12-01-2016, 07:29 AM
(This post was last modified: 12-01-2016, 07:31 AM by Warren Dew.)
Eric the Green Wrote:I'm sure you will correct me if I am wrong, or try to. But I don't buy the more debt idea. It's not too popular with the left OR the right, either. Maybe others can correct me too.
The only way to deal with more debt by just lowering taxes, is with more QE. Print more money. This will eventually increase inflation and cause more bubbles in the economy, and if interest rates rise because of inflation, more of our tax money will go to cover the debt.
This is not a left/right divide. You and Galen are wary of debt and the monetization thereof based on a half century of experience with how it has been problematic with respect to inflation and the downstream effects on the economy. That experience is true, but it happened during a period of demographic growth - population growth - with a low fraction of the population retired.
David and I believe that the equation has changed because the demographics have changed: the fertility rate has dropped, population growth has been largely eliminated, and retirees make up a larger proportion of the population. We look at Japan's experience because they are a couple of decades ahead of us in all of these demographic transitions, and they found relative debt levels two or three times higher than ours still sustainable and perhaps even necessary.
In my opinion this is because, with population growth gone, the natural rate of inflation and the natural interest rate are lower, perhaps zero or below. This means we can borrow more without paying more in interest, and monetize more of that debt without exceeding inflation goals.