Saturday, September 25, 2010

Even Martin Wolf

Blended Purple links to Martin Wolf on supply-side economics. Wolf is one of the best and brightest. But this time he wanders into political muck:

My reading of contemporary Republican thinking is that there is no chance of any attempt to arrest adverse long-term fiscal trends should they return to power. Moreover, since the Republicans have no interest in doing anything sensible, the Democrats will gain nothing from trying to do much either. That is the lesson Democrats have to draw from the Clinton era’s successful frugality, which merely gave George W. Bush the opportunity to make massive (irresponsible and unsustainable) tax cuts. In practice, then, nothing will be done.

He's trying to deal with economic issues, but it sounds like he has political favorites. Tough to separate the one from the other.

Let me reduce Wolf's paragraph to its economic essence if I can: We saw "successful frugality" in the 1990s. (That's all there is, with politics and prediction removed.)

We balanced the federal budget -- briefly -- in the 1990s. That's what Wolf means by the phrase "successful frugality."

We cut spending enough to balance the budget. There's the frugality. (We also had tax hikes mixed in with frugal spending, as I remember. But let that go.)

And this frugality was "successful" because the budget actually got balanced. Okay?

So, what all this means is simple: Martin Wolf, like everybody else, thinks it necessary for the federal government to be frugal enough to balance its budget.

More simply: Even Martin Wolf thinks spending is the cause of debt.

But even Martin Wolf is wrong about this. Debt is not created by spending. Debt is only created by the use of credit.

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