The other day my friend DJ observed that in general it was not a good idea to run a deficit, and he felt like the federal government really needed to cut spending. I fumbled through a response which mentioned the words “Paul Krugman”, but I felt hopelessly inarticulate.
I have reflected on this a fair amount since then, and have tried to formulate what it is I think I have garnered from repeated consideration of Krugman’s work, and the most apt summary I’ve been able to come up with is what follows.
My wife is the executor of her recently deceased father’s estate. It is not a large estate, and was fairly low on cash at the time of my father-in-law’s demise. The principle asset is the family home.
Now suppose the roof started leaking. It would make a great deal of sense for the estate to borrow money in order to fix the roof. Not fixing the roof would cause irreparable damage to the house, and the house could not otherwise be sold because it could not pass inspection.
The point here is that the value of a productive asset stands to be destroyed unless money can be borrowed to shore up its value.
In this case it would be idiotic not to borrow the money.
Viewing this as allegory, the house is the American economy. The leaking roof is the Great Recession. Borrowing money to fix the roof is federally funded economic stimulus. The value that stands to be destroyed is the wasted productive lives of unemployed human beings like you and me.
Every allegory simplifies, and every simplification is an oversimplification.
One concern is whether or not the estate can find a lender. In this case, the allegory tells us that lenders are abundant and willing to lend at interest rates so low that they are without historical precedent.
Another concern suggests that the money has already been borrowed and has failed to repair the roof. Here the allegory tells us that not enough money was borrowed to fix the roof, but only to put a stop-gap patch on the roof. The patch is already showing signs of imminent failure.
If we fix the roof, the patch will prove to have been worth it.
If we don’t, the trillion dollar patch will prove a worthless boondoggle. The decision is in the balance, as are the productive lives of unemployed human being who in their humanity, if not in their employment status, are just like you and me.
Now, frankly, I have somewhere very close to zero credentials as a professional economist: I try to make sense of the few economists I trust, and make no effort whatsoever to credit economists in the employ of corporations who are legally obliged to lie when lying is profitable. It seems to me there are all sorts of factors that neither I nor the most recognized economic theorists can justly consider.
Yet, the decision is up to us.
Just remember, this is the family home.