Tuesday, March 23, 2010

James K. Galbraith: Like Economically Illiterate Father, Like Son

It seems that James K. Galbraith, son of the late Economic Illiterate John Kenneth Galbraith, is trying to outdo Paul Krugman on the issue of public debt and printing money. His article in the Marxist publication, The Nation, called "In Defense of Deficits" has to be one of the most juvenile pieces of work I ever have read.

Take the following quote:
For ordinary people, public budget deficits, despite their bad reputation, are much better than private loans. Deficits put money in private pockets. Private households get more cash. They own that cash free and clear, and they can spend it as they like. If they wish, they can also convert it into interest-earning government bonds or they can repay their debts. This is called an increase in “net financial wealth.” Ordinary people benefit, but there is nothing in it for banks.
Wow! The way to make a country wealthier is to go into debt! And, guess what? Government can just print money to pay back the debt, so we don't have to worry about it! JKG says so!
With government, the risk of nonpayment does not exist. Government spends money (and pays interest) simply by typing numbers into a computer. Unlike private debtors, government does not need to have cash on hand. As the inspired amateur economist Warren Mosler likes to say, the person who writes Social Security checks at the Treasury does not have the phone number of the tax collector at the IRS. If you choose to pay taxes in cash, the government will give you a receipt–and shred the bills. Since it is the source of money, government can’t run out.
Oh, but it gets even better. Read on:
...public debt a burden on future generations. It does not have to be repaid, and in practice it will never be repaid. Personal debts are generally settled during the lifetime of the debtor or at death, because one person cannot easily encumber another. But public debt does not ever have to be repaid. Governments do not die–except in war or revolution, and when that happens, their debts are generally moot anyway.

So the public debt simply increases from one year to the next. In the entire history of the United States it has done so, with budget deficits and increased public debt on all but about six very short occasions–with each surplus followed by a recession. Far from being a burden, these debts are the foundation of economic growth. Bonds owed by the government yield net income to the private sector, unlike all purely private debts, which merely transfer income from one part of the private sector to another.
Why am I not surprised that a publication like The Nation would champion this nonsense? Yes, yes, the source of national wealth is debt and printing money.

Oh, and Galbraith is a professor at the LBJ School of Public Affairs at the University of Texas. Hey, Longhorns! You got a live one there! How fitting that this economic illiterate teaches at the place that honors the profligate LBJ.


Anonymous said...

At first, I thought that his article had to be some strange parody of Keynesian philosophy, but then I read the whole article and realized that he was playing it straight.

Well, as "straight" as things get in his twisted form of an alternate reality.

I am at least pleased that the "web-letter" responses to this article have been largely scathingly negative.

James Galbraith said...

The alert reader will catch the distortion in this post. When the public deficit increases, that's an increase in the "net financial wealth" of the *private sector*. Not (obviously) of the country as a whole.

And it's not real wealth either. The word I used was "financial."

It is a claim on future purchasing power, for the private sector. Exactly as stated in my article.

My point is accounting.

Professor Anderson restates a truism as an absurdity, in order to attack it.



William L. Anderson said...

Obviously, I cannot let those comments pass, so I will have a reply later.