piezone should be here any minute now to straighten us on our naive quaint thinking that deficit and especially debt really does matter. He says it is all just numbers and as long as debt/gdp ratio doesn't get above 10 zillion to one or some such we are ok.
Ha ha ha, I wasn't planning on responding to this nice thread, but now you've made we feel obligated. And i don't mind one bit. There is a little misunderstanding, but the fault is all mine.
You have obviously been reading my posts, as I read yours and appreciate them. My major point has been that government finances are nothing like our individual private finances; so to the extent we try to judge government spending the way we would our own, we are leading ourselves astray. What I haven't emphasized enough is that because it's how much we spend that we care about most in our personal finances we mistakenly dwell on the amount we spend when it comes to Government spending.
I have maintained, and consistently so, that the U.S. does not have any debt in at all the sense that we private citizens have debt. I don't recall having ever said, “ [government] debt really doesn't matter." If I did say that, it would have been in the sense that government debt doesn't matter because the government has no debt. (Not the U.S. anyway.) The total of government securities held in the private sector does matter, of course, because of servicing costs, which is non-discretionary spending. That might crowd out necessary discretionary spending if it were allowed to get too high. What I have tried to say is that the concept of "debt", as we in our private lives know it, doesn't exist for a nation such as the U.S. -- never mind that we erroneously think it does.
Where I have really failed miserably is in not emphasizing enough that there is at least one way that private finances are nearly the same as government finances. And that is that what money is spent on, and what it isn't, is an important consideration for government, just as it is for ourselves. In fact, it is a much more important consideration for government, as I will argue below.
We personally have one fundamental constraint that our Government doesn't. We are constrained by how much money we have to spend. For us, the amount of credit we can access controls the the upper bound of what we can spend. Our Government, on the other hand, has no need to access credit, and therefore it doesn't borrow money; thus the conventional concept of debt doesn't exist for our Government.
Though issuing of bonds by the Government creates the illusion of borrowing, the bonds it issues serve entirely different purposes than raising money; purposes not at all transparent to we citizens. It's clear that in the past even our Government officials did not understand this. Fortunately that is rapidly changing, and now many in Government are becoming more enlightened.
I could write an entire essay on how that came about, but I will spare you. Suffice it to say that during the Twentieth Century the
fundamental nature of government issued money was no different under the cumbersome Gold Standard than under a fiat money regime.* The true nature of the money our Government issues seems to have not been understood until after 1971.
Our Government
does not have any constraint on how much money it has to spend other than what our representatives in government impose.
Certainly the amount of money our Government spends is in no way affected by credit. Government is free to decide what to spend money on, and how much, without outside constraints.
The quality of those decisions is what matters. And that's were politics enters.
Is there an important conclusion here. Yes there is! We should stop listening to any politician that says “we can't do it, it costs to much“, or more deviously, “I'm really in favor of this, but we simply can't afford it. We'd burden generations to come with too much debt.”** Instead, we should insist that our politicians give us the
real reason why they don't want to spend on this or that. There are plenty of logical reasons, some very self serving of course. Let's stop listening to the illogical.
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*This is not evident until one answers the question, “Where did gold come from, and how did the government obtain it?”
**For those truly interested in this fascinating topic see the works of Lord Skidelsky. I find especially thought provoking Skidelsky's public remark that, “Those that own the debt pay the debt”, in reference to so-called public “debt” of the great nations.
