Non Sequiter

Jim Manzi at the Atlantic makes a point about how indebted Americans have become, and how reliant we’ve been on credit to finance economic expansion. No argument there, but I don’t quite understand this correlation.

American consumers are awash in debt, drowning in it. This is the fundamental issue with the stimulus proposal. We’re trying to borrow our way out of debt. Unfortunately, we need a recession. That is, consumption must decline because for some time we have been consuming more than we produce or have reasonable prospects of producing. Monetary policy has been used to inflate a series of bubbles to avoid the consequences of excess debt, and the more we try to hold it off, the worse it’s going to be. Bourbon works as a hangover cure, but only for a while.

It’s theoretically possible for an intelligently-designed stimulus action to help smooth this landing a bit, but we can’t avoid a painful adjustment. Americans are going to live in smaller houses, drive older cars, vacation nearer to home and have less impressive digital camcorders than they expect.

First,  facile comparisons between economic policy at a national level and personal finance obscure far more than they illuminate. The two are not the same, and should not be treated identically. The unenviable position of many American consumers does not mean the United States should not borrow from foreign governments. The Chinese will not break our knee caps if we don’t pay up tomorrow, and they won’t repossess our car. In fact, one of the primary benefits of having a national debt is that the fate of investors in the United States is at least partially tied to our own. Of course foreign investment is not without consequences, but the fact remains that little of the calculus of Joe Debtor borrowing on his ballooning ARM is relevant to discussions of Federal borrowing.

Anyway, and more to the point, this sort of “but it’s not perfect” line has been pervasive in the conservative poopy-pants opposition to the stimulus bill, and it doesn’t make any sense. Nobody is arguing that the stimulus bill will magically return the economy to 1999, or even 2007 levels. But that doesn’t mean fiscal expansion should be forgone because America is due a “painful adjustment.” Indeed, “smooth[ing] the landing,” is perfectly legitimate policy goal when you weigh the consequences of a crash landing.


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