Steve,
Have you ever heard the old saw about how if you put a hundred monkeys in a room with a hundred typewriters, given enough time, eventually one of them will type out the Gettysburg Address?
Well it looks like The Washington Post has decided to run this very experiment, and today's article: "Five truths about the deficit and the national debt" appears to consist of the first day's output.
No, I take that back. Comparing this article to what a monkey would randomly peck out on a typewriter would be an insult to both the monkey and the typewriter.
Where to begin? The first "truth" starts out by defining the word "deficit" (Hooray!), and ends with this head scratcher:
"Think of it this way: There are rich people who borrow a lot of money, and there are poor people who live within their means. The question of whether someone is rich or poor is separate from the question of how much money they borrow."
Steve, call me unsophisticated, but I always thought the question of whether someone is rich or poor depends on net worth, which is assets minus liabilities. In this simple equation, "liabilities" is short-hand for "how much you borrow". What person in their right mind would not understand this?
Don't bother, I checked. The writer is one Neil Irwin, whose resume includes "an MBA from Columbia University, where he was a Knight-Bagehot Fellow in Economics and Business Journalism." What was this guy's thesis on, Tantric Healing? Wicca? Let's move on...
Truth 2 starts out well, in this case pointing out that the national debt "accumulated over 200 years", thus clearing up a little confusion for those of us who thought it was racked up a couple of weeks ago. But then we learn, "The good news is that there’s really no need to eliminate the debt entirely." because doing that would be "problematic".
For who? Let's see, A: The government has no debt, therefore B: The government pays no interest on the debt, therefore C: The government can lower taxes, therefore D: us taxpayers get more money to spend on Ronco Pocket Fishermen and Suzane Somers Thighmasters. Sounds like a good deal to me. What am I missing here?
Truth 3 wastes no time going off the rails, by remarking: "Not all debt is bad. Some debt is good." No. Debt, like whooping cough, might be a money maker for the doctor who treats it, but hardly a good thing for the guy who suffers from it. Mr. Irwin opines that borrowing money for " a house or for a child’s education" could "pay off handsomely." Why sure it could! But wouldn't it pay off even more handsomely if you were able to pay for that house or that education in cash? After all, you would still have the same house and the same education, but then not have to send off checks to some lender, each heavily larded with interest, afterwards.
Next, take my word for it here, Truth 4 was lifted, with little modification, from the New Car Salesman's Handbook, Chapter 2, "How To Talk A Sucker Into Buying The Most Expensive Car On The Lot." In that handbook, salesmen are taught to say, with a straight face, "Sir, you make a good living. Don't you think you deserve to drive the Zorch 6000X with the gold plated cup holders and 200 horsepower windshield wipers?"
Irwin aligns this strategy with his version: "Not only would a stronger economy make the deficit lower — it would broaden the nation’s capacity to handle a large debt. Just as a $1 million mortgage would be ruinous for a poor family but easily manageable for a wealthy one, the United States can handle a larger amount of debt the greater our national income."
Translation: "You make a lot of dough, spend it." Steve, why? Why does making a lot of money automatically mean you need to borrow a lot of money? Don't get me wrong, I can see the guy who owns a successful business making hand buzzers going out and borrowing money so he can make more hand buzzers. After all, General Electric wouldn't be ripping the public off today with crummy coffee makers and clock radios if old Tom Edison hadn't borrowed a few pesos to get the whole thing rolling.
However, NEWSFLASH: the government isn't the same thing as a private individual or business. Now you and I may disagree on the extent of what exactly we expect government to do - but don't you think that, having arrived at a reasonable set of parameters, shouldn't we assume that government stay within those parameters? I mean why, if by some miracle, government collects enough money to pay for what we want it to do, should it then go out and borrow money so it can do even more? What kind of crazy logic is that?
Finally, as if waking up from some sort of trance or spell, in Truth 5, Mr. Irwin absent mindedly proceeds to contradict everything he has said so far. Possibly by accident, he discovers "debt dynamics". What is that? Glad you asked.
"Debt dynamics" is: "...the concept that deficits and debt have a built-in feedback loop. So when debt levels rise too high, interest rates can rise, making the debt problem all the more onerous. Debt dynamics are the reason that, even though interest rates are very low now, it is worth worrying about current U.S. debt levels."
Well what do you know. Somehow, while wrapping up two pages of naive generalizations, this Columbia University graduate stumbles on the essential truth which every high school drop-out is going to learn the hard way: when you owe a lot of money, it costs more to borrow it. Solution? Try as hard as you can not to go into debt in the first place.
What do they teach over there at Columbia anyway?
Enjoy,
-Chris
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I followed your link and read the article. After I stopped laughing (which took awhile), I just had to respond...
ReplyDeleteYou and I are on the same page 100% this time. (Big Surprise)
Mr. Irwin - and, by extension, Columbia grads and profs as well - clearly have a lack the empirical knowledge or experience in how things work. What this article proves they are good at doing, however, is hopping from one side of a fence to the other while saying nothing of substance. I have trouble remembering another 'primer' going around in such circles chasing its own tail. Egad.
I would suggest, at a bare minimum, a simple reading of good ol' Adam Smith's Wealth of Nations before opining on economics. As much as we don't *like* his Law of Supply and Demand, it has an uncomfortable reality of being quite accurate and proven in the Real World.
Irwin seems to operate on the idea that you can always POSTPONE paying off debt without suffering consequences. This was a popular view during the dot-com run up and other runaway market situations. But that pay-me-now-pay them-later only works while living in the ivory tower. Yes, there are times when an individual can shift *some* of the cost of debt to a more advantageous economic time (via inflationary pressures), but that is a HUGE gamble and not for the faint of heart - and is COMPLETELY inappropriate as a strategy for *government* monetary policy...
I could go and on, but you said most of it already.
* sigh* Just another example of what our education establishment is doing to damage the minds of our highly impressionable youth. I weep for the future.
- Steve
You know, I really have no doubt this Irwin guy is a smart man. This makes articles like this one all the more puzzling. I can't decide which aspect of it annoys me the most.
ReplyDeleteIt is, in the first place, condescending. Here, the author has decided to explain something sophisticated to an unsophisticated public. There's nothing wrong with that. Some of my favorite authors, like Isaac Asimov and George Gamow were people who could reduce difficult scientific subjects to a level I could understand.
But in this regard, this author fails utterly. If you have the conceit that you can explain complicated subjects to the average man, the least you ought to be able to do is understand the average man's conceptual framework. Apparently, Mr. Irwin has no idea of either WHAT he is talking about or WHO he his talking to.
In the second place, the article is clearly tailored to a pre-conceived conclusion. For instance, Mr. Irwin promotes government bonds as a necessary fundamental of a nation's financial health. I.E.: We invest in government bonds because they are a "safe" place to keep our money. Yet he fails to point out that the interest paid out on those bonds consists, not of created wealth, but of more taxes just transferred from taxpayers to bond holders.
Hard as I try, I can't help but wonder what this guy was smoking. The average man's solution to debt is so simple a child could understand it: figure out what you want, then go out and earn enough to pay for it.