Tuesday, January 3, 2012

Nobody Understands Debt

I do, at least at my own level. That's why I don't have any. Perfesser Krugman explains it on a higher level. Interesting read.

Deficit-worriers portray a future in which we’re impoverished by the need to pay back money we’ve been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.

This is, however, a really bad analogy in at least two ways.

First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.

Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.

I understand that. I've got a secret stash of "motorcycle money" that's meant to finance my bad habits like trials riding and motorbike parts. I borrow from it on occasion and it dwindles more than it gets paid back. Historically, along will come some big financial swindle transaction like fixing someone's bike and the fund gets replenished.

Of course, America, with its rabidly antitax conservative movement, may not have a government that is responsible in this sense. But in that case the fault lies not in our debt, but in ourselves.

What you mean "we", white man? - Tonto, after The Lone Ranger says "We're surrounded by Indians!"