DEFICITS DEFICIT PANIC: A FALSE ALARM
without caring if they’re paid back? Looked at without emotion, an ability to borrow in size is logically a bullish market projection about the borrower’s future prospects. This is similar to how Apple’s capacity to access $17 billion at near-Treasury-like rates was a direct consequence of investor confidence in its ability to earn copious sums in the future. And Russia’s nominally microscopic obligations are a sign not of parsimony with the money of others on the part of Vladimir Putin, but rather a market data point indicating that lenders aren’t particularly bullish on Russia’s economic prospects. Conversely, that lenders line up to buy Treasury debt at very low rates of interest is a sign of investor confidence that dollars will be flowing into Treasury’s coffers in impressive amounts for decades to come. (See the low yields on 30-year U.S. Treasuries if you’re still skeptical.) Now, I want to emphasize... This shouldn’t be construed as an endorsement of government borrowing, and it’s certainly not a call for more government spending. If anything, the ability to take on sizable levels of debt is a sign of prosperity; that lenders believe their odds of being paid back are very high. Seriously, who out there lends cheaply without caring if they’re paid back?
That’s how all-too-many economists and policy theorists on the Right who fancy themselves deficit and debt “hawks” view government debt. Niall Ferguson, a Hoover Institution senior fellow, wrote in 2013 about U.S. liabilities in a Wall Street Journal op-ed, lamenting that “it is not if the United States will default, but when.” Fast forward to 2018, and in a piece written for the Washington Post , Ferguson’s Hoover colleagues Michael Boskin, John Cochrane, John Cogan, John Taylor, and the late George Shultz professed that “high and sharply rising government debt” stands “squarely in the way of the U.S.’s extraordinary promise.” And just two months ago, in a piece for National Review , conservative champion Kevin Williamson contended that “unless we get our fiscal house in order now, we will soon be at the mercy of our creditors.” Of course, the problem for the downcast economic eminences is that markets plainly mock their concern. We know this because as previously indicated, the U.S. Treasury borrows at the lowest rates of interest in the world. More on borrowing rates in a bit, but for now, it’s useful to clarify that budget deficits and debt don’t signal economic Armageddon as so many conservatives believe... quite the opposite, really. If anything, the ability to take on sizable levels of debt is a sign of prosperity ; that lenders believe their odds of being paid back are very high. Seriously, who out there lends cheaply
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May 2021
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