“Borrowing” column: crackpottery masquerading as economics

It is one thing to have a disagreement over priorities. It is another thing to think one’s opinions are that of a crackpot or are downright crazy. While RGF and New Mexico Voices for Children certainly don’t agree on much (even they agree that film subsidies are a bad idea though) Nick Estes’ column in today’s Albuquerque Journal is downright nutty.

His premises are twofold: 1) budget deficits and debt don’t matter; 2) trade deficits do matter and are bad. Naturally, he is exactly wrong on both accounts.

See the chart below as a starting point:

Yes, World War II saw an incredible run-up in the national debt. Thankfully, this was a TEMPORARY situation as the debt was “invested” in defeating Imperial Japan and Nazi Germany. That’s a good investment if there ever was one. Notice what happened to the debt after the War. It went down quickly. Notably, federal spending declined dramatically after WW II which was decried at the time by Keynesians who thought it would plunge our economy into another Great Depression. It obviously did nothing of the sort. Instead, the massive resource shift from war fighting to the private sector economy drove the economic boom of the following decades.

Today’s debt is a result of decades of overspending and the design of our so-called “Entitlement” programs, specifically Medicare and Social Security. As the chart above illustrates, the debt problem will get a whole lot worse, not better, with no end in sight.

Oh, and just because “we owe it to ourselves” doesn’t make indebtedness any less problematic. The problem with debt is not in the debt itself, but the burden it places on those who must pay it back and the potential for default. Remember the housing bubble? “Owing it to ourselves” didn’t make it any less painful. Ever make a bad loan to a friend or relative? Still painful.

Estes’ 2nd point is that trade deficits DO matter. Wrong again. China and other nations with which we have trade deficits are giving us stuff and accepting dollars. When it comes down to it, I’d rather have stuff than dollar bills because you can do a lot more with stuff than those slips of money which are being printed (not bills, but just zeroes these days) by the Federal Reserve. Oh, and Estes is wrong again in stating that China is not the world’s worst currency manipulator. It is actually the USA and Ben Bernake.

UPDATE: If Mr. Estes or anyone from Voices for Children reads this column, I’d love to set up a public debate on these issues, especially the all-important government debt/deficit issue. Any reasonable time, any reasonable place. It would be great to have a public discussion on these issues.