Like so many sloppy discussions of economics to make an important policy point, but badly, this one diverges from common shared reality fairly quickly.
Let me strike the key hypothesis in this, that prompts a leap of faith, over a cliff and into the abyss of fantasy.
"Debt is money we owe to ourselves."
Something on which Mr. Krugman can agree with Dick Cheney who said, 'Reagan proved that deficits don't matter.' How is that for a twist?
From an accounting standpoint and within the realm of theoretical identities this is true. Each debt is someone else's asset.
The key of course is how we define 'ourselves.'
If 'we' are the entire planet, equally and without distinction of interests and property, then perhaps one might say, ok, although it loses all meaning and significance. I would not mind pooling my household books with one of the Banking billionaires and to be able to step up to the Fed's free cash window anytime to do my business, with the assurance that I have a government guarantee underpinning my ledger, but alas.
And this is a problem because the paramount issue we are facing today is the historically extreme concentration of capital assets in a relatively few hands, and the burden of unpayable debts being imposed upon a large segment of the people by a system that has been hijacked by the moneyed interests.
If you take this pithless observation by Mr. Krugman down one level of detail in the States for example, one finds that the debt is an asset on the books of a increasingly small number of wealthy people, with much of it controlled for them by a handful of Banks.
This system is not sustainable, and I see no sign that it will even cohere, without substantial reform.
I wonder if the average American who is losing their car and house, and who is being hounded by debt collectors for whom those debts seems to matter a great deal, can use that argument with the Banks.
Putting aside private debts, let's just stay in the realm of sovereign debt, where the economic imagination can more easily take its flights of fancy.
Debt is just money we owe to ourselves is similar to the flat pronouncement that a sovereign that issues its own currency can never default. Money is just an accounting entry so why the fuss? And from this comes a Pandora's Box of muddy thinking, a selective myopia towards history, and Trillion Dollar Platinum coins.
I wonder if Greece can use this argument, that debt is just money that we owe to 'ourselves,' when they meet with the Germans this week.
But no, the US is different. Every other country may fail, and many have including that insubstantial nation of Russia not all that long ago, but not us. We are young and immortal. Our benchmark for virtue is power, and we are virtuous enough to be able to say that when things are not working out as we planned, we are able to decree that 'money is whatever we say it is,' and God help anyone who does not agree.
And so we might presume that the mighty US is going to be able to make that case about debt forever to its creditors who are outside the direct thought control of its monetary system, a short list of which is contained below.
It is funny how the moneyed interests and their courtiers are always saying, 'debt doesn't matter,' especially when they want us to assume their gambling debts which they incurred by frauds using our own money. Until, that is, they decide to call in the loans and the debts, and impose their will upon the people with foreclosures, garnishment, austerity, and debtors' prisons.
I agree wholeheartedly that the rhetoric around the discussion of spending priorities gets silly and overheated and quite frankly disgusting. That has more to do with a society in the grip of a greedy few, corrupt public servants, sophistical theoreticians, and boisterous minions than it does with the need to expand our economic theories into existential irrelevance. Madness is certainly attractive perhaps in a land going mad, but it is unlikely to be productive.
Arguments like those from the MMT crowd, both right and left, and economists like Paul do us no favors in concocting some fantastical solution to what is primarily a problem of governance, justice, transparency, and power gone horrible wrong.
The 'debt' and the 'budget' are not an economics argument but a policy argument. What is important to us? What do we continue to hold as these truths? And how do we resolve those disagreements? Avoiding that policy and priority discussion enables those who are caught in the credibility trap to continue to beg the question entirely, and the real task at hand, which is reform.
We cannot discuss reform until we expose the corruption. And therein lies the problem, because quite a few powerful hands have been dipping into the largesse, and quite a few courtiers have a vested interest in continuing to propagate the lies and myths of a failing system.
I am not a 'hard money' guy. I am certainly not in favor of a domestic gold standard as a remedy for our current set of problems.
What I am saying, and I think it has been consistently so, is that the system that we have now is so fundamentally broken that no matter what incidental things that we do, no matter how much stimulus is provided under whatever rationales, that all good will be turned to ill, the gap of inequality will keep widening, and that the situation will continue to worsen, lurching from crisis to crisis.
Is this not what we have seen since all the programs were put in place since the crisis of 2008? That the rich are getting richer, because all we have really done is prop up an unjust, broken, and unworkable system. And I think that this is the point that is being made by Greece in Europe today.
You cannot keep a game running when the insiders that control it are making up the rules as they go along, hiding their assets, dictating the judges' decisions, dipping into the other players money at will, and generally cheating and doing whatever they wish when they wish, because they can.
The system is too flawed to be sustainable, and must change in order to cohere.
NY TimesDebt Is Money We Owe To OurselvesBy Paul KrugmanFebruary 6, 2015Antonio Fatas, commenting on recent work on deleveraging or the lack thereof, emphasizes one of my favorite points: no, debt does not mean that we’re stealing from future generations. Globally, and for the most part even within countries, a rise in debt isn’t an indication that we’re living beyond our means, because as Fatas puts it, one person’s debt is another person’s asset; or as I equivalently put it, debt is money we owe to ourselves — an obviously true statement that, I have discovered, has the power to induce blinding rage in many people...More than that, as Fatas points out, rising debt could be a good sign. Think of my little two-classes model of debt, where some people are less patient than others — perhaps (to step outside the model a bit) because they have better investment opportunities. Moving from a very limited financial system that doesn’t allow much debt to a somewhat more open-minded system should, in that case, be good for growth and welfare...And the problems with public debt are also mainly about possible instability rather than “borrowing from our children”. The rhetoric of fiscal debates has been, for the most part, nonsense.Read the entire piece here.