Wednesday, September 28, 2005

Skeptical Optimist

Cube linked to one of his articles, and I have found several things that I take exception to. However, he has no functioning links for commentary, so I have decided to take up the debate here. I don't know where to begin. First, he argues that any amount of debt is ok as long as we are spending it on things that we need. He assures all of us that the United States will continue to have a large, prosperous economy for the rest of our lives, and any amount of debt can be carried by this economic colossus. Because we have never had a recession before, have we? He attacks one commentator for pointing out that China owns a significant amount of US debt. Japan owns more, and he is outraged that China was the only country singled out as a threat. Could that be because Japan's economy is for better or worse heavily dependent on ours and they have no military to speak of? Anyone else see that as non-threatening? He also says that we are in better shape economically now than at the end of the Clinton presidency because we spend less of our budget (percentage wise) on debt interest. And could that be due to the balanced budget that Clinton left? I don't see how Bush's rampant spending could be the thing that saved us from debt payments. This is getting long so I will wrap it up with a quote from Optimist's blog "Every time I see this chart it makes me wonder: What if we could have mustered the courage as a nation to keep national security spending on an even keel, and managed it effectively; might we have prevented a war or two?"
Wow. Because we have seen from Bush that a large military is the best deterrent, and we won't attack anyone preemptively, even based on evidence that is later proven to be nonexistent.


Cubicle said...

"First, he argues that any amount of debt is ok as long as we are spending it on things that we need."

As to this point. I think it could be argured that the levees should have been funded even if the levees caused debt.

In one of his earlier articles he points this out in this article.

I mainly read his articles for these updates.

The graph you are looking at is yield cruve on bonds. When that yeild cruve inverts ( you are making more money on short terms bonds instead of long term bonds) you will have a recession, though they yeild curve does not tell you when.

I also read his blog for GDP growth estimates. He is right quicker than anyone else.

Anonymous said...

Clinton didn't leave a budget surplus, he left a projected surplus. As a percentage of Gross National Product or whatever they're calling it this week, the current debt is quite reasonable. At times in the past, it has been over 100%, as around the time of WWII. for most of the Clinton years, it was around 6%. At the moment, its around 3%.Things change. Stability does not mean static, it means active adaptation and balance. Surf it.

Dave Justus said...

You have misread some if his points Sandcastle.

He does not argue that any amount of dept is ok, he argues that the way to determine if any given amount of debt is ok or not is by comparing the debt to GDP, not simply talking about how many dollars it is.

If for example, I told you that I owed $100,000 in debt, is that a good financial position to be in or a bad one? You can't tell. You would have to know my income to make that determiniation. If I was making $5,000 a year it would be a real problem. If I was making millions a year it would be no problem at all.

He also argues that as long as our economy grows, even if the debt grows as well, as long as the debt grows at the same rate or a slower rate it is not becoming a bigger problem.

He also points out, correctly, that debt is a vialble, and useful means of financing infrastucture improvements. Private companies pretty much always have debt, that doesn't mean those companies are not financially sound.

Your comments on Japan and China reveal lack of understanding about China's economy and even a greater lack of understanding of how bonds work.

What if China had 100% of our debt? What power would that give them over us and what weakness would it cause us to have against them?

None and none.

Sandcastle said...

First, I did not argue that the debt bonds were dangerous to us. I was only pointing out why China makes people more nervous than Japan in response to his comment that we were ignoring Japan. Second, he did say that any amount of debt is ok as long as the economy is growing. I will try to find the quote and repost it in context with a link to his posting. My main objection is that he seems to be arguing that having an enormous defense budget is not only normal but necessary. He also hints strongly at the fact that we could have avoided our current conflicts had Clinton not reduced military spending. I will start another posting if anyone is interested in discussing that point. And I appreciate the comments. It is good to get multiple views on things like this.