Thursday, June 24, 2004

Too Stupid For Words

Matthew Yglesias has a quote up from an article on the National Review website which really has to be read to be appreciated in its full idiotic splendor.

What the senators and media don't get is the basic equation that defines the role of government deficits in the economy: The federal government deficit = non-government savings (of net financial assets). That's fact, not theory, a.k.a. an "accounting identity." Non-government savings include that of both residents of the U.S. and foreigners. If the federal budget deficit of $450 billion about equals the current account deficit, it means that all the net financial assets added by the deficit are being saved by foreigners, who desire to hold all those dollar-denominated U.S. financial assets and are willing to net export to us in order to get them.

This data indicates is that the federal deficit is too small for the U.S. domestic sector to save anything! Domestic savings are low because the budget deficit is too low. Low and unobtainable savings means low demand, excess capacity, and low levels of employment. In other words, to get adequate demand from a healthy economy, a much larger federal budget deficit is needed. Unfortunately neither political party sees the light on this one, and both proclaim a sincerity to balance the budget -- which would totally choke off what growth we do have, as it would actually drain domestic income and savings and further reduce demand.
Where does NRO get morons like the author of this article from? Hasn't anybody in that outfit ever taken an elementary macroeconomics class? Budget deficits are not a means for boosting domestic savings, and not even the most ardent of Keynesians would ever maintain that they are. Far from it, deficits actually work to crowd out potentially more productive private investment, and as such are to be discouraged over the length of a fiscal cycle - this is particularly the case when one has a "healthy economy", i.e, just the sort of time this ignorant individual suggests a bigger deficit is needed.

I've never taken my advice on finance or economics from the National Review, but an article as patently ridiculous as this one leads me to think that either no one there has the slightest clue about economics, or the editors are willing to compromise all intellectual standards for the sake of partisan wagon-circling. It's obvious what the motivation behind this sort of stupidity has to be - trying to make Bush's fiscal record look far less problematic than it actually is.