In the course of researching yesterday’s column that explains why Tyler Cowen’s faux “hyper-meritocracy” endangers our world I read a number of articles discussing the Northwestern University study on the public policy views of the wealthy. One of those columns was published by UPI on February 24, 2013.
One of the central points that the scholars who conducted the study made was that the wealthy use their political clout to try to cause the American public to adopt the belief of the wealthy that reducing the federal budget deficit, in response to the Great Recession, was the most important problem facing America. In my column yesterday I noted that the scholars pointed out the logical incoherence of that position given the wealthy’s strong support for the policy view that the federal government should run budget deficits as a counter-cyclical fiscal policy to a recession.
Despite the fact that the scholars emphasized this logical incoherence, the UPI column states as a purported “fact” a proposition than economists have known for 75 years to be false. Moreover, UPI considered the “fact” so obvious and indisputable that it required neither citation nor a disclosure that the “fact” is considered to be a dangerous fiction even by the great majority of neoclassical economists.
“The federal government has been outspending revenue for years. Total U.S. debt stood at $16.6 trillion as of Friday and showed no sign of abating, a situation that will have devastating effects in the future and already is degrading the nation’s economic health.”
Note that the writer has shifted from discussing the budget deficit (in 2013) to discussing the national debt. The deficit, of course, has been declining primarily due to positive U.S. economic growth. Studies have repeatedly confirmed how the modest U.S. stimulus aided this growth while Eurozone austerity produced a gratuitous Eurozone recession and pushed much of the periphery into Great Depression levels of unemployment. The rise in U.S. debt is “abating” as the deficit declines and even austerians admit that the aggregate amount of debt is not the relevant issue. (Their claim was that the ratio of debt to GDP was the key and that a 90% ratio represented a point of no return. Those claims were exposed to be false – the product of slanted study design, bad data entry, and reversed causality.)
UPI, however, asserted as a fact that the aggregate amount of U.S. sovereign debt was sure to cause “devastating effects” and was purportedly “already … degrading the nation’s economic health.” Both statements are false. The U.S. has a sovereign currency, we borrow in our own currency, and we allow the dollar’s value to “float.” That means that we will never face a situation in which economics or finance requires us to default on our debt. (The GOP, of course, could voluntarily force a default but such a policy would be insanely self-destructive and immoral. There is no reason the U.S. should refuse to honor its contractual obligation to repay its debt.) A deficit could be a bad policy if our economy was at full employment and if the deficit caused substantial inflation. Running a very large budget deficit in response to a Great Recession is the superior policy that aids recovery, reduces unemployment, does not cause any material inflation, and eventually reduces the deficit. UPI presents no factual or logical basis for its claim that the U.S. national debt will have “devastating effects” on the U.S. economy. The opposite is true. Austerity would have had “devastating effects” on the U.S. economy as it did in the Eurozone. Similarly, at the time the UPI article was written (early 2013), the U.S. had (in response to the wealthy’s increasingly successful efforts to create a “moral panic” about deficits and debt) adopted a series of pro-austerity policies that reduced the economy’s growth rate and increased unemployment – “degrading the nation’s economic health.”
It is unclear why the UPI author chose to turn her column about the gap between the policy views of the wealthy and the general public into a deficit hysteria piece. The article exemplifies the irrationality that has inflicted so much gratuitous harm on the Eurozone and America.