At Time, Jim Grant has been charging up the megaphone for another go at the GOP’s favorite reason why we can’t have nice things: the national debt. Grant, winner of the 2016 Amity Shlaes Award for Mangling History and Economics in the Service of Republicans*, follows a tack that’s all too familiar to anyone who has been unlucky enough to listen to five minutes of economics news in the last three decades.
To understand our financial fix, put yourself in the position of the government. Say you earn the typical American family income, and you spend and borrow as the government does.
This is … exactly how not to understand the national debt. The government is not a person. The government is not a company. The way in which the economy works with sovereign nations is nothing like how it deals with the entities that operate under those sovereigns. This little analogy is useful only for the purpose of distorting what’s actually happening. As Matt O’Brien points out.
The United States government has $13.9 trillion in debt, and I feel fine.
You should, too. …
The government, after all, is immortal. It doesn't have to pay back everything it owes like you or I do. It just has to pay back the interest it owes, so that investors will keep lending to it on good terms.
And, as you might have noticed, they are.
The “imagine the national debt was on your credit card” bit, along with calculating the national debt in the form of dollars distributed to every man, woman, and child in the nation, or tallying the debt with a clock ticking off imaginary values, is designed to do one thing—drive up anxiety about the debt. A $13 trillion debt? Why that’s horrible! I’ll never get my Mastercard paid off with a number like that!
Once you’re properly frightened of the massive weight of dollars about to crush your children, you’re ready for Grant’s version of the right’s surefire solution to debt. First, you have to get rid of the Federal Reserve, which helps the government mediate changes in the demand for capital and moderate changes in interest rates. Or, as conservatives put it …
The Federal Reserve is the government’s Monopoly-money machine. It sets some interest rates and influences many others. It materializes dollars.
That idea that the government “materializes dollars” is a theme which Grant carries well past Buckleyesque rhetoric and into George Willian heights of frump-fluppery.
The founders viewed money as a scale or yardstick, something that measures value. The Fed views money as a magic wand, something that creates value.
Dollars aren’t so much minted these days. Rather, they issue from the Fed’s computers in billowing digital clouds. The cost of producing them is only the energy expended on tapping the keys. The Fed emits these electronic greenbacks to attempt to control the course of economic events. It’s a heaven-sent monetary system for a big-spending government.
The Fed is not putting out shining tablets of gold properly adorned with the face of King George, George Washington, Ronald Reagan, as God (and Republicans’ exclusive insight into the brains of The Founders) intended. No. They’re merely flipping bits in one of those compute-o-matics! It’s almost as if the government is not required to run the economy through a pipeline from 1792.
It’s a shame that we don’t run the economy on overwrought rhetoric. Grant’s article alone, which refers to the Constitution as “that parchment” and precious metals as the “monetary bedrock,” would surely allow us to retire the debt of a few states. Why is Grant going to such ends? Well …
I don’t ask that we return to some long-lost fiscal and monetary Eden. None has ever existed, even in America. Crises and business cycles are always with us. I merely observe that sound money and a balanced budget were two sides of the coin of American prosperity.
And I merely observe: Bull. And furthermore, Shit. The idea that we had our best days during some debt-free gold standard period is not just laughable, it’s contemptible. Grant’s whole exercise in throwing red-white-and-blue trivets on an Ayn Rand table can really be brought down to three sentences: We’ve got a big debt! Because there’s too much government! We should give millionaires a tax break and throw away the social safety net!
In fact, it’s pretty much the entire Republican argument. It’s just usually delivered with much less pretense, amateur theatrics, and (let me rummage through this box of Ye Olde Wordes Appropriate Fore Jime Grante) falderal.
Here. Let’s pop back to Matt O'Brien for a moment.
Grant says that this is all about helping the economy over the long-term. Because, don't you know, "sound money and a balanced budget were two sides of the coin of American prosperity."
... we can look at how the economy did during laissez-faire's heyday between 1880 and 1933 — when small government and the gold standard went hand-in-hand — and how it's done in our postwar period of activist governments and central banks.
… things have been a lot better in the postwar period than they were in the pre-New Deal one. So much for laissez-faire being the path to prosperity.
O’Brien has charts. You can go look. Unemployment under the digital cloud money of the Federal Reserve era has averaged about 6.1 percent. That’s about a whopping lot better than the U.S. did when men were men and money was heavy.
Are both our current economy and our economic regulatory system out of sync with the way money moves around the world today? Yep. But in the opposite direction that Grant and company pretend. What they really fear is the kind of serious effort it would take to transform our long-in-the-tooth form of capitalism into something that is more supportive of the general welfare in a time when automation is consolidating value and … Hey! Look over there! A huge national debt! Run!
* I’m giving Grant that Shlaes award right now. Congrats, Jim. There’s no trophy, because that would be giving something away, and you know how evil that would be. I’m also reserving the right to hand out more of these awards, because I’m not accepting some kind of artificial control on my supply of imaginary awards. Also, freedom!