Government Debt Hysteria

I don’t spend a lot of time trying to police the economic news media — Dean Baker and Brad DeLong are much better on that — but I found myself reading a two-week-old Newsweek column by Robert Samuelson that enraged me enough to type this out. (I read it on old-fashioned paper, but here’s the WaPo version.) The title of the WaPo version is “Could America Go Broke?” and here’s the last paragraph:

“Deprived of international or domestic credit, defaulting countries in the past have suffered deep economic downturns, hyperinflation, or both. The odds may be against a wealthy society tempting that fate, but even the remote possibility underlines the precariousness and the novelty of the present situation. The arguments over whether we need more ’stimulus’ (and debt) obscure the larger reality that past debt increasingly constricts governments’ economic maneuvering room.”

Deep economic downturns! Hyperinflation! “Precariousness and novelty of the present situation!” You’d think there was some actual reason to be afraid.

But not only does Samuelson provide no evidence that high debt levels lead to disaster, the evidence he does provide contradicts his alarmist conclusion. He says, “We have moved into uncharted territory and are prisoners of psychology. Consider Japan.” Then he considers Japan — and points out that even though Japan has the highest debt of any advanced economy, interest rates on Japanese debt have fallen to historically low levels. Somehow he says the “correct conclusion to draw” from the Japanese example is that “[major governments] can can easily borrow as much as they want until confidence that they can do so evaporates — and we don’t know when, how or whether that may happen.”

That’s not a conclusion from the Japanese example — that’s a truism that Samuelson asserted before the Japanese example and just repeated after it. (How we are on “uncharted territory” when Japan is already on that territory also escapes me.)

Samuelson doesn’t say anything that’s demonstrably false, because basically his column can be boiled down to this:

“If a government loses the ability to borrow money, bad things can happen. A government will lose the ability to borrow money when people are no longer confident that the government will pay them back. We don’t know when people will lose confidence. It may have something to do with the total amount of government debt, but then again it may not (see Japan).”

But that column is obviously not worth writing. So instead we get hyperinflation.

I’m not a fan of massive and increasing government debts in the abstract, forever. Who is? And there are real arguments to be made on this topic. But that’s not an excuse for empty rhetoric that serves no purpose. But wait — it does serve a purpose — the purpose of scaring people and politicians into not doing something about massive unemployment (because doing something might lead to hyperinflation, of course).

(After deciding to write this I realized that Dean Baker beat me to it by two weeks, but I think I’ve added onto what he had to say.)

Originally published at The Baseline Scenario and reproduced here with the author’s permission.