Almost Classical

I'm going to admit to contradictory positions: 1) If in Congress, I would vote against raising the debt ceiling. 2) I consider the debt ceiling an incredibly stupid concept. First, I would vote against raising the debt ceiling because it is one of the few ways to force cuts to the rate of growth  in government. In Washington, seldom are "cuts" genuine reductions in spending; cuts are reductions to projected increases in spending. Baseline budgeting is reckless — in households, business, or government. Imagine basing your spending for 2014 based on 2013 + a hoped-for raise. Baseline budgets assume population growth, inflation, increased revenues, and more. The calculations are prone to error. Consider how easy it is for baselines to go awry. An increase in interest rates leads to higher debt maintenance costs, leads to decreased available revenues. A recession leads to lower tax receipts, and less revenues, while it might also increase demands for some services. You ...

In the Austrian School of economic theory, government debt causes "inflation." That inflation might or might not result in higher consumer prices, which causes some confusion among politicians, pundits, and the public when they hear claims that governmental debt causes inflationary pressures. Reasonably, people assume inflation always means price increases. However, what the economists are describing is a bond market response to debt financing. As I am going to discuss in another post, Paul Krugman has abused the term "inflation" when discussing Austrian economic theory. As a professor, he certainly understands that Austrian/Chicago School theorists use the term inflation to mean any devaluation of fiscal reserves. Basically, dollars lose value because the bond market doesn't have faith in the government to behave responsibly. Bond markets are strange, powerful monsters. Upset the bond market and you'll find interest rates skyrocketing. Treat the bond ...