Normally I love Dean Baker at CEPR, because he’s correctly figured out that our problem is horribly wasteful policies, such as the worst-in-class Medicare system. But I don’t like many of his solutions, and I especially hope he stops writing these articles about the National Debt not being a problem. I hope D.B. realizes at some point that the U.S. can and does have a really bad debt problem, even though lenders are willing to lend to us at low short-term rates. Sure, we could borrow more money, but would we be spending it wisely to get out of debt in the future? I don’t see evidence of that. And borrowing money simply to waste it is NEVER a good idea!
Right now the U.S. government makes the proverbial drunken sailor look like a pillar of rectitude! After all, the drunken sailor can only spend money he already has — no one will lend to him!
In the case of Uncle Sam, just because the bond market is currently offering Uncle Sam what amounts to a teaser option ARM loan with zero interest for the next 6 months (or 3 for 10 years even), does not mean we should borrow the funds! The relevant timescale is far greater than 10 years, the bulk of our debt burden is on the short end, and the bond market is a fickle creature. We could be cut off in less than a year — just ask the countries that have gone belly up in the last 100 years! We shouldn’t borrow without a _really_, _really_ careful re-examination of what we are buying with the added debt, and an assurance that the marginal loan will produce a real improvement in our economy. Congress isn’t doing that, so the people need to force the issue. We need to raise the price for our future debt servitude!
From another angle: Just because the bond market is overflowing with rentiers who are desperate for safe “investments”, does not mean the U.S. can afford to borrow more. Federal debt-to-revenue already vastly exceeds sustainable levels, and there’s absolutely no Keynesian cushion for the next recession!! (Which, if we are back to the classic 4-year business cycle, is due in only a few months, given that the last recession started in Q4 of 2007…)
It makes no sense to borrow more funds for imperial wars, for wasteful tax breaks for people who are already very well-off, for wasteful tax policies that stimulate malinvestment in nonproductive assets, for a medical system that is grossly wasteful – the worst in the developed world. Etc. Dean, why should we lend THIS Congress another dime, without structural policy reforms? What good will it do?
We need a smarter federal spending prioritization. We need better policies — policies that boost job creation without adding to the deficit. We need to encourage all the spare cash sitting on the sidelines to purchase tangible products rather than financial “investments”. Negative real rates ought to do it… and that would also push out some inflation to bring the nominal debt back to a reasonable proportion of the economy.
I’d be a lot more comfortable with this debt ceiling hike if Congress showed even an ounce of financial sense in terms of how to spend the money to fix the nation’s problems! I see no reason to give Congress more money if all it will do is continue to line the pockets of gluttonous special interests. What we need is federal investments that deliver… sustainable gains.
Blindly borrowing more is just feeding the squid…