Grasping Reality on TypePad, by Brad DeLong

• Deficits matter. How they matter depends on:

  • Is unemployment high or low?
  • Are interest rates low or high?
  • Is the debt sold to finance the deficit a solid asset or a shaky one?
  • Are you worried because the debt service is large, the deficit is large, or the debt is large?

• At the moment the unemployment rate is low, so there is no reason to run a deficit:

  • A competent government would be running a surplus, to increase the fiscal space available to run a deficit when one becomes desirable.
    • But we have not had an even half-competent government since January 21, 2017
    • I would argue Mitch McConnell, John Boehner, and Paul Ryan's political strategies have kept us from having a more than half-competent one since January 21, 2011.

• At the moment interest rates are very low, and the debt we sell is regarded by everyone as a very safe asset:

  • Thus running a deficit—even a very large deficit—is not an immediate problem.
  • Remember: economists look at quantities and prices:
    • We have an immediate problem when the quantity of the deficit to be financed is high and the price at which the bonds to finance it are sold is low,.
    • That is not us, now.

• At the moment, debt service is low:

  • If we were a private borrower, standard financial planners and advisors would say that we were in quite good shape.
  • They would recommend that we carry a greater proportion of our debt long-term to lock in the extremely advantageous interest rates at which we can borrow.
  • But they would not advise us to strain muscles to reduce our debt load.
    • There are subtleties with respect to a national debt that make things more complicated than a private household's accounts.
    • But the main message is: other problems are much more serious, and scarce energy should be spent dealing with more urgent problems.

#finance #fiscalpolicy #macro #notetoself #talkingpoints #2019-08-14