Economic Argument for Austerity Based on Excel Error?

[Berkut]

So please; what level of debt is acceptable to you?

Oh, that is the question.

I don't know really. I do operate under the presumption, however, that debt is to be avoided whena t all possible.

So I don't approach it from the standpoint of "Hey, how much debt should we have?" I approach it from the standpoint of "Debt is to be avoided, therefore, if someone is proposing that we take on more debt, they should make a compelling argument for why it is necessary".

Which is why the current round of "thinking" is rather distressing to me - the current thinking seems to be that debt is not something to be avoided at all, and in fact we can augimagically just borrow forever without any negative consequence, so why not?

Of course, that isn't what is said - but that is in fact the practical message being sent by virtue of the reality that *any* question raised about incredibly high debt levels is immediately met with the retort that it is ok. 855? OK! 90%? OK! Hell, people are actually holding up the 120% that we saw as a result of a freaking world war as some kind of measuring stick to suggest that what the hell, me still have trillions to go before we need to worry about it!

What is the right number? I don't know, to be honest. I suppose it depends on what is going on, and what the risk is, and what the long term dangers are of ever more debt. What is alarming is the amount of vitriol aimed at people who try to make a reasoned, rational, and non-emotive argument that maybe perhaps just borrowing without regard isn't such a stupendous plan forever and all time.

Like Yi said, spending a lot more than you bring in rather than spending a LOT more than you bring in is not "austerity".

[The Minsky Moment]

Now we've taken that position to the extreme. It seems to me that the argument has become that we CANNOT spend too much - that deficit spending, in an of itself, is some kind of noble goal that through the magic of economics somehow puts all of economic history on hold, because THIS time it is different.

No one is making anything remotely like that argument.  This is about as clear of an example of a straw man argument as can be conceived.

[Berkut]

Now we've taken that position to the extreme. It seems to me that the argument has become that we CANNOT spend too much - that deficit spending, in an of itself, is some kind of noble goal that through the magic of economics somehow puts all of economic history on hold, because THIS time it is different.

No one is making anything remotely like that argument.  This is about as clear of an example of a straw man argument as can be conceived.

I disagree - I think that is exactly the argument that is practically being made when every time someone expressing a concern about deficit spending, the answer is ALWAYS "Nope, we should spend more, not less - the fact that we have more debt now than EVER before (barring an active world war) does NOT mean we should stop racking up more debt".

How can you say there is  some limit, when if we are running the highest debt ever, and that argument is that we have not reached that limit? The limit is always theoretical - always some number greater than whatever the number is now.

[The Minsky Moment]

So I don't approach it from the standpoint of "Hey, how much debt should we have?" I approach it from the standpoint of "Debt is to be avoided, therefore, if someone is proposing that we take on more debt, they should make a compelling argument for why it is necessary".

That is terribly mistaken.
Debt is not to be avoided as a matter of principle,  debt is actually incredibly useful.  The standard of living we had today would not exist had it not been for the leveraging of economic activity that debt permits, and the markets it creates in its wake.  Most modern capitalist enterprises use debt.  Most physical infrastructure is funded though debt.  The creation of modern public debt markets in the UK was one of the most important factors in that nations rise to power.  The creation of a national debt in the USA was one of the key political and economic developments in US history.

But there is another critical point here that keeps being missed.  Even if we accept as a rule of thumb that debt is a bad thing, then the question "how much debt should we have" cannot be answered solely in reference to the public debt.  "Our" debt is all debt, public and private.  If public debt is raised so that private debt can be reduced, then the total effect may be zero or even negative .

[The Minsky Moment]

I disagree - I think that is exactly the argument that is practically being made when every time someone expressing a concern about deficit spending, the answer is ALWAYS "Nope, we should spend more, not less - the fact that we have more debt now than EVER before (barring an active world war) does NOT mean we should stop racking up more debt".

How can you say there is  some limit, when if we are running the highest debt ever, and that argument is that we have not reached that limit? The limit is always theoretical - always some number greater than whatever the number is now.

Who is arguing these things?

[Berkut]

So I don't approach it from the standpoint of "Hey, how much debt should we have?" I approach it from the standpoint of "Debt is to be avoided, therefore, if someone is proposing that we take on more debt, they should make a compelling argument for why it is necessary".

That is terribly mistaken.
Debt is not to be avoided as a matter of principle,  debt is actually incredibly useful.  The standard of living we had today would not exist had it not been for the leveraging of economic activity that debt permits, and the markets it creates in its wake.  Most modern capitalist enterprises use debt.  Most physical infrastructure is funded though debt.  The creation of modern public debt markets in the UK was one of the most important factors in that nations rise to power.  The creation of a national debt in the USA was one of the key political and economic developments in US history.

But there is another critical point here that keeps being missed.  Even if we accept as a rule of thumb that debt is a bad thing, then the question "how much debt should we have" cannot be answered solely in reference to the public debt.  "Our" debt is all debt, public and private.  If public debt is raised so that private debt can be reduced, then the total effect may be zero or even negative .

I think we are talking about different things. I am not talking about debt as a monetary instrument to facilitate investment. I am talking about "We want $100 worth of services, but we only colelct $75, so lets just borrow the other $25".

There is a big difference between taking out a loan to fund a business, and running up your credit card so you can keep eating out and going to the movies. One is investment, the other is simply living outside your means.

[Sheilbh]

I don't think anyone supports structural deficits which is what you're talking about.

[The Minsky Moment]

I don't think anyone supports structural deficits which is what you're talking about.

A prototypical version of the anti-austerity argument was made today by Larry Summers: http://www.ft.com/intl/cms/s/2/13ce15ac-c878-11e2-8cb7-00144feab7de.html#axzz2VALK64yc

FWIW I do think some degree of fiscal tightening is appropriate in the US at this stage of the cycle,. but agree with Summers that it has been too much, too fast, and with the blunt instrument that is sequestration, too stupid.

On the flip side, the UK is a useful cautionary tale that taking a moral high stance on deficits and imposing brutal cuts on an economy in recession may in fact do nothing to reduce net indebtedness.

[CountDeMoney]

FWIW I do think some degree of fiscal tightening is appropriate in the US at this stage of the cycle,. but agree with Summers that it has been too much, too fast, and with the blunt instrument that is sequestration, too stupid.

I dunno...kids kicked out of Head Start?  Food stamps and unemployment benefits cut?  Public sector employees shitcanned by the tens of thousands?  It's Tea Party heaven.

[Admiral Yi]

Every time the person makinig that statement gets asked the follow up question of what cuts would make more sense, the silence is deafening.

[crazy canuck]

Every time the person makinig that statement gets asked the follow up question of what cuts would make more sense, the silence is deafening.

I assume because the point is that cuts at that particular point in the economic cycle dont or didnt make sense.

[Admiral Yi]

I assume because the point is that cuts at that particular point in the economic cycle dont or didnt make sense.

That's not the argument being made when someone calls the sequester a blunt instrument.

[Jacob]

I assume because the point is that cuts at that particular point in the economic cycle dont or didnt make sense.

That's not the argument being made when someone calls the sequester a blunt instrument.

Who called it that?

[crazy canuck]

I assume because the point is that cuts at that particular point in the economic cycle dont or didnt make sense.

That's not the argument being made when someone calls the sequester a blunt instrument.

That is a separate argument which goes to the weakeness in your political system - ie the kids dont play well together and there is no structural incentive for them to do so.

[Admiral Yi]

Who called it that?

Joan, Larry Summers.  Obama has used similar language (if not identical) numerous times.