Paul Krugman, faux-Economist and Fascist standard bearer, had an Article in this morning’s New York Times titled Debt Is Good, in which he posits that government debt is a good thing. Mr. Krugman intones that, “Issuing debt is a way to pay for useful things...” Duh! But even if the federal government actually spent the borrowed money on “useful things,” instead of squandering it on buying votes with food stamps and welfare, it would be far more efficient for State and local governments to provide those “useful things” than to interject the Washington bureaucratic sieve into the process.
Mr. Krugman goes on to cite MIT Professor Ricardo Caballero’s contention that “the debt of stable, reliable governments provide ‘safe assets’ that help investors manage risks, make transactions easier, and avoid a destructive scramble for cash.” Ignoring the fact that Professor Caballero rests his argument on the fiction of “stable, reliable governments,” the professor – and Mr. Krugman – seem to be of the opinion that debt is a fixed entity. It is not. Debt must ultimately be paid back, and until it is, it requires the payment of interest.
I am not surprised that Paul Krugman, being a Keynesian Fascist and not an Economist, would be ignorant of one of the basic and earliest developments of Economics. Bear with me then, as I attempt to elucidate Mr. Krugman.
Before the Industrial Revolution, it was virtually impossible to be in debt, because usury (the loaning of money at interest) was a sin in the Western (Christian) world. In order to borrow money, one had to go to a Jewish money lender. The logic behind the ban on usury was more practical than religious. Interest is artificial money. It comes from nowhere and it dilutes the value of the coin of the realm – a process currently known by the invertonym “inflation.” (So-called “price inflation” is actually “currency deflation.”)
The Industrial Revolution changed all that. The buying of capital (machines) required more money than most individuals had. If industrialization was to proceed, therefore, the use of usury must be permitted. The justification for this primal shift in European mentality was the fact that the machines purchased with the borrowed money produced more than enough money to pay off the interest and principal within a short period.
Thus usury is acceptable only if practiced by wealth producers to purchase the means of wealth production (capital). If it is borrowed for uses which do not produce wealth to offset the interest, the debt is “inflationary.” Governments do not produce wealth. In fact they consume it. Government debt therefore is “inflationary” – i.e. it forces depreciation of the currency.
When I graduated from college in 1960, I took a job as an engineer at $15,000 a year and celebrated by buying a brand new 1960 Dodge Dart for $980 and buying a three bedroom house with basement and garage in Bloomington Indiana for $12,500. Since then the dollar has lost 88% of its value. It takes one of today’s dollars to buy what I could buy for12 cents in 1960 – and what I could buy for a dime in 1950!
And where did all that depreciation of the dollar come from? You guessed it. Government debt. But I wouldn’t expect a Democrat shill and self-proclaimed “Economist” to admit that – or even to be aware of it.