Their Solution, Our Problem

Paul Jacob
Posted: Mar 30, 2014 12:01 AM
Their Solution, Our Problem

Increasing public debt is bad for a number of reasons. Journalist Matthew Yglesias, speaking on, gives voice to a very different, more Pollyannish perspective: “Debt is just not a problem right now,” he says.


“The U.S. can never run out of dollars.” After all, the Fed can just print more.

That’s not an uncommon view where I live, near the center of privilege, Washington, D.C. Indeed, it’s what liberals and progressives say every time a Tea Partier protests federal overspending and multi-billion-buck budget deficits.

In other words, the idea is as common as dirt. So why General Electric supports as propounding “Unique views on policy, from the best in the news,” I don’t know. The project is billed as “#pressing.” I look at it as “hashtag: depressing.”

But the GE money has been put to some use. The video sports state-of-the-art graphics and comforting music. Mr. Yglesias, narrating his own script, sounds convinced himself. He titles the talk in the form an instruction: “Stop freaking out about the debt.”

May we freak out about his naivety?

J.D. Tuccille at Reason took on the video by focusing on Yglesias’s initial pooh-poohing of the sheer size of the national debt. Tuccille noted that Yglesias under-reported its ginormity, and that the Congressional Budget Office finds, counter to insider Pollyannas, no small reason to worry about the ballooning debt.

But my mind still reels not over size comparisons but over the money quote. That is, the money-printing quote.

Yglesias really did argue that the federal debt is no problem, because, unlike you and me and the states and our businesses and non-profits, the federal government can simply turn on the printing presses. That is, the Federal Reserve can fiddle with money creation on bank computers.

Yglesias informs us of this as if it’s news. As if it’s something we hadn’t heard of before.

As if we’re idiots.

Someone, please, send a note to Mr. Yglesias: anti-public debt and anti-inflationism has a long and august tradition. Some of the leading minds of economics took the position, as have some of the major figures in American and British politics. Today’s heirs to this tradition know that government can create money out of, well, nothing. We just don’t think it should.

What he sees as a solution we see as a problem.

Now, Yglesias does mention inflation. But it’s obvious he means CPI numbers, even though he offers the short-hand “too much money chasing a fixed amount of stuff” definition to stand in for the “supply of money increasing faster than the demand for money” definition that I usually hear from monetary economists.

But while he admits that price inflation can be a problem, what he is promoting is inflationism. That’s the doctrine that central bank fiddling with increases in the rate of money growth is the way to control the economy. And that it’s costless.

Like money cranks of the old days, he only sees the costs of not inflating.

Blithely, he passes by the Dangerous Thought — that artificially lowering interest rates fakes out investors and consumers, getting them to make bad investments that destabilize relative prices that, when they unravel, wreak havoc. The problem with the economy, under inflationism, isn’t underconsumption or overproduction or a “hangover,” it’s malinvestment.

And central bank monetary policy causes it, and thus the boom-bust cycle.

The modish government-as-savior view of society seems pure simplicity, especially when accompanied by nifty graphics and intoned by an earnest narrator: major inputs and outputs — money supply, fiscal spending, debt, inflation — all of which liberal-progressives say they will “expertly” adjust.

Except when they fail. Which is, well, always. (At best, their bend-over-backwards interventions to prevent busts makes the cycles longer and the busts deeper, and bailouts an eternal necessity.)

Fed the official propaganda, no wonder people ask questions like “why haven’t we seen inflation, following the huge influxes of quantitative easing?” And, in part, we have. Food prices aren’t exactly trending downward. But it is not just about consumer prices, but investment prices, too, which we have long known to be more volatile than consumer goods; investments can easily suck up new money to create an unstable boom, which bursts.

I won’t get into a long discussion of the demand for money, or the vital importance of thinking about relative prices rather than “price levels” that (from what I can tell) have made hash of too many economic explanations. And I’m not going to get into the weird intricacies of how the Fed’s new money has been used to buy bad assets from the last bubble (think of it as the ongoing bailout, under the table). I’m no economist. It’s my job merely to suggest that Matthew Yglesias may not know what he’s talking about . . . and that we do have reason to worry about the future.

The biggest problem for today’s market recovery — aside from subsidies and wage controls and all the folderol that directly discourage new jobs — is federal government irresponsibility itself.

Yes, and that’s symbolized — signaled — neatly by the federal debt.

And what the rising debt signals to investors and other market participants is that they have no sure footing to make viable long-term plans. The future has been put in jeopardy by politicians and interest groups who cannot restrain their rapacity. Businesses, banks, investors — even many consumers — hold onto cash a little longer than you might otherwise expect.

Hence less business growth, hence the laggard “recovery.”

Economic historian Robert Higgs dubbed this effect “regime uncertainty.” It’s the uncertainty bred by bad policy.

Just the kind Yglesias and his comrades adore.

Fiddle with the economy’s dials, oh wise ones, and uncertainty seems a certain result.