Monday, May 02, 2005

Slippery slopes

All debt is not equal. But the Keynsian legacy is to treat it that way: the more dissaving by one sector, the tougher it is for the others. And leave it at that.

Yesterday's NY Times ("The Outer Limits of Debt") cites an "IOU Pile" that stacks up Medicare obligations, Social Security obligations, "debt held by the public", etc. ($40.6 trillion total) and compares it to a conceptual overall national "sound debt limit" (150% of GDP = $18 trillion).

Economists like debts incurred for the sake of increased future productivity -- in the not too distant future -- and markets typically ration credit this way. This includes consumers-incurred debt -- which reflects the choices that individuals like, albeit skewed by various tax code carrots and sticks.

Government-incurred debt, on the other hand, rests on the dubious merits of choices incurred via representative government. The great sleight-of-hand is the fraud that government expenditures are "investments".

Be it Enron, or whatever, questionable accounting, once accepted is one very big slippery slope.