In a fascinating Q&A between Washington Post lefty wunderkind Ezra Klein and unrepentant Keynesian economist James K. Galbraith, the good professor says the danger posed by America’s long-term deficits is “zero.”
What is the nature of the danger? The only possible answer is that this larger deficit would cause a rise in the interest rate. Well, if the markets thought that was a serious risk, the rate on 20-year treasury bonds wouldn’t be 4 percent and change now. If the markets thought that the interest rate would be forced up by funding difficulties 10 year from now, it would show up in the 20-year rate. That rate has actually been coming down in the wake of the European crisis.
So there are two possibilities here. One is the theory is wrong. The other is that the market isn’t rational. And if the market isn’t rational, there’s no point in designing policy to accommodate the markets because you can’t accommodate an irrational entity.
I’ll allow my colleagues who are better schooled in these matters to comment. What really got my attention, though, was this:
Unemployment is at 10 percent. If we got busy and worked out things for the unemployed to do, we’d be much better off. And we can certainly afford it. We have an impending energy crisis and a climate crisis. We could spend a generation fixing those problems in a way that would rebuild our country, too.
Yes, let’s work out things for the unemployed to do, with the “us” no doubt being the government, which is now spending more as a percentage of GDP than it has since the end of World War II, can’t pay its bills, and somehow can’t seem to get that pesky unemployment rate below 10 percent. That’s the ticket.
