The Calculus of trying to put a positive spin on the Debt

In Calculus there is something called the derivative, which is the rate of change, and the second derivative, which is the rate of change of that rate of change.

Well U.S. presidential administrations also like to make use of these Calculus concepts to try to make the country's debt issues not look so bad.

Instead of talking about the level of debt directly, they'll talk about budget deficits.

"Under my administration, I have reduced the budget deficit down to zero"

I believe this was a big point the Clinton administration made at one point.



Of course, even if the budget deficit is zero the debt is not decreasing. It isn't really addressing the problem, it's just not making things worse.

But presidential administrations will resort to another level of trickery. They'll talk about how they reduced the deficit.

That sounds nice doesn't it? And to the ill-informed voter it does.
But think about it for a moment. Even if you decrease the budget deficit you're still getting into more debt. You're just decreasing the speed with which you're getting into more debt.
The second derivative.

How else could a President celebrate getting into more debt and make it look like a good thing?
(okay, don't answer that...)

Anyone notice how you'll never read about Presidents reducing the debt ?
It's always deficits that are talked about.
If a President reduces the deficit, he doesn't have to stop increasing the debt.

 

So run a budget surplus and put the extra funds into pensions, retirement, and Social Security. Basically the things that grow bigger in the budget over the years and have been underfunded.

 

Why refer to calculus and then completely ignore how its applied in modern (typically neoclassical) economics? Seems like a strange thing to do. You're also wrong about the debt talk. If the budget debt is zero, given economic growth, the debt will become less significant. You're treating it like "my Auntie Mildred's purse", rather than understanding how government induces growth (e.g. balanced budget multiplier)

 

That's assuming there is economic growth (never a guarantee in the future) and that the demographics don't shift towards a larger ratio of poor people (you can have increasing growth but falling tax revenues if people are too poor to pay in, more poor can also create higher expenses for the government).

 

I'm not sure what you mean. Could you please enlighten us?
Is it something easy to do in two paragraphs you can write in a post?

Surely you're not saying government debt can be used to induce economic growth?
That theory has so many flaws in it. It assumes government can (and is going to) invest that money more efficiently than the private sector. Governments don't have a good track record of borrowing money and making that money grow.

 

If an economy is in recession, a government debt is just rational.

 

Everyone surely knows that neoclassical economics is based on marginalism. Know your calculus and you know their understanding of the 'first best'. You just don't actually refer to any aspect of calculus. Weird!

Of course it is. Keynesian demand management is crucial. Without it, you can expect hysteresis in unemployment as human capital is destroyed. That's real loss!

What theory? You haven't even claimed a specific school of thought. Even the drivel of monetarism did not deny that government spending had an impact on the economy. You'd have to go for extremists like new classicalism.

Efficiency isn't needed. The US, for example, has used its military sector to stabilise the economy. That is particularly inefficient!

 

human capital destroyed? I think that's a bankrupt theory.

Ideally Keynesianism shouldn't be relying on borrowed money to stabilize the economy. There's nothing in the fundamental concept of Keynesianism that advocates getting into debt as the particular solution.

And for an economy already fundamentally in long-term decline, no amount of borrowing and public spending is going to "stimulate" the economy and turn things around.

YOU should know better than anyone that Keynesianism does not hold itself up as the solution to every recession.​

 

How else are you to explain hysteresis in unemployment? Of course it is quite logical: if you don't use a skill, your productivity will fall (until eventually the skill is no longer relevant)

Use tax and you will dampen effects (and you're also more likely to have problems with lags, such that fiscal policy becomes less effective)

Long term decline? Sounds like a made up claim.

When isn't it a solution? Efforts to use alternatives, such as monetarist theory, have proven to be disastrous.

 

$20.6 trillion US debt...the US boasts how great it is and other nations dream of having a US economy. Question; how would all the other major nations on Earth look economically if each of them had $20.6 trillion in debt? The US is so far in debt that we have zero idea our true economic health? I have no problem with 'short term' debt when there is an emergency scenario and when there is a pay-back plan. But in the US we use debt money as SOP with little regard to the accumulation and/or service costs. How many other nations in the world, if they had $20.6 trillion in debt and perpetual $500+ billion deficits, would implement income tax reductions? It's like the ******* neighbor who appears to live in wealth yet has a 5:1 debt to asset ratio...we know how this usually turns out. Well...how will it turn out for the USA? Politicians refuse to increase taxes or reduce government, and even if they did, self-serving Americans will vote them out of office for doing what is in the best interest of the USA...this is a lose-lose scenario we're in today and why should this change...

 

There are bigger issues! The trade imbalance, for example, refers to consumer debt being a long term problem. If you saw correction via exchange rates, as predicted in Econ 101, you would expect economic turmoil!

 

Obviously the current debt/deficit system works just fine since we've been practicing it for decades. And even as we approach $22 trillion in debt, and realize new deficits around $1.4 trillion, no one seems to care...no economic turmoil...doesn't even get a mention on the news. This is SOP for the US! Where it all leads I guess time will tell...

 

Yeah, but its the consumer debt which is really interesting. If any correction went according to the textbook, the effects would be disastrous. Its interesting that you get the whinge and whine over the government debt, while ignoring a bigger problem...

 

I don't ignore much and consumer debt was not in the discussion. But if you wish...consumer debt is probably at it's highest levels which is yet another example in which the US does not function in a real economy. Sure the debt creates an economy but some percentage of our economy is sort of a false economy propped up with consumer debt and yes government debt spending. I don't see any way the US can pay down it's $22 trillion debt and many consumers will also fault on their debts...but again...no one seems to care?? It's SOP! And yes the **** will eventually hit the fan but it's unclear when and how...

 

The total debt was decreased in 2000 by $116 billion.

While it is true that reducing the deficit does not necessarily mean reducing the debt, it usually means that the rate of increase of the debt is slower.

If the rate of increase of debt is slower than the rate of increase of the economy, the debt will shrink relative to the size of the economy, which is the crucial factor.

 

".... hit the fan" would happen if we saw that exchange rate correction. The unique position of the US has minimised that threat for now. I couldn't guess how long it can continue mind you. Much better to shift the economy away from its reliance on consumer expenditure (but that would require a radical change in the economic paradim, so good luck!)

 

I keep thinking the service on the US debt will eventually get someone's attention, and even though it must be $300-400 BILLION today, no one seems to care. So what's to keep the US from going to $40 trillion debt and Americans from maxing out multiple credit cards...seems the answer is nothing...

 

I suppose you could apply some crisis theory to it. Given the different forms of debt, you can expect increase risk of episodes such as the financial crisis. The problem with such crisis is that it increases threats such as fascism. Rather than a reality 'star' talking bull to court the knuckle dragging right wing vote, you could have full blown extremism.

 

Likely by the time service rates on the debt shoot up (because of rising interest rates and/or inflation) it will be too late.

 

Why would services rates shoot up because of inflation? Be serious now and stop with empty 'look at me' effort.

 

Why that's elementary economics, my dear Reiver.
Investors demand higher rates of return when there's inflation going on. Why would anyone lend you money at a 1% rate of return when there's a 2% inflation rate going on, and the money they're going to get back will be worth 1% less than what they gave you?

 

No it isn't. But I'm happy for you to pretend otherwise. Show how 'service rates shoot up because of inflation'?

 

The last recession was 2008 and in recent times on average US recessions have occurred every five years so the US is overdue for another financial crisis. The stock market is ridiculously high, debt is high, inflation is growing, etc. Here we are with a strong economy and the idiot in Washington forces new tax policy which basically was an infusion of money (stimulus) to consumers which will exacerbate inflation worries. And reading that Warren Buffett saved $29 BILLION thanks to the new tax policy yet the nation is $22 trillion in debt and now has a $1.4 trillion deficit forecasted. Time will tell...

 

So when the service on the debt reaches $500 BILLION, or basically 1/9th to 1/8th of the total annual budget, will anyone care? I doubt it...

 

And the fascists are polishing their jackboots...