If the government were a person, economics might agree with you, but it's not. This is what fiscal conservatives fail to see. The government can hold debt so long, that, due to inflation, it's value will fall to the point where paying it off is trivial. This is not practical for persons that have a finite lifespan. Corporations also fall in this category, albeit to somewhat less of a degree. Investors often do not see justifiable corporate debt as a problem, but an indication that the executive team understands opportunity cost.
> The government can hold debt so long, that, due to inflation, it's value will fall to the point where paying it off is trivial.
Reread what he actually wrote instead of responding to a strawman. Pay particular attention to the words after "debts".
>>> We're going to do default the hard way by not paying our debts or we're going to default by inflation.
Note that inflation isn't free - it has huge costs that play out over a long time. Default's costs are suffered over a shorter period of time.
I favor default because one of two things happens afterwards - folks don't loan money when govt is borrwing dumb or folks donate money to govt (via providing loands that aren't paid back). Both are an improvement over the status quo, which the "inflation default", perpetuates.
Argentina has defaulted at least once in the last 100 years and folks still loan it money.
Inflation doesn’t have to reach triple or even double digits to have an effect on a country’s debt burden. If a country owes a big pile of money at 4%, and inflation goes up to 2%, and the nominal GDP grows at 5%, then the overall debt-to-GDP ratio will decline.
You're assuming the US government can just simply print money. It can't: the Reserve and the Treasury are two different entities. While I might agree that default and inflation both have costs, with inflation perhaps costing more, you're ignoring the time value of money and elasticity of supply/demand. You better believe default on loans by the US gov't would cause panic and economic stagnation.
The purpose of this whole economic and central banking system is to smooth out the economic peaks and valleys, not to be perfectly efficient and/or "morally" correct. It's far more important that people continue to have food on their tables than the economy and government operate at peak efficiency.
> You're assuming the US government can just simply print money.
Actually, I'm not. I'm assuming that the US govt can enact policies that cause inflation, which is pretty much agreed on. (And, while the Fed is formally separate from the formal US govt, it's part of govt monetary policy. That goes beyond the US govt's power to replace the Fed leadership....)
> While I might agree that default and inflation both have costs,
Do you really think that there's some possibility that either one is free, especially at the levels required to deal with current debt levels?
> with inflation perhaps costing more, you're ignoring the time value of money and elasticity of supply/demand.
How do you know that I'm ignoring the time value of money or elasticity?
I never said that default would be pain free. My claim is that the pain is likely to be less than inflation.
Note that neither of us are providing any numbers.
> The purpose of this whole economic and central banking system is to smooth out the economic peaks and valleys, not to be perfectly efficient and/or "morally" correct.
That's nice, but irrelevant because no one is arguing for efficiency or correctness.
Note that inflation can cause serious panic and damage.
Feel free to provide examples of default causing as much pain as inflation wreaked on post-WWI Germany or Zimbabwe.
If I owe you a hundred dollars, I can say outright that I'm not going to pay you back or I can wait until that $100 is worth so little that it can't even buy a pack of gum at the store. The end result for the lender is pretty much the same -- the only thing that differs is the timeline.
Uh, the lender is collecting interest the entire time. The government is borrowing to invest in and ensure the continuity of it's economy, which is it's source of tax revenue. Recession and/or economic stagnation are much more expensive than debt service.
Nobody would say you're a fool for taking out student loans to get a bachelor's degree. All things being average, the debt service on student loans is cheaper than the cost of not having a bachelor's degree.
> The government is borrowing to invest in and ensure the continuity of it's economy, which is it's source of tax revenue.
Saddling future generations of individuals and businesses with debt inhibits growth, it doesn't promote it. The revenue to pay the interest on that debt has to come from higher taxes down the road, which means higher tax rates for businesses and individuals, which means lower growth.
That's an interesting example about student loans, because that's exactly what's happening right now. For many years people have been blindly borrowing money because they too claimed they were investing in themselves and they too were their own source of revenue. Guess what? Many are now realizing the debt they incurred didn't generate anywhere near the income they needed to pay off said debt. There are threads on HN all the time discussing exactly this about recent graduates.
> Saddling future generations of individuals and businesses with debt inhibits growth, it doesn't promote it. The revenue to pay the interest on that debt has to come from higher taxes down the road, which means higher tax rates for businesses and individuals, which means lower growth.
Do you have anything to back these statements up? One, that deficit spending leads to higher taxes, at least most of the time. Two, that higher taxes directly translate to lower growth, at least most of the time. It would be nice to think of the economy in such black and white terms, but it's often orders of magnitude more complex.
The revenue to pay the interest comes from a stimulated economy, which is what we're trying to do. I am not arguing against paying down debt at all, I am arguing against paying down debt during economic crisis. There are periods in which the government has excess cash and pays down it's debts. It's ignorant to assume that it's more burdening on our children to saddle them with debt than it is to saddle them with a depressed and stagnant economy. Ultimately, this is a gamble, but one history has shown to pay off. Economic stimulus through deficit spending is a long-term solution, not a short-term fix. You are essentially saying it's alright to starve and suffer the deleterious effects of malnutrition, just to save some interest payments.
My example about student loans still holds true. The average person makes more money with a bachelors degree than without, by far. This is indisputable fact. While some may find out that they have to actually learn and work hard and perhaps some fall through the cracks, it does not discount the excellent investment that education is.
Also, one of the significant measurements of a country’s debt is the debt-to-GDP ratio; you can alleviate this measure of pain by reducing debt or increasing GDP.
If the government were a person, economics might agree with you, but it's not. This is what fiscal conservatives fail to see. The government can hold debt so long, that, due to inflation, it's value will fall to the point where paying it off is trivial. This is not practical for persons that have a finite lifespan. Corporations also fall in this category, albeit to somewhat less of a degree. Investors often do not see justifiable corporate debt as a problem, but an indication that the executive team understands opportunity cost.