Mark Thoma vs. John Makin: with a Real Government Borrowing Rate of -1.5%/Year, Government Should Be Borrowing and Spending More
Mark Thoma is, of course, correct:
Economist's View: 'Trillion-Dollar Deficits are Sustainable for Now': John Makin of the American Enterprise Institute says that "trillion-dollar deficits are sustainable for now, unfortunately." I don't agree with… the "unfortunately" in the title… but I appreciate that he is trying to play it straight rather than support the nonsense other Republicans have tried to foist upon the public:
Trillion-dollar deficits are sustainable for now, unfortunately, by John H. Makin: Congress is attempting, unsuccessfully, to reduce “unsustainable” deficits and debt accumulation by engineering “crises” that are meant to force politically challenging action… The tactic of threatening to go over the fiscal cliff will fail… because deficits have been, and will continue to be for some time, eminently sustainable. The Chicken Little “sky is falling” approach to frightening Congress into significant deficit reduction has failed because the sky has not fallen…. [T]he real inflation-adjusted cost of deficit finance averages –1.5 percent…. The debt-to-GDP ratio is not a reliable guide for gauging the sustainability of deficits…. The United States Is NOT Greece ... The hyperbolic claim that the United States is becoming Greece because of the absence of dramatic progress on deficit and debt reduction is unfortunately ridiculous…. The real danger… contrary to the cries of imminent “crisis”… [is that] probably much later than most pundits claim… the Federal Reserve’s monetary accommodation… will cause inflation to rise… [force] the Fed is forced to tighten [and] borrowing costs for both the government and private sectors will rise…
Mark Thoma:
I appreciate [Makin's] willingness to acknowledge, as Krugman noted today, that "We are not having a debt crisis." (I should also note, yet again, that with a "real inflation-adjusted cost of deficit finance [that] averages –1.5 percent," we ought to be investing heavily in critical infrastructure to stimulate output and employment, and to increase our future growth prospects.)
