Tuesday, July 19, 2011

One Economist's Take

Listen up, sisters! Deficit hawks will eat your lunch, your kids, your jobs and your retirement.

An economy without a deficit is like a fish without water. Reducing the U.S. federal deficit will make unemployment and poverty worse – way worse. And that means that women’s economic condition will deteriorate even further.

Today’s deficit hawks (and way too many Democrats are flying with this flock), fundamentally and deliberately misinform by insisting on a fictional symmetry between private sector (household and corporate) bookkeeping and the U.S. federal debt.

Squawk squawk. “Families have to live within their means, they can’t borrow forever.”

“Businesses that run in the red risk bankruptcy.” Caw caw.

But the analogy — the budget of the U.S. government is like the budgets of households and firms — is false.

The mantra that “the budget must be balanced” is a throwback to the 19th century, originating from the same outmoded economic thinking that justifies women’s lower wages.

Here are the facts: U.S. government borrowing creates interest-bearing assets. The bonds are bought with dollars, the interest on them is paid in dollars and, at maturity, the bonds are paid off in dollars. Since the U.S. government is both sovereign in its own currency and the sole issuer of dollars, it can never run out of them. How could it?

Don’t think printing presses here: Federal debts are paid off by Treasury clerks making a few clicks on computer keyboards — keyboards identical to the one I’m typing on now.

In contrast, families and businesses have to earn income or sell assets to get dollars to pay off debts. The federal government does not face any such constraint. It can spend as much as it likes and borrow as much as it likes. With so many people out of work — nearly 30 million and counting – and so many firms operating well below capacity, there is no danger of inflation. So, right now, government borrowing and government spending will do one thing and one thing only: It will pump up aggregate demand, call jobs into being and reduce economic pain. Our children will be better off.

Meanwhile, the ceiling limiting the federal debt is an arbitrary constraint. There is no reason to be found, in either economics or accounting, that supports capping the federal deficit at or below its current level.

~ from What Deficit Hawks Don't Know Will Hurt Us All by Susan Feiner ~

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