Take the US Federal debt for instance. It is often said the Federal debt is the highest it has ever been, but, surprising as this may sound, this is not true. This perception fails to take into account inflation and the simultaneous growth of the US economy. When one compares the US federal debt as a percentage of US GDP it turns out that actually the United States had, per capita, a higher federal debt back in the 1940s because of World War II as may be seen below. So it is not true that the US federal debt is unprecedentedly high today.
|US federal debt compared with GDP 1940-2014|
But he who lacks professional training in economics, Robert Morley, appears to be unaware of this fact and, because he has had no proper training in economics he proceeds to condemn the Nobel Prize wining economist, Paul Krugman, for saying the United States can afford to take on more debt in order to make the economy flourish and recover from the crisis of 2007-8 in this article. Morley seems obliviously unaware that the US had a higher federal debt per capita back in the 1940s.
The New York Times’s famed economist Paul Krugman is meditating out loud about debt again. Considering America’s fiscal future, he asks: Does America have enough debt?Morley, unaccredited economist, proceeds to bring up some scaring sounding figures in order to scare the living daylights out of his readers.
Let me answer that. Yes!
Over the past six years, America’s national debt has risen from $11.1 trillion to $18.1 trillion. That’s a jump of more than 63 percent since the last presidency. For perspective, it took America 227 years (1776 to 2003) to accumulate its first $7 trillion worth of debt.Hasn't Morley ever heard of inflation? Back in 1963 a movie called Cleopatra was made with a budget of $44 million. In today's terms that is about $338 million. Morley fails to consider inflation when making these scary statements.
When one accounts for the US federal debt compared with overall US GDP it actually turns out that the United States had, per capita, a higher federal debt back in the 1940s because of World War II. But this extremely pertinent fact is obliterated in the unaccredited economist Morley's scary tale.
The unaccredited economist, Morley, continues.
Governments don’t have enough debt? They should have more? Is Krugman serious?Morley has not had proper professional training in economics so of course Morley is befuddled and cannot understand what he is reading from Paul Krugman.
Morley then recites some of what Krugman says. While doing so Morley says the following:
Krugman: It’s simple: You grow the economy. A bigger economy means you don’t have to tax as much to cover interest payments. A bigger economy means your debt-to-GDP ratio will fall.So Morley mentions the "debt-to-GDP ratio". If Morley looked at what the "debt-to-GDP ratio" for the US actually was he would discover that the United States had, per capita, a higher federal debt back in the 1940s because of World War II.
After presenting Krugman's proposal (but I cannot afford to trust Morley because he was never professionally trained as an economist) Morley posses his objection to Krugman's proposal.
Question: Anybody see a problem here?This is a false analogy. Morly is confusing public debt (which is what the US federal debt is) with private debt (which is what you and I have because we are not a government). The US has the internationally recognized right as a sovereign nation to print its own money. We, as individuals, do not.
Any personal finance adviser will tell you that borrowing money to purchase something that will not produce enough to pay for itself is a great way to get into financial trouble.
Somehow this unaccredited economist, Morley, fails to see how flawed his analogy is. Of course he cannot because he has had no professional training in economics.
Near the end Morley says the following which, as is seen below, is utter nonsense.
Sadly, it will take a crisis to wake people up. And a crisis is guaranteed because it is the Paul Krugmans of the world who dominate political thinking and monetary policy. Only this time, it will be a lot worse than the last one because debt levels are so much higher.Utter nonsense. There are at least two reasons why Morley is totally wrong to say this.
1) As stated above the United States had, per capita, a higher federal debt back in the 1940s because of World War II. So it is not true that "debt levels are so much higher today" considering that they were actually even higher per capita back in the 1940s.
2) The global financial crisis of 2007-8 was because of private individuals and companies being in danger of going bankrupt because of private debt, not the federal debt which is public debt and was not the cause for that financial crisis.
It is not true that "the Paul Krugmans of the world ... dominate political thinking and monetary policy". In the European Union it was decided to follow the path of austerity, the opposite of what Paul Krugman proposes, and the whole world has seen the terrible consequences of such policies within some of the countries of the European Union. Austerity was a bad idea there and it is a bad idea in America as well.
Also it is not possible for the US to undergo what Greece, Ireland, Portugal and those other countries endured because they used the Euro and thus did not have their own sovereign currency, unlike the US.
So we see that Morley's objections to Krugman's proposals are highly flawed and are not worth listening to. But what can one expect from one who was never properly trained in economics?
It is sad that PCG's leaders think it is fitting and proper to have a man like this (mis)informing PCG's readers about economics when he clearly is unable to do so properly.