Friday, December 21, 2012

Fiscal Myth

Myth #1:  The U.S. federal debt level is currently at about 16 trillion dollars.
Fact #1:  The debt level is actually a slightly lower, because that 16 trillion counts some social security payments we haven't actually paid out yet.  But even after this reduction, the debt is something like $40k per person, averaged over all the people in the U.S.  Imagine trying to pay this off, on top of all your home debt, education debt, credit card debt, and local and state government debt.

Myth #2:  The U.S. economy is intrinsically capable of growing at 3% a year or more forever, provided that politicians don't raise taxes.
Fact Opinion #2:  That just ain't so.  There are lots of reasons for this ain't being so.  One thing is limited natural resources.  Another thing is the growth of virtual reality, in which people have become content to watch TV, blog, chat, or simply surf the web instead of doing something materially productive.  Another thing is that people don't want to work as hard as they used to.  Gone are the 14-hour days picking strawberries or assembling cars - few Americans will entertain the notion.  Our older generations are protected by social security, prompting early exit from the workforce, while our younger generations have never experienced truly hard work (on average).  Left to the free market, the economy very well might "need" to sit stagnant for a good 20 years before people and technology conspire to make it grow again.

Myth #3:  Twenty years from now, the U.S. will be a place of poverty unless Obamongress cooperates to avert the fiscal cliff.
Opinion #3:  The fiscal cliff will be the best thing the U.S. went over in a long time, the good Lord willing/Inshallah.  Without raising taxes and cutting spending, U.S. might seem richer five years from now, but the prosperity will be an illusion.  The federal debt will haunt us as long as we avoid it, and if we avoid it long enough, the fiscal cliff will look like child's play compared to ... drum roll ... the collapse of the Union.

4 Comments:

Anonymous ReddUp said...

Material production is a smaller component of US GDP than services. This is a good thing. Would you rather your child grow up to spend 14 hours a day picking strawberries, or 9 hours a day doing statistics research?

Nonetheless, US hours worked per year (per capita) remains above average for OECD countries.

http://stats.oecd.org/Index.aspx?DatasetCode=ANHRS

National debt is a problem, but the "doomsday prepper" sentiment is too much. Look at the wikipedia summary of the US economy. Some select quotes

* the world's largest national economy
* approximately a quarter of nominal global GDP
* one of the world's wealthiest nations, with abundant natural resources, a well-developed infrastructure, and high productivity
* the largest trading nation in the world
* has maintained a stable overall GDP growth rate, a moderate unemployment rate, and high levels of research and capital investment
* the world's largest manufacturer, representing a fifth of the global manufacturing output
* net migration rate is among the highest in the world
* ranked first globally in the IT industry competitiveness index
* 60% of the global currency reserves have been invested in the United States dollar
* the world's largest stock exchange by market capitalization
* Foreign investments made in the United States total almost $2.4 trillion, which is more than twice that of any other country.[28] American investments in foreign countries total over $3.3 trillion, which is almost twice that of any other country

Let's all take a chill pill and back away from the cliff.

11:45 AM  
Anonymous Mountaineer said...

chill? It would seem as thought the largeness of the US economy would only lead to a larger crash.

"limited natural resources": Does the Freakwenter not reference Julian Simon?

Please explain: If the US is not currently repaying its debt, then why does it ever need to begin?

2:59 PM  
Blogger My Freakwentness said...

@ReddUp: I don't debate the U.S.'s immense current power and wealth. At question is where the country is headed, and I admit there is plenty of uncertainty. My prediction that the economy would crash in 20 years, hypothetically (in the absense of deep reforms with in a few years) is only the center/median of a very wide confidence interval. As to your point that the U.S. already works harder than other OECD countries, I think there are many ways to take that. One way is the way you intended. Another way is to say that maybe this working longer explains why the U.S. has an above-average per-capita income among these countries. Either way, I'm not remotely trying to prescribe how hard people should work -- this is about how much growth we can expect "stimulus" dollars to provide. If we don't get much growth per stimulus dollar, it could make sense to settle for zero growth for a time.

@Mountaineer: The Freakwenter does not reference Julian Simon. As for your question, if I understand correctly, the answer is in the final link. Maybe more to your point, if the debt is held constant, I agree that it poses less of a threat than if the debt grows.

3:18 PM  
Anonymous Shirley said...

In summertime, the strawberries.

5:26 PM  

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