Friday, September 4, 2009

How many times are we going to have this same crisis?

Numbered amongst those who should be entirely ignored when they complain about the national debt are:
  1. People who voted for the Bush tax cuts and refuse to let them expire now
  2. People who supported the Iraq war
  3. People who thought that the same amount of debt was fine when it was on the books of Goldman Sachs and Citibank, and who simultaneously supported the financial bailout
  4. People opposing healthcare reform
  5. Centrist reach-across-the-aisle Democrats who blame this on the crazy Republican party, rather than putting aside their pansy-ass reelection scheming, grabbing some sack, and fucking doing something about the situation.
Conversely, except for this last point, Brad DeLong can be taken seriously when it comes to speaking about the dangers of government debt:

If global investors lose confidence in governments tomorrow, then we have a huge crisis--and they are right to lose confidence. If global investors do not lose confidence, then we are fine--and those crying "the sky is falling" are wrong and will lose money--as long as we don't let fear of a loss of confidence panic us into prematurely cutting the government deficits that are maintaining demand.

The right policy, therefore, is (a) big deficits now, and (b) big automatic tax increases enacted now to take effect in the future if we then fail to grow our way out of the debt.

But are we smart enough to enact such policies? Certainly not with today's Republican Party.

Ken Rogoff:

From Financial Crisis to Debt Crisis?: Everyone from the Queen of England to laid-off Detroit autoworkers wants to know why more experts did not see the financial crisis coming. It is an awkward question. How can policymakers be so certain that financial catastrophe won't soon recur when they seemed to have no idea that such a crisis would happen in the first place? The answer is not very reassuring. Essentially, there is still a risk that the financial crisis is simply hibernating as it slowly morphs into a government debt crisis.

This is definitely the crux of the issue.  If we lose confidence in the government, it can do nothing for us, and we can expect a hyperinflationary depression.  If we don't lose confidence in the government, it can be an amazing tool for muddling us through this mess.

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