Who Loves Debt?

A blog about business and economics.
Dec. 3 2011 12:08 PM

Who Loves Debt?

People seem to get this a bit confused in their own heads a lot of the time, but it's worth keeping in mind the differences between debt and deficits and also the difference between countercyclical budgeting and just being lax about budgeting. Italy is a great example of the first difference. For all the focus on Italy's "colorful" politics, the reality is that deficits under the Prodi-Berlusconi back-and-forth that's largely governed Italy for the past 15 years have been smallish and generally appropriate. And yet at the same time, Italy does have a very real and quite major debt problem. It's just that it's a debt problem that largely arose in the past. It was back in the 1980s that Italian governments run by members of now-extinct political parties decided it was a good idea to run up a peacetime debt:GDP ratio of over 100 percent. A lot of people are sort of squinting at these facts in different ways to try to decide whether or not it makes sense to "blame" "Italy" or "Italians" for being "irresponsible" but I don't think there actually is much disagreement about what happened here.

Meanwhile, this all in part seems to be a somewhat mixed-up debate about the United States, in which instead of talking about the United States we say "Italy" a lot. But the facts about American budgetary practice are pretty clear. We wracked up an enormous outstanding debt burden during World War II for reasons that I think are generally acknowledged to have been appropriate, but not fundamentally economic in nature. Then for the next thirty years or so Keynesian fiscal policy was in fashion and in keeping with Keynesian prescriptions budgets were roughly balanced across the business cycle and the debt:GDP ratio steadily declined, albeit with slight upward bumps during recessions. Then during the stagflation of the 1970s, Keynesian fiscal policy came out of fashion. Simultaneously we saw the rise of the modern conservative movement and the election of Ronald Reagan. It was under Reagan that for the first time we saw an Italian-style sustained peacetime upward trajectory in the debt:GDP ratio and then we saw it again under George W Bush. And these are roughly the terms of the argument that we've been having for the past thirty years in America -- should budgets be roughly balanced over the course of the business cycle, or is it always preferable to have lower taxes regardless of the budgetary impact.

Advertisement

Because we happen to be in a recession and a Democrat happens to be in the White House, a lot of people have bought into a kind of liberals-like-deficits-conservatives-love-austerity view of things. But tax increases count as a form of austerity, and the same logic that says run deficits to boost employment during recessions says to run surpluses during expansions.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Politics

Don’t Worry, Obama Isn’t Sending U.S. Troops to Fight ISIS

But the next president might. 

The Extraordinary Amicus Brief That Attempts to Explain the Wu-Tang Clan to the Supreme Court Justices

Amazon Is Officially a Gadget Company. Here Are Its Six New Devices.

The Human Need to Find Connections in Everything

It’s the source of creativity and delusions. It can harm us more than it helps us.

How Much Should You Loathe NFL Commissioner Roger Goodell?

Here are the facts.

Altered State

The Plight of the Pre-Legalization Marijuana Offender

What should happen to weed users and dealers busted before the stuff was legal?

Surprise! The Women Hired to Fix the NFL Think the NFL Is Just Great.

You Shouldn’t Spank Anyone but Your Consensual Sex Partner

Moneybox
Sept. 17 2014 5:10 PM The Most Awkward Scenario in Which a Man Can Hold a Door for a Woman
  News & Politics
Altered State
Sept. 17 2014 11:51 PM The Plight of the Pre-Legalization Marijuana Offender What should happen to weed users and dealers busted before the stuff was legal?
  Business
Business Insider
Sept. 17 2014 1:36 PM Nate Silver Versus Princeton Professor: Who Has the Right Models?
  Life
Outward
Sept. 17 2014 6:53 PM LGBTQ Luminaries Honored With MacArthur “Genius” Fellowships
  Double X
The XX Factor
Sept. 17 2014 6:14 PM Today in Gender Gaps: Biking
  Slate Plus
Slate Fare
Sept. 17 2014 9:37 AM Is Slate Too Liberal?  A members-only open thread.
  Arts
Brow Beat
Sept. 17 2014 8:25 PM A New Song and Music Video From Angel Olsen, Indie’s Next Big Thing
  Technology
Future Tense
Sept. 17 2014 9:00 PM Amazon Is Now a Gadget Company
  Health & Science
Medical Examiner
Sept. 17 2014 11:48 PM Spanking Is Great for Sex Which is why it’s grotesque for parenting.
  Sports
Sports Nut
Sept. 17 2014 3:51 PM NFL Jerk Watch: Roger Goodell How much should you loathe the pro football commissioner?