If you read much of what’s being said these days by respectable people, you’d believe that deficits are always and everywhere the main source of economic problems. But, you know, that’s not really true.
A couple of samples from today’s Times — not terrible examples, but illustrative of the prevailing conventional wisdom. David Sanger asserts that
the United States could begin to suffer the same disease that has afflicted Japan over the past decade. As debt grew more rapidly than income, that country’s influence around the world eroded.
Is that really true? I thought Japan’s influence has waned because of its economic stagnation, its failure to maintain its status as an economic superpower; I have never heard anyone cite the debt as a central cause. Bear in mind that so far, at least, Japan has had no problems financing its deficits.
Btw, it’s also not true, as the article asserts, that “Chinese leadership” is lending much of the money to finance the U.S. government’s spending. I keep trying to tell people this: the surge in government borrowing has been more than offset by a plunge in private borrowing, and we’re less dependent on foreign financing than we have been for a long time.
Meanwhile, the Times has an editorial on the troubles of the euro, which is perfectly fine as far as it goes. But by focusing on Greece, it might lead readers to believe that the euro’s woes are essentially fiscal — that the problem is spendthrift governments that never lived within their means.
Not so. The biggest trouble spot isn’t Greece, it’s Spain — which was running budget surpluses just a few years ago. True, Spain is running big deficits now — but that’s because of its economic collapse. And underlying that collapse is the real problem with the euro: one-size-fits-all monetary policy, which offers no relief to countries that suffer adverse shocks.
There are two things that are frustrating about the fiscalization of our discourse. First, it’s taking place even though many, probably most good economists have been arguing strenuously for a more sophisticated view. Second, many of the people insisting that deficits are the big issue probably don’t even realize that they’re taking a questionable position — it’s just part of what everyone thinks they know.
Against conventional wisdom, the gods themselves …