The Deficit: Nine Myths We Can't Afford

Economics Economics Questions
,
1

It seems to me the following myths are or the realities, and the realities are the myths:

Myth #1: The government should balance its books like a private household. Reality: Our federal government is the issuer of the currency, which makes its budget fundamentally different than the average citizen’s.

Myth #2: Fixing Social Security and Medicare will require “tough choices.”
Reality: Social Security and Medicare are not facing a financial crisis.

Myth #3: We are passing on debt to our grandchildren.
Reality: Payments on Treasury securities are a matter of data entry, not a financial burden.

Myth #4: What we don’t tax we have to borrow from the likes of China for our children to pay back.
Reality: Paying our debt holders back consists of transferring funds between accounts.

Myth #5: The government must tax or borrow to get money to spend.
Reality: Government spending is not constrained by revenue.

Myth #6: Deficits and government borrowing takes away savings.
Reality: Deficits add to income and savings.

Myth #7: We’ll end up just like Weimar Germany or Zimbabwe.
Reality: Hyperinflation in both countries was caused by circumstances far different than ours.

Myth #8: Government spending increases interest rates and ‘crowds out’ valuable private sector investment.
Reality: Banks can lend essentially without limit, and the Fed can hit any interest rate target it chooses.

Myth #9: The money spent paying interest on the national debt could be spent elsewhere.
Reality: Interest rates can easily be brought to zero and are not an obstacle to federal spending.

Source:

2

“Reality: Banks can lend essentially without limit, and the Fed can hit any interest rate target it chooses.”

I like that one best!

3

Myth: something cannot be A and not A at the same time.

Reality: Yes it can, so long as you have a central bank.

Translations of the “reality” segments:

1. Our federal government is the issuer of the currency, which makes its budget fundamentally different than the average citizen’s.

Translation: Because they can print money, they can take whatever they want and give to you. Don’t worry.

2. Social Security and Medicare are not facing a financial crisis.

See translation for number 1.

3. Payments on Treasury securities are a matter of data entry, not a financial burden.

Translation: We don’t understand how any of this really works, but we’re certain some really smart people are working the computers. Don’t worry.

4. Paying our debt holders back consists of transferring funds between accounts.

Translation: When you give someone money, it goes from you to them.

5. Government spending is not constrained by revenue.

See translation for number 1.

6. Deficits add to income and savings.

Translation: Everybody knows that spending more than you take in leads to prosperity. See translation for #1 again and don’t worry.

7. Hyperinflation in both countries was caused by circumstances far different than ours.

Translation: The Weimar Republic was made up of proto-Nazis and Zimbawbe is in Africa. We are Americans.

8. Banks can lend essentially without limit, and the Fed can hit any interest rate target it chooses.

See translation for #1…again.

9. Interest rates can easily be brought to zero and are not an obstacle to federal spending.

See #1. Don’t worry: your masters will fix everything.

4

I like number 6.

‘Spending is saving!’

5

"Myth #2: Fixing Social Security and Medicare will require “tough choices.”
Reality: Social Security and Medicare are not facing a financial crisis."

Regards, onebornfree

6

“2. Social Security and Medicare are not facing a financial crisis.”

as issuer of currency does the govt jthen just issue new dollars to meet social security claims as it needs???

does the dwindling payer per payee count then not mean anyting as many in te media say it does???

ie, 1n 1950 there were 4 people paying for every 1 on SS in say 2015 there will be only 1.5 people paying for every one on SS???

7

does gold and silver money undo the “govt is issuer of currency” issue making it mnore like a houshold budget???

8

Facepalm

WTF???

9

The Madoff examples frustrates me when speaking to non-Austrians. It’s a prime example of a ponzi scheme, and most folks would agree that its a scam. But apply the same logic to SS, and we are loony.

10

This is either a joke or I have completely lost my mind, as I cannot reconcile my version of REALITY with the madness expounded in this article. Literally stunning.

Z.

11

I’ve read half of it, it’s incredible. The answers to the “myths” come from PROFESSOR OF ECONOMICS. WTF ?!

Is the Huffington Post a real newspaper ? I mean, is it serious ? It seems to be a joke. If it’s not one, oh my…

Yeah, we just need to “change numbers” to create jobs and wealth. Why didn’t we think about it guys, we mst be idiot conservatives !

12

the original source:

http://www.newdeal20.org/2010/04/27/the-deficit-nine-myths-we-cant-afford-10162/

New Deal 2.0 is a one-stop-shop for current news, fresh insight, sharp analysis of the country’s fiscal crisis — and the people and policies that offer potential solutions. A project of the Roosevelt Institute, ND2.0 brings you commentary from the country’s leading thinkers: economists, historians, political scientists, policy experts and elected officials.

We go behind the headlines to explore the questions at the heart of the economic and financial reform debates, offering both short, digestible explanations of the issues as well as more in-depth discussions around the finer points of the public conversation. ND2.0 is designed for the well-informed citizen who is tired of spin, sound bites and half-truths — one who is looking for straight-forward information and analysis. A go-to site for anyone seeking useful information about the ideas that will shape our economic future, ND2.0 is a must-read for journalists, opinion leaders and policy makers.

The examination begins here. A platform for today’s most exciting thinkers, ND2.0 is also a place to find the most innovative emerging voices on the economic issues that affect us all.

13

Most of these arguments boil down to “well, the government can print money!”

14

Strange how their arguments are the cause of business cycles, as oppose to being a savior.

15

I hope they get fired if the middle class gets wiped out by inflation.

16

Wow, this article got me MAD.

So I wrote a rebuttal article!

Huffington Post article on deficit myths is quite fictional itself - http://tinyurl.com/33crcfx/

Ridiculous.

17

I can assure you that even left-wing people don’t take HuffPo seriously.

Why? It’s a newspaper run by the trophy wife of a billionaire, who decided to indugle her. But the best part is that many millionaire wives write articles on the paper - and some of them write articles which seem to be out of sympathy for the less fortunate, but only expose the complete opposite. A notorious article from the paper was by one millionaire wife who tried to go a day without spending any money…and found it a difficult experience.

So again, leftists pretend the newspaper doesn’t exist. I was at a videogame forum where leftists showed outrage at how bad articles in the paper are. One of the most notorious HuffPo articles is, “If You Are A Christian, Muslim, or a Jew, You Are Wrong”. Amazingly, it dedicated an unusual length of the article to condemning Jews, not necessarilly for Israel, but for their beliefs and supposed dishonesty. It was written by a Kemalist Turk, big shock. Actually, HuffPo is so not taken seriously, that only others not taken seriously write for it - including such lots of Jew haters, filling the paper with anti-Israel/Jew/Zionist articles.

18

Did anyone else feel like the whole article was written by a kindergarten teacher trying to explain something confusing to a bunch of six-year-olds?

"…most economists were trained using textbooks that have not been rewritten since the United States went off the gold standard after WWII.

Back then, we had a monetary system that really did limit the growth of the money supply, and too much government spending really could force rates higher and crowd out other forms of spending. It is all based on something economists know as Loanable Funds Theory, which describes a market in which there is some limited pool of savings available to satisfy the demand for credit. Thus, deficit spending required the government to compete (with private borrowers) for a portion of these limited resources. Because the capacity to lend was constrained under the gold standard, the added competition could drive borrowing costs (i.e. the interest rate) higher."

Oh, poor government, having to limit it’s spending under that pesky gold standard. Obviously, the government should be able to spend as much as it wants with absolutely no consequences!

19

I wonder how well this piece reflects the opinion of mainstream economists. I mean, the piece is so ridiculous, I can’t imagine that Austrians are the only ones who realize it. The entire argument of the piece rests on the assumption that the printing of money creates wealth ipso facto. No one that I am aware of, not even Keynesians, (besides Paul Krugman) believe this.

20

I wonder how well this piece reflects the opinion of mainstream economists. I mean, the piece is so ridiculous, I can’t imagine that Austrians are the only ones who realize it. The entire argument of the piece rests on the assumption that the printing of money creates wealth ipso facto. No one that I am aware of, not even Keynesians, (besides Paul Krugman) believe this.

I see what you are saying, but it seems like the same policy results (inflating the money supply/interventionism) no matter how the non-Austrian economist cloaks himself.