Back in April, I published a posting comparing the federal budget and deficit numbers to those of a family. It ended up being widely circulated and now the idea has been turned into a video:
http://www.youtube.com/watch?v=Li0no7O9zmE
Much funnier than my original post!
Why is government debt nothing like a family debt:
http://www.nytimes.com/2012/01/02/opinion/krugman-nobody-understands-debt.html
Tekumse: Thanks for the link. I like the title. It is almost the same as “Why everyone other than me [Paul Krugman] is stupid.”
I think the article contains a lot of misleading statements. For example, Krugman says that the debt of the U.S. was larger at the end of WWII, as a percentage of GDP, than it is now. Considering public employee pensions, Medicare obligations, Social Security obligations for an aging population, etc., there has never been a time when the U.S. taxpayer owed more as a percentage of GDP (somewhere in the neighborhood of 500% of GDP now). So Krugman is saying “Here’s why a country that owes only about 100% of GDP isn’t in that bad shape”, which is arguably true but of questionable relevance to a society that owes 500% of GDP.
Ha, that’s great.
It’s sad that only 185,000 people have seen it. Need to get that up to around 350,000,000.
Krugman is an idiot.
After WWII, the US was also the biggest oil supplier, Japan, Europe, Russia and a lot of the rest of the world were devastated. And the US’s factories has been pumping out a huge amount of the war effort. The US could not have been in a better place.
Fast forward to 2012, the US is not in a great place at all and is spiralling downward.
So here’s a thought to control our ever-increasing defense expenditure and thereby solve one of our biggest spending items (http://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures)
How about we figure out how much all that middle-east fighting is costing us (including cost of bases, kowtowing to sundry dictators etc) and work it into the cost of gas at the pump? Got a ginormous SUV? You get to make a bigger contribution to the defense budget. A Toyota Prius? not so much.
The video doesn’t reflect what the federal government is experiencing. In the video the banker is highly reluctant to extend further credit to a highly indebted borrower. However, in the real world, when the government goes to the bond markets to borrowe money, lenders are eager to borrow and are willing to accept very low interest rates.
Krugman appears to have had a different opinion about government debt in 2003: http://www.nytimes.com/2003/03/11/opinion/a-fiscal-train-wreck.html
Anonymous: Thanks for that link. I had previously worshiped/envied Krugman as a personal investment genius because I read something in the New York Times that suggested he had moved all of his money from stocks to bonds prior to the Crash of 2000 (and bonds did great for the last 12 years due to the fall in interest rates).
In predicting a dramatic interest rate rise, Krugman did not account for the huge savings accumulating in India and China. I guess in hindsight it is easy to see that capital would have to become cheap.
Jagadeesh: The main long-term cost of the U.S. military is not fighting. It is paying health care and pension to retirees.
Vince makes a very good point. If we accept that the market is the best evaluator of the fiscal prospects for the future of the country, then the market is currently saying that they have the utmost confidence in the ability of the US to both repay its debts, and keep inflation in check. Indeed, with 30 year treasury rates at around 3%, the market seems to be saying that the US Dollar is going to remain stable, and the US Government solvent, for another 30 years easily.
Josh: As many virtues as markets may have, I’m not sure that wisdom is one of them. It was markets that cheerfully lent ridiculous amounts of money to Iceland and Ireland. It was markets that ran hot and then cold on Greece, though really almost no facts on the ground had changed.