Krugman: Our Incredible Shrinking Government (and the dip in 4th quarter GDP)

[caseymoz]

11. Well it (almost) sounds like this,

and it could be that, but it wasn't. You shouldn't go by what it rhymes with.

Nobody forces the government to borrow? Look a little closer: four-fifths of Congress are in the 1%. Many of the top bureaucrats go on to work for private firms for truckloads of money, if those firms are happy with them. Congress and top bureaucrats are the ones setting the monetary policies.

I didn't conjecture about whether this is done via a scheme. The force behind it might be a series of small, limited schemes which all push wealth distribution in the same direction. Or it might be a confluence, where people in similar circumstances will tend to act a certain way. This is because members of an economic class have some common interests; therefore their behavior follows the same logic. There doesn't have to be an overall plan for all of this to happen.

Borrowing money from the rich and paying them back with interest isn't all bad, but it has one side effect that must be countered. More of everyone else's money will tend to circle the wealthy like water does a drain. This is accelerated when so much wealth and capital is already concentrated in their hands.

Compound interest (among other devices) gives money its own Law of Gravitation. A great concentration of wealth exerts a slight pull on the wealth in the rest of the economy. As that concentration grows, that pull becomes greater.

I'm not arguing that compound interest is bad, any more than gravity is, but if something isn't done to counter the concentration, interest-- and other economic contrivances-- create an economic black hole.

How would that look? You're born inheriting debt you can't pay off and have work for your lender (who's a member of a small group of masters) who sets a token wage so that you will only fall further behind. In the black hole, everybody but the one percent, or the one-tenth of one percent, will suffer this. The master also set the prices of the goods you must buy to survive. Meanwhile, you have to sell your children into slavery, just to try to catch up. Now imagine if everyone in your neighborhood, and everybody you ever see is in that same situation. That's what I mean by an economic black hole, where you have the rare wealthy, while everyone else has negative wealth.

Do you think compound interest is benign? Debt is the leading cause of slavery in the world. Think on that.

The ownership of the national debt you've listed actually supports exactly what I'm saying. How? How does a casino make it's money? Every time there's a transaction, a percentage point or several go the the casino. The casino owner gets richer and richer and the patrons in general get poorer.

Let's look at the list:

Foreign - $5.311 trillion
Federal Reserve - $1.66 trillion
State and Local Government, including their pension funds - $709.1 billion
Mutual Funds - $864.9 billion
Private Pension Funds - $605.2 billion
Banks - $305.2 billion
Insurance Companies - $259.1 billion
U.S. Savings Bonds - $184.7 billion
Other (individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and other investors) - $1.14 trillion. (Federal Reserve as of Januray 2, 2013; All others as of June 2012.

Okay, who are the individuals who collect from the other side of each of these pipes? Of the $5.3 trillion in foreign debt: who are the ones seeing the proceeds on the other end? Private pension funds, well call me cynical, but companies frequently don't live up to them. Banks: this should go without saying, but who are the people banks are paying? Insurance companies, same question. Other: first notice that this category is as large as the four above it combined. That's a pretty big unspecified.

If you get to the spigots at the other end of these categories and organizations, look at exactly who they're paying, it's, in a huge percentage, the wealthy. Yes, a lot of social security recipients receive some percentage of their $1,200 monthly payment from interest. But ithat's very diffuse. From several other categories, a lot of wealth that's being concentrated.

This sounds like you think we shouldn't prioritizing paying interest/principals on the debt. Or maybe you think only the rich shouldn't be paid. Hence my point that this would be a default.

You have a tin ear if that's how it sounded. I just said austerity is a bad idea if you want an economic recovery. If you want to be over-cautious that the wealthy get paid, want an economy that does only that, and you don't mind if making the rest of us miserable doing it, austerity is the program for you. But if you do, you're either wealthy and/or psychopathic. If want austerity otherwise, it's because you don't understand the least bit about how a national economy works.