Liberal economists are Gruberizing the debt argument

Congress will have to raise the ceiling on the public debt which is now over $18 trillion - without any promised cuts in anything

Doing the "Gruber" - raising the debt roof.

WASHINGTON, Aug. 21, 2015 – When Congress gets back to work, sometime after Labor Day, they will have to raise the ceiling on the public debt, which is now over $18 trillion. While most rational people understand that too much debt can cause serious problems, the liberal economists say that we don’t have enough debt.

They are trying to Gruberize the debt argument.

Gruberizing is a term used when (supposedly) unbiased economists make a statement and then try to find data and develop a model that supports that statement, rather than being impartial and finding out whether the statement makes sense.

An example is when liberal economists conclude that raising the minimum wage will not cause unemployment.

Every business-minded person and indeed any person with reasonable logic knows that when you raise the price of something and nothing else changes, people will buy less of it. Liberal economists were determined to prove that was incorrect. So they found a period of time when the minimum wage was raised, but due to a growing economy, the number of minimum wage workers hired actually increased.

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The fallacy in the logic is that the “nothing else changes” part was not present. So the increase in employment came from a changing economy where demand for labor increased. The reality is that, had the minimum wage not been raised, the increase in employment would likely have been much greater.

The liberal economists were simply looking for a way to justify raising the minimum wage because they believed that the low wage created a social injustice that had to be corrected. They Gruberized their study to support their conclusion, which they really reached before the study was done.

Now they are trying to Gruberize the debt argument. In a Friday New York Times column entitled “Debt is good” economist

Paul Krugman argues that economies of the world, including the U.S., “aren’t deep enough in debt.” Is he serious?

Liberal economists note that, if you look at debt in the same way that a business would look at debt on its balance sheet, the federal government is really in good shape, since total federal government assets are about 20 times greater than the debt.

While businesses and potential lenders to business would look favorably on that situation, it is not the same for the federal government.

If a business defaults on debt, usually the creditors can seize the assets or require the borrower to sell assets to repay the debt. Do those liberal economists believe that the U.S. will sell assets to repay debt?

Liberal economists argue that using debt to finance infrastructure or education is really an investment that will be repaid numerous times in the future. And that is true, except that most of the debt is used to pay for annual expenses, not to make investments.

In 2015 about 2/3 of the total $3.8 trillion that the federal government will spend goes to mandatory spending for Medicare, Social Security and other programs. Transportation spending amounts to $85 billion, which is 2.2 percent of total spending. Education spending is just over $100 billion, which is about 2.7 percent of total spending.

Every business person knows that it is acceptable to use debt to finance the acquisition of assets, particularly assets that will produce future income. Business people also know that the first sign that a business is in financial trouble is when debt is used to finance routine expenses. Almost all of the U.S. debt is used to finance routine expenses.

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The conclusion would be that the U.S. is in financial trouble, perhaps approaching the trouble seen in countries like Greece or Spain.

But the U.S. can always print more money, the liberal economists argue. While the huge increase in the money supply that resulted from the Federal Reserve’s policy of printing money to finance government deficits from 2009 to 2014 doesn’t appear to be a problem, eventually too much money will cause a severe inflation problem. Many economists say that inflation is a result of too many dollars chasing too few goods.

The real long-term problem with the public debt is that there is no mechanism in place to ever repay that debt. The government makes annual, interest-only payments. When the debt becomes due, the government simply sells new bonds to pay off the bonds that matured (rolling over the debt), so the total public debt keeps increasing.

What the liberal, biased economists don’t understand is that, if you find yourself stuck in a deep hole, the first thing to do is to stop digging.

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