Why It Is Not Crunch Time for the National Debt

America’s in a panic about Tuesday’s debt ceiling deadline (or maybe not).

Obama and the Democrats have once again painted the issuance of new debt as critical to keeping the sky from falling: raise the national credit card limit or else we’ll stop writing checks to grandma.

Not so.

The problem is that the national debt includes money the government owes itself and money it owes others. Only the latter puts a hard cap on spending. And all of the former can be freely spent by transferring it to the latter.

Here’s how it might work.

• Social Security owns a Treasury bond (in the “trust fund”).
• Social security redeems the bond, gets cash, and sends out its checks.
• The national debt is now lower. If the Treasury needs to, they can issue another bond and sell it to the private sector to raise cash.

How big a factor is this? Check out the chart:

The data is a couple years old, but the essential point is that the government can spend the blue area (and the yellow and green too, with a little difficulty) without changing the national debt at all: that’s about 2 years worth of our national budget.

The core takeaway is that the outlays part of the government is not in any immediate trouble. Outlays are only in trouble because outlayers want them to be in trouble.

House Republicans have drawn a line in (unimportant) sand, in the hopes of a confrontation. Democrats have accepted a confrontation that is optional for them at this juncture.

What’s the strategy behind that?

Duh: you fight when you want to because you think you’re more likely to win than if you wait to fight when you have to.

You see … Democrats know their progressive spending wishes are on the way out, unless they throw a hail mary and connect with it. The debt ceiling debate is just a sideshow. The real battle is painting Republicans as the bad guys.

Redistribute Consumption Not Income

Scott Sumner makes an excellent point: progressives focus on redistributing income, when they really want to redistribute consumption:

Income really is the Achilles heel of the progressive movement.  The income statistics simply don’t mean what progressives think they mean–something like “resources available for redistribution.”  If you want something closer to resources available, you’d use consumption, or wage income.  If you combine wage and capital income in the same aggregate, you are counting the same resources twice.  This is deeply counter-intuitive …

…

… You can redistribute consumption from the top 1% and give it to average Americans working in a car factory, or a Walmart.  But it’s an illusion to think you can redistribute investment from the top 1%, so that average Americans can have a higher living standard.  Where do people think the car factory comes from?  Or the Walmart building?  BTW, this has nothing to do with trickle-down economics, a theory I reject.  This is simple accounting.  Money put into investment projects isn’t available to boost living standards for the lower classes, unless you don’t do those investment projects.

Of course, this points to the core issue for redistributionists: they have to redistribute income rather than consumption because there just isn’t as much of the latter.

Via Arnold Kling at EconLog.

The Euro-Crisis Song

Current events, in a digestible form:

Via Kids Prefer Cheese.

Food for Thought: Why Do the Elderly Still Have Jobs?

Casey Mulligan raises two interesting points:

• If the unemployment is so bad, why is employment still peaking in the summer — when more people are looking for jobs?
• If unemployment is so bad, why are people over 65 having such an easy time finding work?

Here are the charts:

This shows that there are not as many people working in the summer this year as others … but there is still the same spike in employment. How are people getting all those summer jobs if there are no jobs?

This one shows that there are more seniors working now that there were during the peak of the last expansion (before you jump and say that they’re working because they have to, note that this is an index, and we’re only talking about a 2-4% increase — in line with routine population growth).

Tyler Cowen of Marginal Revolution points to the appropriate quote to explain this:

All else being the same, the market tends to create and allocate jobs for those people who are most interested in working.

Funny that.

Growth In the Low Accountability Sectors

Almost all new American jobs over the last generation have been in the nontradables sector:

The problem with that general idea is that nontradables are also immune from international competition. Tyler Cowen calls this the “low accountability sector”, while Arnold Kling calls it the “new commanding heights” of the economy.

I do have a major quibble with this though. It seems to me that the whole point of being in the tradables sector is to eliminate jobs through efficiency. Thus, the gross number of jobs created in the tradables sector might be huge, but they are constantly being churned in favor of new and different jobs. So, I’m not sure that this Schumpeterian sector is as underrepresented as it first appears.

Why You Need Big Piles of Newspapers You Won’t Read

Oh crap ... I'm one of those professors that requires students to read a newspaper.

Via Megan McArdle.

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UNbalanced Budget Amendment

Yes, you read that correctly.

Alex Tabarrok suggests an amendment to unbalance the budget, and I think it is a great one.

For years I’ve recommended a balanced budget amendment only if it required balance over a rolling window of no less than several years. The problem with this is that it ought to be several years — to avoid budget panic during a year in which the economy is in recession the whole time, but less than the number of years between elections — so that all elected officials would have to deal with it.

I think the problem with Alex’s suggestion is how to measure “good times”. With the NBER business cycle dates? With a real GDP growth rate rule (say 2% or above)?

How about this alternative: you can only raise taxes when the economy is improving, and you can only raise spending when it’s getting worse!

One good thing about the idea is that the predominance of positive growth periods in the U.S. would mean we’d predominantly be running surpluses.

Calling Robin Hanson

Robin Hanson is an economist who has theorized about what will happen to society if economic growth takes off because we start creating avatars that are capable of controlling and using capital the same way our physical selves do.

I wonder if last Sunday’s Doonesbury strip is hinting at this:

The response to this on the web is that it’s about the invisibility of the middle-aged in contemporary culture.

I see something deeper, with a totally different take on this one.

What if they're not invisible? Instead, what if they're in another part of the store?

Then who's doing the check out and the small talk? How about the avatars of Mike and Bernie.

How far off are we from being able to put our smartphone down on the checkout counter and have it make small talk, make minor decisions on our behalf, and pay for our groceries (and yell like crazy if someone else picks it up)? All of those things are actually possible right now.

Mike and Bernie could have been just out of sight chatting, or thumbing threw magazines, while a smartphone did the work for them. Then they just pick up the bag and go.

The clincher for me is ... who'd be the first in the strip to have this kind of tech? Bernie!

Technorati Tags: economic,growth,avatar,doonesbury