Debt: Paul Krugman and Milton Friedman are BOTH WRONG.
19 May 2019 [link youtube]
This is the second video in a series, explaining the fundamental fact that Government Debt exacerbates social inequality. The first part in the series was titled, "Increasing Government Debt = the Rich Get Richer, the Poor Get Poorer." And you can see that video here: https://youtu.be/90VBPNLJUAU
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Youtube Automatic Transcription
how deep in debt can an advanced country
with a know with with with relatively stable government go the fundamental question of what is public debt what does it mean for a government to be in debt to its own people is a question that both the left and the right are dishonest about in this video you're gonna see both Paul Krugman mainstream left-wing economist and the very famous milton friedman mainstream right-wing economists being dishonest about this issue in the same terms and i think fundamentally for the same reasons economics as a discipline is in small part a science but is in very large part about public relations about the marketing of ideas it is in part about applying common sense reasoning to social problems but it is in a large part about making your political prejudices seem like common sense making the objectives you want to achieve in politics seem as inevitable and inexorable and unanswerable as the hard facts of the mainstream Sciences like physics and chemistry and we all know that is something that economics is not Paul Krugman says think about the history shown in the chart above Britain did not emerge impoverished from the Napoleonic Wars why why would he even be saying this if it were if it were true you must know you're being lied to look at the chart look at the chart above see where I have the red arrow I've added the red arrow but the chart is true saying Oh Britain did not emerge impoverished from the Napoleonic Wars the government ended up with a lot of debt but the counterpart of this debt was that the British property classes owned a lot of consoles so consoles this is a word here basically the same as a a savings bond so at least here he's being a little bit more honest than in the quotation I gave you last video last week on this topic last time he just said oh debt doesn't matter because as is the title of this article debt is money we owe to ourselves but here we just get a couple of adjectives thrown in you the British propertied classes were the ones who owned the debt the British property classes were the ones who were being repaid not the poor not the working-class not the middle class so when you say debt is money that we owe to ourselves what you actually mean is it's money that the poor oh to the rich isn't that what you mean you're just being that little bit dishonest to make it seem as if the movement of resources here is morally neutral or is of no significance whatsoever now the libertarians and the anarcho-capitalist and people on the right wing side of the equation would make a different point that also matters also has some substance if the British property classes own millions and billions of dollars worth of these these debt instruments they've put their money into government debt that is by definition money they are not using to open a pancake restaurant to open a factory to employ people to buy ships and start shipping things to do all the things the economy needs investors to do that's money they're not using on their own education and if they are really very wealthy people it's also not money that they're perhaps donating to Cambridge and Oxford University that provide education for others or build facilities all of the things the British property classes could have done with that money are not happening precisely because that money is being handed over to the government and will be paid back at a profit that profit coming from all taxpayers the rich the poor and the middle class alike so it is not fair to say as he says here the title of the article debt is money we owe to ourselves no debt is money that the poor and the middle class will pay to the rich with the government as the main intermediary what we call a deficit is simply a form of Taxation during this period of time England did not build the Great Pyramids they didn't build a great egg a latarian society within England the exact same way we can look at the loss of more than one trillion dollars that the United States spent conquering Afghanistan you can look back at this period of time and look at I don't know how much but an unbelievable quantity of money that England spent in the polyak wars and you can get some sense of the lost opportunity to spend that money on something constructive on something that would improve education or well-being for the population general or hey whatever you want to build the world's biggest giant stone pyramids you want to have one of the great wonders of the world something England is is still to this day lacking it these are not the things that British civilization did with its wealth during this time if they were going to go into this kind of extraordinary debt and the argument he's offering here which is just based on a lie quote Britain did not emerge impoverished from the Napoleonic Wars do you think that would be the perspective of anyone who was alive at that time if we go back now you can check the Hansard you can check the recorded debates in the British house of parliament from that time you can read any history book from that per term do you think if we go back and read one book with one shred of human sympathy for people were going through do you think we're going to find that just nobody in England was concerned that the government had just bankrupted itself fighting this war and fighting a war that they wouldn't perhaps directly profit from now let me assess you question you know seeing as this is supposedly a completely honest neutral economists don't know there weren't any really serious negative consequences from England going at the dead finish work hmm can I think of any other Wars that England started fighting right after this one so they could try to recoup this money what what was it that the British Empire right to do to make back the money to fill in this this debt does anyone does anyone remember that the British Empire included places like Jamaica that it included India that it included selling opium grown in India to China does anyone remember that they fought a series of wars after this called the opium wars and the express purpose of those Wars was to try to get the British Empire to break even or turn a profit yes there were unbelievable long-term consequences not just for the politics of England not just for the politics of Europe but for the politics of the whole world including India and China as the British Empire scrambled to get itself out of debt shame on you for lying paul krugman this is a lie and lays both shallow and profound to say that Britain did not emerge impoverished from the diplomatic wars and it would be a lie to say today that the United States of America did not emerge impoverished from the wars in Afghanistan and Iraq how deep in debt can an advanced country with a know with with with relatively stable government go a country like the United States provided as the political will has enormous ability to collect taxes and to service debt if we want to we can we can do you know huge things sorry right now we have debt I think about 45% of GDP we came out World War two with debt that was a hundred and ten percent of GDP and we worked that way down over the years so that shows how far you can go now maybe that was a little different because was wartime but so my comparison country my III look believe it or not at Belgium which is God Dec which is I think 87 percent of GDP and Belgium is knows nothing particularly specialist actually a little bit less stable then then most of most Western advanced countries no there's no run on Belgian debt there they're able to do that so that suggests that we could probably in the United States add debt that was like 40 percent of GDP if if if it became necessary that's that's a lot of running room it's not unlimited we do this year after year after year it couldn't start to become a problem but but we do have substantial Running Room I'm not actually just saying it doesn't matter know Cheney asked the deficits don't matter deficits do matter but we have five six trillion dollars to play with here I don't know about you but I don't really feel like Paul Krugman is being entirely truthful with me in that clip I feel like he's being very evasive and very abstracted in response to a really simple direct question that he should be able to answer honestly this isn't outside of his strike zone right so if he thinks the American government can keep on spending hundreds of billions of dollars per year increasing the debt more hundreds of billions of dollars of taxpayers money going to enter his Pamela said that there must be an upper limit to that he must have some theory as to at what point it becomes a problem when does it become a crisis it can't be that he believes in an infinite amount of debt it must be finite right in the field of economics we don't generally deal with simple binary questions of right and wrong good and bad we normally deal with ideas that are true within a certain numerical range or useful within a certain American range but then become meaningless become bizarre or become ridiculous beyond a certain threshold after a certain point so if his theory was as he stated in this video from a couple of years ago if he thought America having 40% debt to GDP ratio so having debt 40% of GDP you know that was no problem he should now be willing to admit that there is a problem when the United States of America is over 100 percent if he thought it was no problem for the net States of America to have a level of indebtedness similar to Belgium he should now be ringing alarm bells when the United States of America has followed his advice and has caught up with Belgium isn't just as difficult economic situation but that's not what he says he's been profoundly dishonest at every stage of this and if you just compare the Articles he's written over a period of 10-15 years get a sense of that dishonesty take a look at these two charts on screen if anyone sincerely believed that the United States of America has no problem paying two hundred and sixty three billion dollars per annum just in interest payments on the national debt if you think that's no problem then you must be willing to admit it's a problem if that increases to nine hundred and fifteen billion now United States is a big country maybe maybe one hundred billion per annum would be no problem okay it would be a huge accomplishment if you could get it down to only a hundred billion per year stead of two hundred sixty one beer but even if it were relatively small number like that these are enormous numbers that would be an amount of money that every year you were asking poor people to pay you were asking middle-class people to pay and that fundamentally is a wealth transfer going from everyone to the rich what we call a deficit is simply a form of Taxation if it's not financed by printing money it's a invisible tax on all property because you own a piece of property but you have to figure from the future income of that property then more of it will have to be taken from taxes in order to finance this debt that is here so it's it and those are bad taxes they're not wholly bad taxes but they're not good taxes and therefore I would prefer not to finance by deficits on the other hand when people talk about how much damage interest payments are doing to the country I want you to name me any expenditure of government that does less harm than interest payments the interest payments don't use up any resources there are no labor no labor that's unavailable for something else there's simply a transfer from taxpayers to bondholders they do cost deadweight cost of collecting the taxes and the effect that has on incentives so there isn't that cost but there's no resource cost last week I talked to you about the fact that Microsoft Corporation has over 100 billion u.s. dollars worth of government debt at the time that that article was pressed so they're profiting from that if you run a small new computer company you do computer software and you're not in that position how do you feel with that you say hey we work real hard to manufacture computers here or to make computer software we're trying to compete with Microsoft but whenever we're paying our taxes a significant percentage of our taxes is going to make the rich richer and it's specifically going to Microsoft it's a little bit strange no it's kind of corrupting fundamental you know principles of what the free market is supposed to be whether you care about them in principle or care about them in practice or not let's go back to a guarding light of center-left economics paul krugman so as I said earlier he's here questioning he stole he's here trying to challenge your assumption that debt is a problem because it's the current generation spending money from future generations that's not what people mean when they speak about the burden of debt on future generations what they mean is that America as a whole will be poorer just as a family that runs up debt is poorer thereafter does this make any sense well let's do a thought experiment that doesn't at least initially seem to have anything to do with debt suppose that instead of gifting seniors with debt president Santorum passes a constitutional amendment requiring that from now on each American whose name begins with the letters a through K will receive five thousand dollars a year from the federal government with the money to be raised through extra taxes does this make America as a whole poorer the obvious answer is no not at least in any direct sense were just making a transfer from one group to another were just making a transfer from one group people whose name the people whose names are L through Z to the people whose names are a through K he's being extremely duplicitous here because the reality is people who buy bonds people who buy government savings bonds are rich this is part of making the rich richer even companies the small corner store the small new computer start startup they are not buying bonds Microsoft is buying over 100 billion US dollars in bonds right it's not a transfer that's arbitrary that's benefiting half of the population and not the other half okay this is very specifically a type of transfer of wealth that goes from the poor to the rich it goes from the middle class to the rich and yeah it goes from some rich people to other rich people but in a way that's fundamentally irrational and unjust even if all the people being taxed and benefiting from this are wealthy which is of course impossible but his excuses total income hasn't changed now you could argue that there are indirect costs because raising taxes distorts incentives but that's a very different story is it really is that really so extraneous his example he used before that oh you know nothing really changes because the British wealthy class they just buy up this government debt changes things changes the world it changes government policy it created more Wars and the consequences of that war did he indeed bankrupt the British government and to some extent burdened if did perhaps didn't bankrupt the British ruling class right and then that debt was repaid through the conquest and exploitation of India through selling opium to China through fighting more Wars so that England could be the dope dealer of China through the sugar trade and the rum trade out of Jamaica the consequences were enormous but invisibly yes the moneyed class of england had their capital their investment potential their innovation potential taken away from them because it was tied up in government debt and the government itself had a constraint on its ability to spend money to start new initiatives to do new things this really is part of the bankrupting of a society you're just lying about it it's just a straight-up lie okay here's his conclusion his inspiring conclusion okay you can see what's coming a debt inherited from the past is in effect simply a rule requiring that one group of people the people who didn't inherit bonds from their parents make a transfer to another group the people who did in plain English that's called the rich get richer [Music]
with a know with with with relatively stable government go the fundamental question of what is public debt what does it mean for a government to be in debt to its own people is a question that both the left and the right are dishonest about in this video you're gonna see both Paul Krugman mainstream left-wing economist and the very famous milton friedman mainstream right-wing economists being dishonest about this issue in the same terms and i think fundamentally for the same reasons economics as a discipline is in small part a science but is in very large part about public relations about the marketing of ideas it is in part about applying common sense reasoning to social problems but it is in a large part about making your political prejudices seem like common sense making the objectives you want to achieve in politics seem as inevitable and inexorable and unanswerable as the hard facts of the mainstream Sciences like physics and chemistry and we all know that is something that economics is not Paul Krugman says think about the history shown in the chart above Britain did not emerge impoverished from the Napoleonic Wars why why would he even be saying this if it were if it were true you must know you're being lied to look at the chart look at the chart above see where I have the red arrow I've added the red arrow but the chart is true saying Oh Britain did not emerge impoverished from the Napoleonic Wars the government ended up with a lot of debt but the counterpart of this debt was that the British property classes owned a lot of consoles so consoles this is a word here basically the same as a a savings bond so at least here he's being a little bit more honest than in the quotation I gave you last video last week on this topic last time he just said oh debt doesn't matter because as is the title of this article debt is money we owe to ourselves but here we just get a couple of adjectives thrown in you the British propertied classes were the ones who owned the debt the British property classes were the ones who were being repaid not the poor not the working-class not the middle class so when you say debt is money that we owe to ourselves what you actually mean is it's money that the poor oh to the rich isn't that what you mean you're just being that little bit dishonest to make it seem as if the movement of resources here is morally neutral or is of no significance whatsoever now the libertarians and the anarcho-capitalist and people on the right wing side of the equation would make a different point that also matters also has some substance if the British property classes own millions and billions of dollars worth of these these debt instruments they've put their money into government debt that is by definition money they are not using to open a pancake restaurant to open a factory to employ people to buy ships and start shipping things to do all the things the economy needs investors to do that's money they're not using on their own education and if they are really very wealthy people it's also not money that they're perhaps donating to Cambridge and Oxford University that provide education for others or build facilities all of the things the British property classes could have done with that money are not happening precisely because that money is being handed over to the government and will be paid back at a profit that profit coming from all taxpayers the rich the poor and the middle class alike so it is not fair to say as he says here the title of the article debt is money we owe to ourselves no debt is money that the poor and the middle class will pay to the rich with the government as the main intermediary what we call a deficit is simply a form of Taxation during this period of time England did not build the Great Pyramids they didn't build a great egg a latarian society within England the exact same way we can look at the loss of more than one trillion dollars that the United States spent conquering Afghanistan you can look back at this period of time and look at I don't know how much but an unbelievable quantity of money that England spent in the polyak wars and you can get some sense of the lost opportunity to spend that money on something constructive on something that would improve education or well-being for the population general or hey whatever you want to build the world's biggest giant stone pyramids you want to have one of the great wonders of the world something England is is still to this day lacking it these are not the things that British civilization did with its wealth during this time if they were going to go into this kind of extraordinary debt and the argument he's offering here which is just based on a lie quote Britain did not emerge impoverished from the Napoleonic Wars do you think that would be the perspective of anyone who was alive at that time if we go back now you can check the Hansard you can check the recorded debates in the British house of parliament from that time you can read any history book from that per term do you think if we go back and read one book with one shred of human sympathy for people were going through do you think we're going to find that just nobody in England was concerned that the government had just bankrupted itself fighting this war and fighting a war that they wouldn't perhaps directly profit from now let me assess you question you know seeing as this is supposedly a completely honest neutral economists don't know there weren't any really serious negative consequences from England going at the dead finish work hmm can I think of any other Wars that England started fighting right after this one so they could try to recoup this money what what was it that the British Empire right to do to make back the money to fill in this this debt does anyone does anyone remember that the British Empire included places like Jamaica that it included India that it included selling opium grown in India to China does anyone remember that they fought a series of wars after this called the opium wars and the express purpose of those Wars was to try to get the British Empire to break even or turn a profit yes there were unbelievable long-term consequences not just for the politics of England not just for the politics of Europe but for the politics of the whole world including India and China as the British Empire scrambled to get itself out of debt shame on you for lying paul krugman this is a lie and lays both shallow and profound to say that Britain did not emerge impoverished from the diplomatic wars and it would be a lie to say today that the United States of America did not emerge impoverished from the wars in Afghanistan and Iraq how deep in debt can an advanced country with a know with with with relatively stable government go a country like the United States provided as the political will has enormous ability to collect taxes and to service debt if we want to we can we can do you know huge things sorry right now we have debt I think about 45% of GDP we came out World War two with debt that was a hundred and ten percent of GDP and we worked that way down over the years so that shows how far you can go now maybe that was a little different because was wartime but so my comparison country my III look believe it or not at Belgium which is God Dec which is I think 87 percent of GDP and Belgium is knows nothing particularly specialist actually a little bit less stable then then most of most Western advanced countries no there's no run on Belgian debt there they're able to do that so that suggests that we could probably in the United States add debt that was like 40 percent of GDP if if if it became necessary that's that's a lot of running room it's not unlimited we do this year after year after year it couldn't start to become a problem but but we do have substantial Running Room I'm not actually just saying it doesn't matter know Cheney asked the deficits don't matter deficits do matter but we have five six trillion dollars to play with here I don't know about you but I don't really feel like Paul Krugman is being entirely truthful with me in that clip I feel like he's being very evasive and very abstracted in response to a really simple direct question that he should be able to answer honestly this isn't outside of his strike zone right so if he thinks the American government can keep on spending hundreds of billions of dollars per year increasing the debt more hundreds of billions of dollars of taxpayers money going to enter his Pamela said that there must be an upper limit to that he must have some theory as to at what point it becomes a problem when does it become a crisis it can't be that he believes in an infinite amount of debt it must be finite right in the field of economics we don't generally deal with simple binary questions of right and wrong good and bad we normally deal with ideas that are true within a certain numerical range or useful within a certain American range but then become meaningless become bizarre or become ridiculous beyond a certain threshold after a certain point so if his theory was as he stated in this video from a couple of years ago if he thought America having 40% debt to GDP ratio so having debt 40% of GDP you know that was no problem he should now be willing to admit that there is a problem when the United States of America is over 100 percent if he thought it was no problem for the net States of America to have a level of indebtedness similar to Belgium he should now be ringing alarm bells when the United States of America has followed his advice and has caught up with Belgium isn't just as difficult economic situation but that's not what he says he's been profoundly dishonest at every stage of this and if you just compare the Articles he's written over a period of 10-15 years get a sense of that dishonesty take a look at these two charts on screen if anyone sincerely believed that the United States of America has no problem paying two hundred and sixty three billion dollars per annum just in interest payments on the national debt if you think that's no problem then you must be willing to admit it's a problem if that increases to nine hundred and fifteen billion now United States is a big country maybe maybe one hundred billion per annum would be no problem okay it would be a huge accomplishment if you could get it down to only a hundred billion per year stead of two hundred sixty one beer but even if it were relatively small number like that these are enormous numbers that would be an amount of money that every year you were asking poor people to pay you were asking middle-class people to pay and that fundamentally is a wealth transfer going from everyone to the rich what we call a deficit is simply a form of Taxation if it's not financed by printing money it's a invisible tax on all property because you own a piece of property but you have to figure from the future income of that property then more of it will have to be taken from taxes in order to finance this debt that is here so it's it and those are bad taxes they're not wholly bad taxes but they're not good taxes and therefore I would prefer not to finance by deficits on the other hand when people talk about how much damage interest payments are doing to the country I want you to name me any expenditure of government that does less harm than interest payments the interest payments don't use up any resources there are no labor no labor that's unavailable for something else there's simply a transfer from taxpayers to bondholders they do cost deadweight cost of collecting the taxes and the effect that has on incentives so there isn't that cost but there's no resource cost last week I talked to you about the fact that Microsoft Corporation has over 100 billion u.s. dollars worth of government debt at the time that that article was pressed so they're profiting from that if you run a small new computer company you do computer software and you're not in that position how do you feel with that you say hey we work real hard to manufacture computers here or to make computer software we're trying to compete with Microsoft but whenever we're paying our taxes a significant percentage of our taxes is going to make the rich richer and it's specifically going to Microsoft it's a little bit strange no it's kind of corrupting fundamental you know principles of what the free market is supposed to be whether you care about them in principle or care about them in practice or not let's go back to a guarding light of center-left economics paul krugman so as I said earlier he's here questioning he stole he's here trying to challenge your assumption that debt is a problem because it's the current generation spending money from future generations that's not what people mean when they speak about the burden of debt on future generations what they mean is that America as a whole will be poorer just as a family that runs up debt is poorer thereafter does this make any sense well let's do a thought experiment that doesn't at least initially seem to have anything to do with debt suppose that instead of gifting seniors with debt president Santorum passes a constitutional amendment requiring that from now on each American whose name begins with the letters a through K will receive five thousand dollars a year from the federal government with the money to be raised through extra taxes does this make America as a whole poorer the obvious answer is no not at least in any direct sense were just making a transfer from one group to another were just making a transfer from one group people whose name the people whose names are L through Z to the people whose names are a through K he's being extremely duplicitous here because the reality is people who buy bonds people who buy government savings bonds are rich this is part of making the rich richer even companies the small corner store the small new computer start startup they are not buying bonds Microsoft is buying over 100 billion US dollars in bonds right it's not a transfer that's arbitrary that's benefiting half of the population and not the other half okay this is very specifically a type of transfer of wealth that goes from the poor to the rich it goes from the middle class to the rich and yeah it goes from some rich people to other rich people but in a way that's fundamentally irrational and unjust even if all the people being taxed and benefiting from this are wealthy which is of course impossible but his excuses total income hasn't changed now you could argue that there are indirect costs because raising taxes distorts incentives but that's a very different story is it really is that really so extraneous his example he used before that oh you know nothing really changes because the British wealthy class they just buy up this government debt changes things changes the world it changes government policy it created more Wars and the consequences of that war did he indeed bankrupt the British government and to some extent burdened if did perhaps didn't bankrupt the British ruling class right and then that debt was repaid through the conquest and exploitation of India through selling opium to China through fighting more Wars so that England could be the dope dealer of China through the sugar trade and the rum trade out of Jamaica the consequences were enormous but invisibly yes the moneyed class of england had their capital their investment potential their innovation potential taken away from them because it was tied up in government debt and the government itself had a constraint on its ability to spend money to start new initiatives to do new things this really is part of the bankrupting of a society you're just lying about it it's just a straight-up lie okay here's his conclusion his inspiring conclusion okay you can see what's coming a debt inherited from the past is in effect simply a rule requiring that one group of people the people who didn't inherit bonds from their parents make a transfer to another group the people who did in plain English that's called the rich get richer [Music]