ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Nobody Unserstands Debt?

Updated on January 3, 2012

Paul Krugman the Keynsian

Paul Krugman is a well known economist that writes for the New York Times. He has recently written an article about how nobody really understands debt, and that the leaders of the United States may well make bad policy decisions because of it. Common sense tells us that when we take on debt, we have an obligation to pay it back. Furthermore, making payments on that debt takes money away from something else we can spend it on. Makes sense, doesn't it? If I buy a car and take on payments of $300.00 a month for 5 years, that is $300.00 less a month I could allocate elsewhere. If I take on too many loans, my monthly obligations can get very hard to make. By servicing these loans, I cannot spend that money elsewhere, or more importantly, save a good portion for a rainy day. I would be treading on thin water. Would it be any different for a government? Paul Krugman says yes. Here he explains it:

First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.
Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.

Point 1. Families have to pay back their debt, but government does not? Why not? The people holding those bonds...those pieces of paper saying the government will pay them back are expecting to get paid back. The real difference is that the government has tools, nay trickery to pay back the debt instruments that a family does not, mainly the printing press. If worse comes to worse, they can print up more money to pay the debt. If a family tried to do that, they would get arrested and thrown in jail for fraud (BTW, the government printing money without backing and using it to buy things is also practicing fraud...the difference is it is legal for them to do it). So, in essence, the lenders to our beloved government will get paid back in dollars that are worth less than they bargained for.


Point 2. An over borrowed family owes money to someone else, but the U.S. debt we owe to ourselves. Boy, to this day I have a hard time wrapping my head around that. How can you "owe it to yourself"? Let's say a family decides to borrow $10,00.00 from itself to buy a car. How would the family do it? The only way it can be done is if the family had the $10,00.00 in the first place. In essence, from it's savings and investments. Then the family could "borrow" the money from itself by writing a promissory note for the amount, monthly payments and interest over a given period of time. How is it different with the government? It isn't. The government borrows from individuals (you and me and whoever buys the bonds). It borrows from people who saved their money. These people expect to get it back, plus interest. Otherwise they would not have lent it to the government. What is important to make clear is that "we" do not owe it to ourselves. The government owes it to individuals and other institutional investors. There is no "we" in that mix.


Paul Krugman is a Keynesian (an economist in the 1930's that basically says the government needs to go into debt to "prime the pump" when the economy is in recession, and that national debts do not really matter). Keynesians think that you can get something for nothing. All it takes is for the government to step in go into debt or print money to keep things going. This is flawed thinking. It does not matter if we are talking about an individual, family, business, or government. Economic fundamentals still apply. Debts do matter. They are easy to understand both on a micro and macro sense. Do not let someone like Paul Krugman talk you out of your common sense.

His full article is here. Nobody Understands Debt.

Follow my blog

If you find this article interesting and would like to read more from my perspective, go to by blog.

It is here. Anarchist Insights.

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)