Thursday, October 3, 2013

Michael Bolen Lowers the Bar on Raising the Debt Ceiling

Apparently, Huffington Post Canada news editor Michael Bolen wants a piece of Anthony Furey. And he got it.

But in Bolen's appearance on Byline, Furey really was far too gentle with Bolen than his drivel warrants.

Essentially, Bolen's column shakes out as such: Canada should not have a debt ceiling because it would prevent Canada from taking on more debt. Government debt, Bolen maintains, is a good thing, and because governments can print and issue their own money, as well as inflate and deflate currency at will -- which is actually untrue -- it's OK.

Bolen writes:

"Governments are not like families or businesses. Families and businesses can't print currency and are not tasked with managing the money supply for the purpose of encouraging economic growth and curbing inflation. Deficit spending is an essential tool used by every reasonable government on Earth and growth is the best way to reduce debt. Not cuts."

This paragraph couldn't possibly be any more fiscally- or economically-illiterate.

First off, in Canada and the United States, governments do not print money or manage the money supply. Central banks do that, and they are arms-length institutions. Central banks print currency, set the interest rate, and while their governors may be appointed by the government, they operate as separate institutions.

Secondly, Bolen draws a link between economic growth and deficit spending that is spurious at best. It's true that properly-managed stimulus spending can help a government mitigate the effects of an economic downturn. The extent to which it can do that, and the extent to which it has, are very much subject to debate. But even upon accepting this to be true, in the case of the United States we aren't talking about periodic deficit spending during a recession; we're talking about continuous and uninterrupted deficit spending over the span of decades.

Unlike Prime Minister Stephen Harper, American Presidents -- Democrat and Republican alike -- have failed to balance their deficits against economic growth and shrink them as a percentage of GDP. When it comes to these failures, Obama has led the pack on a previously-unthinkable scale. Which is basically what this entire issue is about.

And perhaps Europe has been experiencing a rough ride under austerity. This is to be expected. But it wasn't austerity that was a disaster in places like Greece: it was unrestrained socialism.

Bolen is certainly right about one thing: the debt ceiling hasn't worked in the United States, for two reasons:

First, the American congress made a grievous error by setting the debt ceiling as a dollar figure, as opposed to a percentage of GDP. Should they have had the wisdom to set a limit on that -- say, limiting debt to 50% of GDP -- congress would have had to handle the deficit long before the debt reached 100% of GDP, as it did this past year.

Second, the current US congress has found itself working under the administration of a President who seems to have very little interest in governing and a great deal of interest in casting blame. It doesn't help that the Republican establishment seems very terrified of taking the blame for anything, even forcing the President to finally negotiate with his congress and actually passing a budget.

Other than that, Michael Bolen's column never manages to raise above the level of empty, economically-illiterate demagoguery.

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