Krugman: Debt Is Good
nytimes.com
Krugman: Debt Is Good
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Re: Krugman: Debt Is Good
#2It's a good article for a topic that needs to be discussed from a factual perspective at all levels. Yet that is precisely where this article fails to some degree. It presents a sensible take on the value of debt. Namely, you can use debt to do great things. Krugman says:
"issuing debt is a way to pay for useful things"
And that is absolutely true.
However, he, through the rest of the article, absolutely ignores the elephant in the room:
Issuing debt (or accepting debt) should be the absolute last resort and one that demands operating efficiently before and after taking-on debt.
Taking on debt to pay for billion dollar websites (pick a number, anything north of low 10^6 is obscene), stupid wars, nation building and, to lump it all together, government waste, is not just wrong, it's dumb and irresponsible. Plug the leaks first before borrowing money to buy more water.
To put it in HN terms, it's like taking VC money and utterly wasting a huge chunk of it by throwing parties, buying boats, giving out exorbitant salaries and, rather than doing the work in-house for a reasonable cost, outsourcing all of the coding to really bad coders who proceed to burn all the VC money you got. And then, after that, you go out to raise more money (more debt, in the context of the national discussion) and justify it by claiming it is "to pay for useful things".
I would be blown away if anyone would look at such a hypothetical scenario and concluded this was a good way to run your life, startup, business or the nation. In fact, it goes without saying that no VC would give money (for equity or a loan) to a group who proved to be irresponsible about the utilization of funds prior to their request for further funding. In other words, in the real world this would not happen because nobody would give such fools a dime. Let's ignore the age of "irrational exuberance", during which the earth's poles might as well have been inverted.
When you add that metric to the question of debt being good or not --whether it is in a personal, entrepreneurial or national context-- the answer has to be very different from Krugman's:
Yes, debt is good provided it is well justified and the person, organization or nation make smart decisions and efficient use of capital.
Case in point: California's ridiculous high speed train. I don't think I need to explain that further. If you live in California and are aware of what's going on you should be horrified of the waste and lack of common sense being exhibited.
I like the article, but I wish it weren't so one-sided by means of excluding a very important side of the financial equation which is a metric representing the efficiency of the organization and the use of capital. I have no clue how wasteful our governments are (from local to federal). I would not be surprised if the number is somewhere between 35% and 65%. That they are wasteful is absolutely uncontested fact. It's only a matter of the degree. And it is going to be a large number.
Re: Krugman: Debt Is Good
#3It's a good article for a topic that needs to be discussed from a factual perspective at all levels. Yet that is precisely where this article fails to some degree. It presents a sensible take on the value of debt. Namely, you can use debt to do great things. Krugman says: "issuing debt is a way to pay for useful things" And that is absolutely true. However, he, through the rest of the article, absolutely ignores the…
Taking on debt to pay for billion dollar websites (pick a number, anything north of low 10^6 is obscene), stupid wars, nation building and, to lump it all together, government waste, is not just wrong, it's dumb and irresponsible. Plug the leaks first before borrowing money to buy more water.
It seems to me that spending on those things are dumb financed by debt or not...and therefore not really relevant to whether debt itself is sensible.
Re: Krugman: Debt Is Good
#4It's a good article for a topic that needs to be discussed from a factual perspective at all levels. Yet that is precisely where this article fails to some degree. It presents a sensible take on the value of debt. Namely, you can use debt to do great things. Krugman says: "issuing debt is a way to pay for useful things" And that is absolutely true. However, he, through the rest of the article, absolutely ignores the…
Taking on debt to pay for billion dollar websites (pick a number, anything north of low 10^6 is obscene), stupid wars, nation building and, to lump it all together, government waste, is not just wrong, it's dumb and irresponsible. Plug the leaks first before borrowing money to buy more water. It seems to me that spending on those things are dumb financed by debt or not...and therefore not really relevant to whether d…
You raise a fair point, but it is relevant to that extent that dumb spending, when financed, adds interest expense to the stupidity, and is often the catalyst / what facilitated the dumb spending to begin with. It can be a multiplier of 'dumb.'
Re: Krugman: Debt Is Good
#5“With war looming, it’s time to be prepared. So last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I’m terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits. From a fiscal point of view the impending war is a lose-lose proposition. If it goes badly, the resulting mess will be a disaster for the budget. If it goes well, administration officials have made it clear that they will use any bump in the polls to ram through more big tax cuts, which will also be a disaster for the budget. Either way, the tide of red ink will keep on rising.”—Paul Krugman, New York Times, March 11, 2003
Re: Krugman: Debt Is Good
#6It is fundamentially wrong to spend the money (and therefore time) of people who are not born.
Re: Krugman: Debt Is Good
#7It's a good article for a topic that needs to be discussed from a factual perspective at all levels. Yet that is precisely where this article fails to some degree. It presents a sensible take on the value of debt. Namely, you can use debt to do great things. Krugman says: "issuing debt is a way to pay for useful things" And that is absolutely true. However, he, through the rest of the article, absolutely ignores the…
Taking on debt to pay for billion dollar websites (pick a number, anything north of low 10^6 is obscene), stupid wars, nation building and, to lump it all together, government waste, is not just wrong, it's dumb and irresponsible. Plug the leaks first before borrowing money to buy more water. It seems to me that spending on those things are dumb financed by debt or not...and therefore not really relevant to whether d…
The question here was "Is debt good?". My observation was that debt is acceptable --and even good-- if, and only if, the person or organization has a historical track record and culture of efficient use of capital and will, in fact, continue to use capital efficiently after incurring further debt.
The examples I provided are but a few from a huge list showing we are not efficient. In that context, yes, the examples are absolutely relevant. I have personally been involved in several government contract bids where I saw how government actors, systems and procedures managed to pay twice as much than market rate for items being procured. The waste present in government spending is likely to be of staggering proportions.
It's like borrowing money to buy a truck for your business and paying twice market rate for the truck. The reality is that this hypothetical business probably wouldn't have needed extra cash had it been responsible about capital utilization throughout it's history.
Re: Krugman: Debt Is Good
#8It's a good article for a topic that needs to be discussed from a factual perspective at all levels. Yet that is precisely where this article fails to some degree. It presents a sensible take on the value of debt. Namely, you can use debt to do great things. Krugman says: "issuing debt is a way to pay for useful things" And that is absolutely true. However, he, through the rest of the article, absolutely ignores the…
Issuing bonds is an entirely appropriate and just way to pay for infrastructure improvements. The future residents receive the benefits of the infrastructure, so they should have to pay the costs.
Re: Krugman: Debt Is Good
#9It's a good article for a topic that needs to be discussed from a factual perspective at all levels. Yet that is precisely where this article fails to some degree. It presents a sensible take on the value of debt. Namely, you can use debt to do great things. Krugman says: "issuing debt is a way to pay for useful things" And that is absolutely true. However, he, through the rest of the article, absolutely ignores the…
Issuing bonds is an entirely appropriate and just way to pay for infrastructure improvements. The future residents receive the benefits of the infrastructure, so they should have to pay the costs.
You are ignoring the key premise here. I am not saying that loans, bonds or debt are universally and unconditionally a bad idea. Please re-read what I wrote. I think it is very clear, no need to repeat myself.
Re: Krugman: Debt Is Good
#10Earlier quoted context omitted.
Issuing bonds is an entirely appropriate and just way to pay for infrastructure improvements. The future residents receive the benefits of the infrastructure, so they should have to pay the costs.
You are ignoring the key premise here. I am not saying that loans, bonds or debt are universally and unconditionally a bad idea. Please re-read what I wrote. I think it is very clear, no need to repeat myself.
> Issuing debt (or accepting debt) should be the absolute last resort
This does seem very clear, you don't need to repeat yourself. I am disagreeing with that and stating that debt is a most natural and appropriate way to fund certain things. Whether they are efficient or not.