“Deficits” are economic necessities

29 Aug, 2013 at 09:47 | Posted in Economics | 4 Comments

wvickreyWe are not going to get out of the economic doldrums as long as we continue to be obsessed with the unreasoned ideological goal of reducing the so-called deficit. The “deficit” is not an economic sin but an economic necessity. […]

The administration is trying to bring the Titanic into harbor with a canoe paddle, while Congress is arguing over whether to use an oar or a paddle, and the Perot’s and budget balancers seem eager to lash the helm hard-a-starboard towards the iceberg. Some of the argument seems to be over which foot is the better one to shoot ourselves in. We have the resources in terms of idle manpower and idle plants to do so much, while the preachers of austerity, most of whom are in little danger of themselves suffering any serious consequences, keep telling us to tighten our belts and refrain from using the resources that lay idle all around us.

Alexander Hamilton once wrote “A national debt, if it be not excessive, would be for us a national treasure.” William Jennings Bryan used to declaim, “You shall not crucify mankind upon a cross of gold.” Today’s cross is not made of gold, but is concocted of a web of obfuscatory financial rectitude from which human values have been expunged.

William Vickrey


  1. Money *is* a debt. It is not printed. Any private bank that judges that the inflow of credits will make up for its own issuance of debt could create money, too. If banks enjoyed the same credibility as the State, they could create money illimitedly, too. Even though their credibility is less, they can still create money to a lesser extent.

  2. Henshaw,

    There is no such thing as an unfunded liability of the federal government (state one are a different matter). The government has an infinite capacity to increase its stock of IOUs in circulation – it prints its bonds out of thin air, the same with “money” which is the same type of a liability as a bond. So far, it has printed 15T more than it has “unprinted” by taxing and it could print 100s of Trillions more, so money cannot be an issue for a sovereign currency issuer such as the US, Japan or UK. How our capacity to live well is really “funded” is by the *real* (not financial) basis of the economy: our productive capacity, our ingenuity, education, real capital, machinery, infrastructure, raw materials. By not spending enough money (or taxing too much) the government ensures unemployment and insufficient infrastructure, and ensures that our future capacity to provide high standard of living will be limited: the productivity of people who wasted years unemployed will be lost, the future entrepeneurs and inventors will not be there because today’s youth cannot afford education as their parents are struggling, the infrastructure will be lacking.

  3. Unreasoned ideological goal of reducing the so-called deficit.

    I have never really understood this line of thinking when it’s applied to today. It’s cited as a justification to continue to running up the kind of debt Hamilton would have found “excessive.” Such is the state of our political affairs that reducing spending or increasing taxation is nearly impossible so instead we have to print money.

    The fiscal crisis of 2008 was just the tip of the iceburg. There’s a colossal amount of unfunded liabilities on the horizon at ever level of government.

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