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.
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| 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.
My only hope would be that Robert Morley has been placed in a position of great financial responsibility within the Flurry organization!
ReplyDeleteSeriously, the last position you would want a do it yourselfer to occupy would be as an economist. During the Cuban Revolution, Dr. Che Guevara discovered how difficult it is to create and manage an economy. Apparently, there is even a very strict method or model to managing a communist economy successfully, and Guevara failed miserably at this, even after being mentored by some of the chief economists of the USSR.
I never met the man, nor have I read any of the materials which he has written. However, he seems to be simply parroting a number of the cliches used by conservative talk show hosts, and exhibiting a rather shallow comprehension of the complexities himself.
I am somewhat of a fiscal conservative. However, I fully acknowledge that what really got the US out of the Great Depression was all of the Roosevelt era pump priming, and the massive war effort. Imagine how history might have changed if our leaders had been overly concerned about debt during that era!
BB
It would have been helpful if he had ever taken an Economics class. I did in college. If he had anything above a D in a qualified class of Economics, he would not make such stupid statements.
ReplyDeleteThe thing about World War II was that there was a scarcity of consumer goods -- it all went to the war effort. Most people didn't have butter, they had margarine with yellow pills to color it. There was rationing. Many women worked in industrial plants with an income, but no where to spend it.
After the war, there was a pent up desire for consumer goods and the money to buy them, so people loosened their belts and started buying, homes, cars and other goods. The 1950s were 'good times' and the United States was quite conservative.
But the freedom and prosperity caught up to everybody and the 1960s... well, we all know what happened in the 1960s -- and the liberals really took off. They learned a lot of lessons and in the 1970s they were at the top of their political game. At the same time though, inflation took off, prices soared and oil tankers floated in the bay without coming ashore and so there were long lines at the gas station. People who never pumped gas before were suddenly learning self-service.
And then the 1980s and the advent of the PC. It transformed the world. In the 1990s, the Internet really took off and the genie couldn't be put back in the bottle. Behind the scenes there were new financial instruments invented by those plucky mathematicians and physicists who were out of a job because of the end of the cold war. Their tools were so complex that no one (much) saw what was coming as the world wide crash impacted everyone in 2008.
Today, we have financiers looking to use point to point lasers instead of fiber optic cable, because in the complex markets of today, a delay of miliseconds can make a difference of millions of dollars in investments.
So Robert Morley wants to explain to us the world as it is today?
Let's hope he was born with high Structural Visualization so he can picture in four and five dimensions in real time the economic changes in the New York financial district, because if he doesn't have it, he might as well have a mind like a sheet of paper with only two dimensions or maybe only one dimension like a string.
Given his inanity, its doubtful that he has any skills at all. At least I got all A's in accounting in College and was in the 99th percentile vocabulary.
Can we get a look at his transcripts? Perhaps an assessment from the Johnson O'Connor foundation?
Enquiring minds would like to know....
>>My only hope would be that Robert Morley has been placed in a position of great financial responsibility within the Flurry organization!<<
ReplyDeleteActually PCG minister Andrew Lochner is the man in charge of PCG's finances. And raises another question: why don't PCG use Lochner to write about economic issues instead of the self taught Morley?
PCG clearly trust Lochner enough to manage their money. Why don't they trust him to inform their readers about economic affairs?
>>The thing about World War II was that there was a scarcity of consumer goods -- it all went to the war effort. Most people didn't have butter, they had margarine with yellow pills to color it. There was rationing. Many women worked in industrial plants with an income, but no where to spend it.
ReplyDeleteAfter the war, there was a pent up desire for consumer goods and the money to buy them, so people loosened their belts and started buying, homes, cars and other goods. The 1950s were 'good times' and the United States was quite conservative.<<
I heard that account myself while reading a book about World War II. That was an absolutely amazing and very prudent way to deal with the intense financial situation caused by World War II. What ingenuity! That was very impressive.
I meant Andrew Locher. He's the one in charge of finances at PCG.
ReplyDeletehttp://livingarmstrongism.blogspot.com/2014/09/since-1999-pcg-halved-spending-on.html