Paul Krugman and many others fail to understand government debt. They claim all the time that we should not be worried about the debt since it is “money we owe to ourselves.”
On that topic Murray Rothbard wrote:
The ingenious slogan that the public debt does not matter because “we owe it to ourselves” is clearly absurd. The crucial question is: Who is the “we” and who are the “ourselves”? Analysis of the world must be individualistic and not holistic. Certain people owe money to certain other people, and it is precisely this fact that makes the borrowing as well as the taxing process important. For we might just as well say that taxes are unimportant for the same reason.
I say that if it were true that we just “owed it to ourselves” then just repudiate the debt and see who hollers the loudest. And then we will all see if “we” ever loan “ourselves” any more money. (seriously, that is not a bad idea!)
In the world of John Maynard Keynesian, which is the world of all government minions, there is no opportunity cost. The fact that Trillions of dollars go to the military, make-work projects, government bureaucracies and not to other productive uses does not seem to matter to the progressives and their allies in the government. Every penny tossed down the rat-hole of the TSA is a penny that could be making the poor in this country better off. (and the rest of us to boot) The government sucks up tremendous amounts of credit which makes any start-up or expansion that much more difficult and the Keynesians can’t see the problem.
The patron saint of all government drones is John Maynard Keynes who wrote in 1943 that the credit expansion by a central bank performs the “miracle” of “turning stones into bread.” The fact that is that all Keynesians believe that a market economy is destined to implode because individuals save some of their income. They can’t seem to understand that this saved income is the investment capital that helps drive the free market. It is the capital that a start-up uses, in whole or in part, to get new businesses off the drawing board and into action. Nobel prize winner and newspaper columnist Paul Krugman has claimed that governments must “fill the hole” left by the “loss” of private spending when citizens save some of their income. Mr. Prize Winner seems to think that the saved income is not being invested someplace! One wonders how he passed his freshman economics class.
Economist William Anderson wrote a small comment at the Mises Institute where he told us:
When John Maynard Keynes decided that Say’s Law was pesky and got in the way of his master General Theory, he simply created a straw man, demolished it, and — Voila! — academic economists celebrated its demise. Paul Krugman, however, does Keynes one better and allows us to get rid of that oppressive and evil Law of Opportunity Cost.
Krugman continues to insist that if the economy is in a “liquidity trap,” the “old rules” no longer apply, and that means the Law of Comparative Advantage. Since comparative advantage is nothing more than an application of the Law of Opportunity Cost, Krugman is claiming that when there are “special circumstances,” the Law of Opportunity Cost does not apply. And without that lousy law, governments can perform magic with the printing press! I deal with this in my latest post on Krugman-in-Wonderland.
Keynes, Krugman, and all the rest of the Keynesian school think that government debt is the cure for all the ills of the massive government interventions that we see harm the ‘free market’. Government debt is not the cure-all to our problems. It is in many ways one of our biggest problems itself. Government debt is very different from private debt.
Let us hear from Rothbard on this subject:
The public debt transaction, then, is very different from private debt. Instead of a low-time preference creditor exchanging money for an IOU from a high-time preference debtor, the government now receives money from creditors, both parties realizing that the money will be paid back not out of the pockets or the hides of the politicians and bureaucrats, but out of the looted wallets and purses of the hapless taxpayers, the subjects of the state. The government gets the money by tax-coercion; and the public creditors, far from being innocents, know full well that their proceeds will come out of that selfsame coercion. In short, public creditors are willing to hand over money to the government now in order to receive a share of tax loot in the future. This is the opposite of a free market, or a genuinely voluntary transaction. Both parties are immorally contracting to participate in the violation of the property rights of citizens in the future. Both parties, therefore, are making agreements about other people’s property, and both deserve the back of our hand. The public credit transaction is not a genuine contract that need be considered sacrosanct, any more than robbers parceling out their shares of loot in advance should be treated as some sort of sanctified contract.
Any melding of public debt into a private transaction must rest on the common but absurd notion that taxation is really “voluntary,” and that whenever the government does anything, “we” are willingly doing it. This convenient myth was wittily and trenchantly disposed of by the great economist Joseph Schumpeter: “The theory which construes taxes on the analogy of club dues or of the purchases of, say, a doctor only proves how far removed this part of the social sciences is from scientific habits of mind.”
All taxpayers are on the hook for all the debt of the government (now at about 15 Trillion Dollars) as well as its future obligations which may be well over 200 Trillion Dollars. The taxpayers don’t “owe it to themselves” because if they did they would set all the terms of the debt. The taxpaying public is the “loan guarantee” in which people who don’t participate in the process still are forced to pay for it. This has been called a “social contract” but it is in reality blatant theft by the government.
Don’t let anyone tell you that “we owe the government debt to ourselves”.