiliation and opinion). Sometimes this has racist or similar tribal origins, and sometimes this has class origins. Regardless, simply calling things "waste" usually oversimplifies the situation.
>Taking on debt to pay for billion dollar websites (pick a number, anything north of low 10^6 is obscene), stupid wars, nation building and, to lump it all together, government waste, is not just wrong, it's dumb and irresponsible. Plug the leaks first before borrowing money to buy more water.
Hear, hear. How can we get rid of the stupid decisions that are so easily taken with Other People's Money?
Hear, hear. How can we get rid of the stupid decisions that are so easily taken with Other People's Money?
Issuing bonds is an entirely appropriate and just way to pay for infrastructure improvements. The future residents receive the benefits of the infrastructure, so they should have to pay the costs.
You are ignoring the key premise here. I am not saying that loans, bonds or debt are universally and unconditionally a bad idea. Please re-read what I wrote. I think it is very clear, no need to repeat myself.
> Issuing debt (or accepting debt) should be the absolute last resort
This does seem very clear, you don't need to repeat yourself. I am disagreeing with that and stating that debt is a most natural and appropriate way to fund certain things. Whether they are efficient or not.
This does seem very clear, you don't need to repeat yourself. I am disagreeing with that and stating that debt is a most natural and appropriate way to fund certain things. Whether they are efficient or not.
Are you saying you are OK with issuing bonds for a project that might waste, say, 75% of the funds?
If so, can you explain why?
Where is the threshold for you?
And, finally, why is it that you don't think it would be sesnible to demand that capital be used efficiently?
Just curious.
If so, can you explain why?
Where is the threshold for you?
And, finally, why is it that you don't think it would be sesnible to demand that capital be used efficiently?
Just curious.
Would you be okay with spending cash on a project with 75% waste?
I mean, I get that debt exacerbates the cost, but I think waste/fraud is a just a different topic than optimal debt levels.
I've done construction work for large private contractors in the nuclear energy field and the level of waste there was off the charts as well. I didn't work in management or accounting or anything, but I get the impression that certain types of large, complex, organizations are intrinsically inefficient. I don't know why, but maybe it's more costly and time consuming to try and root out the waste?
We should definitely try to improve this! But it's a really difficult management/planning problem without a clear solution and in the mean time, we still need to make choices about spending and that might mean taking on debt.
I don't really understand economics well enough to have a strong opinion on the article, but I believe the point was that higher debt levels might be better, regardless of how the money is spent.
I mean, I get that debt exacerbates the cost, but I think waste/fraud is a just a different topic than optimal debt levels.
I've done construction work for large private contractors in the nuclear energy field and the level of waste there was off the charts as well. I didn't work in management or accounting or anything, but I get the impression that certain types of large, complex, organizations are intrinsically inefficient. I don't know why, but maybe it's more costly and time consuming to try and root out the waste?
We should definitely try to improve this! But it's a really difficult management/planning problem without a clear solution and in the mean time, we still need to make choices about spending and that might mean taking on debt.
I don't really understand economics well enough to have a strong opinion on the article, but I believe the point was that higher debt levels might be better, regardless of how the money is spent.
> And, finally, why is it that you don't think it would be sesnible to demand that capital be used efficiently?
You don't need to make up lies about what I think. You'd find it's much more interesting to talk to the real me instead of the imaginary me you've concocted.
You don't need to make up lies about what I think. You'd find it's much more interesting to talk to the real me instead of the imaginary me you've concocted.
It is fundamentially wrong to spend the money (and therefore time) of people who are not born.
How are the people who are not born going to pay the currently existing for their use of infrastructure you suggest we wholly pay for now?
What's wrong with living within our means? Can we not build a road without taking from people who can't yet have a say in it?
Most people accept that we don't owe the debts of our ancestors, but for some reason, the most corrupt organizations somehow get a pass. A baby today in the US is born owing north of $40k to banks she has never done business with. If she does not like it, that money will be taken with the threat of force.
Most people accept that we don't owe the debts of our ancestors, but for some reason, the most corrupt organizations somehow get a pass. A baby today in the US is born owing north of $40k to banks she has never done business with. If she does not like it, that money will be taken with the threat of force.
Not only does the newborn owe $54k share of public debt on average, the baby also owns (directly or indirectly) $54k worth of government bonds on average.
The debt is public, the bonds are held in a non-public fashion so there is a definite asymmetry there.