"Dr. Krugman,
Have you read the article, "False Positive" by Jacob Hacker in the
latest New Republic? What are your thoughts on his universal insurance
proposal coupled with the government subsidized savings accounts? Also, do
you think there is a way to draw an analogy between individual Americans'
personal debt to the national debt? I don't think most politicians and
economists have ever had to live off of a credit card for any significant time,
but it could be a very potent analogy and a way to discredit Bush's claims of
economic stimulus from his large deficits. Regular people understand
credit cards and loans. Not GDP and deficits. Now,
economics and finance aren't my strengths, but if I understand correctly,
Keynesian economic theory basically allows for short term deficits to stimulate
the economy, not long term structural deficits, correct? It's like the
difference between buying a TV on the MasterCard versus paying the electricity
bill on your MasterCard, as well as using the Visa to pay the interest on the
MasterCard. When you buy the TV on credit you get something of use right
away, then you pay it back at your leisure. It's good for you, you get a
TV. It's good for Best Buy, they hire employees, make a profit: it's money
into the economy, etc. It's good for your bank; they make money from the
interest that you pay them on the loan. It's good for the stockmarket
because the bank invests the money that they are making on your money.
Good deal. Everybody is a winner.
But if something unexpected happens, like your car breaks down, or your
wife gets sick, (or your family gets dive bombed by Muslim terrorists, or you
find yourself embroiled in two middle-Eastern wars) , and you have to pay the
electricity bill on the credit card one month, you are starting the slide down
the hole to bankruptcy. You are paying for a necessity, not a
luxury, and you can't afford it with your current income. You have to
borrow money just to meet your basic needs, and you not only start off on
thewrong foot with your borrowing, you start accruing interest from day one.
This is bad if it happens once, but if it happens indefinitely, you
eventually reach the end of your credit. Also, your interest payments
eventually will be higher than the original cost of your electricity bill.
Also, if nothing horrible happens, and unless your income drastically
rises, you may be able to keep up with the interest payments, and stay on top of
the bills, but to reduce significant levels of debt is very
difficult.
Well, it looks like the US government is paying the electricity bill on
the credit card right now. Like I said, I'm not an economist. I know
this is a long convoluted analogy, but I think it has merit. "Regular"
people understand how bad having credit card debt is. They worry about
their mortgage payment, and their kid's student loans. If the Democrats
could exploit personal debt, instead of trying to predict how to react to job
numbers or the stock market numbers each month, they wouldn't look like ghouls
saying that things are really bad. The GDP growth numbers look good on
paper, right? However, isn't a lot of our growth in GDP because of the
money spent on defense and the war on terror? Average Americans know that
the stock market is good. They also know that they have debt, and it gnaws
at the back of their skull a little bit each night before they go to bed.
If that stock market starts to slide down, or if interest rates start
edging up, they know that they are in big trouble. So what do you think?
Could you clean up that analogy a bit?"
So what about it guys? Is that a workable analogy? Does anyone understand what my addled brain is trying to say? I'd be happy to get some input from anyone who knows anything about economics. I sure don't.
PS. I know that the formatting is goofy as hell whenever I do a block quote. Sorry, that's Blogger, not me. I wish I knew how to make this thing work better.
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