American Exceptionalism gives us a faith-based public policy. Our confidence might be our weakness.

Summary: We have come to believe we are exceptional, not just morally, but also operationally. We act as if we are beyond the need to plan and prepare for possible problems. It is faith-based public policy. Here we review how we came by this delusional belief, and examine how it plays out on a potentially serious problem: the growing US debt.

What, Me Worry?
American Exceptionalism

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A brilliant insight, but likely to fail us if we depend upon it:

“Men and nations behave wisely when they have exhausted all other resources.”
— Abba Eban (Israel’s Minister of Foreign Affairs), quoted in the 19 March 1967 New York Times

Note how this aphorism about people has become one about us (It was not said by Winston Churchill; details here). Rather than assume success, we should take this advice:

“Success breeds complacency. Complacency breeds failure. Only the paranoid survive.”
— Andy Grove, CEO of Intel 1987 – 1998

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Two centuries of success have taught us complacency, confidence that we are not only exceptionally moral as the “city on a hill” in Matthew 5:14, but also exceptional in an operational sense. We assume success as our due, without the necessity for preparation, planning, or even effort. Energy, climate change, demographic challenges, underfunded pension plans, the next wave of automation, growing inequality — we assume success vs all problems, so take few precautions. It’s an odd kind of  faith-based public policy.

Success has brought us the “victory disease” (senshobyo in Japanese, a term coined in the 1930s by novelist-turned-strategist Chuko Ikezaki ).

A people more aware of cycles might prepare for a period of hard times, much as darkness follows light (and lean years follow the good ones). It could be painful yet not like the Long Depression of 1873-1879 or the Great Depression of 1929-1939.

Let’s look at one example: our high Federal debt load, destined to rise as the boomers retire. We are confident that growth will easily fix these, as growth solved the massive debts the UK accumulated from the Napoleonic Wars. As growth solved our massive debts from the Civil War and WW2.  This confidence is delusional.

Those debt loads were made manageable by several factors in the decades that followed the wars:

Yin and yang
A key button on the national keyboard, but we can’t predict what it does
  • massive population growth from high fertility, improved public health, and immigration,
  • the industrial revolutions’ productivity booms
  • in the 19th century: by conquest and development of vast new lands, and
  • in the 20th century: by massive increase in education levels.

Let’s see how these played out in the post-WW2 boom.

  • Growth in US Total Factor productivity averaged aprox 2%/year from 1950-1964 (the last spurt of the great 1870-1920 science breakthroughs). That was the highest sustained burst since good data starts ~1870.
  • The great education boom began after WW2. Average years of schooling for those 25+ years old was ~8 years in 1940s, rising to ~12 in 1970s (and ~13.5 now).
  • The great rise in women’s labor force participation began in 1932. It was ~30% in 1950, then steeply grew to ~50+% by 1980. It’s now ~60%.
  • The rapid increase in US population after WW2 from births and immigration. The US population was ~120 million in 1950, its ~320 million today. Growth hit 1.8%/yr in 1957, working its way down in fits and starts to about ~0.7% now.

The result was spectacular economic growth, allowing us to pay down the debt from the New Deal and WW2 (the latter far larger) to a manageable level by 1980, after which the spending plus  tax cuts of Reagan and then Bush Jr put the debt on the upward trajectory that continues today.

None of these factors look likely to help us during the next few decades. And, unlike those debts from wars, much of our fiscal problem lies ahead of us as liabilities come due from our aging population.

Worse, there is a possibility of slower — not faster — GDP growth over the next few decades, as described recently by these economists — plus a  CATO review paper:

Let’s look at their forecasts. The average annual growth of US per-capita real GDP during 1870 – 2010 was 1.96%.

GDP growth forecasts
“Why Growth Is Getting Harder” by Brink Lindsey, CATO, 8 October 2013

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These differences might look small, but over decades, as the boomers age, would create serious problem for America. Since we’re exceptional, we feel no need to worry — let alone start to prepare now for this possibility.

Clap your hands if you believe we are exceptional!

Tinkerbell dusting the economy
Tinkerbell dusting the economy

For More Information

(a) Posts about growth:

  1. Good news: The Singularity is coming (again), Dec 2007
  2. The Singularity is in our past, 29 March 2009
  3. Has America grown old, and can no longer grow? Or are wonders like the singularity in our future?, 28 August 2012
  4. Is America on the road to zero growth?, 29 November 2012
  5. Why America’s growth is slowing, and a solution, Jan 2013

(b) Posts about the future:

(c)  See all posts about this topic at the FM Reference Page Forecasts – possible futures for America and the World.

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33 thoughts on “American Exceptionalism gives us a faith-based public policy. Our confidence might be our weakness.

  1. i wonder how many of the differences we see between post WW2 growth and the projected slow growth of the current economy aren’t rooted in political dysfunction as opposed to demographic/structural causes that policy is ill equipped to fix.

    as this blog has pointed out many times, we could have used post recession government spending to invest in infrastructure and increase the amount of employed workers and wages flowing into the economy in (hopefully) increase growth while borrowing for cheap. we could also pass an immigration bill allowing in influx of legal workers into the economy to improve the demographic ratio of productive workers to retirees (and immigrants paying into the social insurance net would be a net gain for Medicare, Medicaid, and SS besides). We could do more to reduce the cost of health care and to improve education outcomes.

    but we don’t. we’ve discussed elsewhere the why, but these are all solvable problems. so perhaps our confidence in our ability to solve them isn’t wrong but misplaced. we (or at least a sizable portion of the body politic) believe that these problems will right themselves without any intervention from voters or the government. and that’s where we’re exceptionally delusional.

    1. Underscore,

      “between post WW2 growth and the projected slow growth of the current economy aren’t rooted in political dysfunction as opposed to demographic/structural causes that policy is ill equipped to fix.”

      Great point. Western thought, including Adam Smith back to Aristotle, considers political developments — the political regime — as important, perhaps determinative.

      I do not believe public policy is “ill-equipped” to fix demographic and structural issues. That is a widespread belief, which theRight has spent vast sums promulgate. Considering ourselves to be powerless before them is one of their greatest victories.

  2. Given the present state of mind and neoliberal mentality and given that it will not change you are completely right.
    But, lets say that changes and Keynesian prescriptions are implemented again, which of course would requier change of neoliberal mentality and it seems imposible from the present. I believe that is exactly how it looked in 1933 also.
    But we already have the experience and knowledge to change such future, but along the passage of time we forgot to use it.

    The true causes of the boom in post war era are:
    – switching from small apartments and farms into suburbia which requiers much more spending and resources then highly condensed city living.
    – concentrations of farming (enlarging farm sizes/ rising productivity in food production)
    – providing friendly countries with free dollars that can be spent only in US boosting demand, or by paying for military stations.
    – low levels of private debt
    – free education with GI bill
    – cheap energy
    – huge resources directed by government into inovation
    – huge infrastructure spending
    and the most important
    -90% marginal tax rate which allowed for huge resources to be directed by government into such productive endavors

    This almost all can be brought back, all except giving free dollars to friendly countries, switching to suburban living and farm concentration.

    Low private debt can easily be achieved by debt jubilee by giving every citizen $200, 000 with condition of paying debt down first.
    Switching to condensed living can have some of benefits for providing abundunt cheap energy.
    Cheap energy can come from solar and wind power which requiers huge investments up front which is also needed.
    free higher education can be returned easy
    infrastructure in solar and electrical grid are needed
    inovation can be restarted by governments input
    increasing population can be easily achieved by legalizing ilegal imigrants.
    Rising minimum wage is at outmost importance and rising marginal tax on income over $1M to 90%.

    The problems are only political, politicians and economists infused with neoliberal filosophy that says that government should stay out of market, even tough that is impossible.
    All this was known 70 years ago and it was forgoten. Today, some of economists have even more powerfull knowledge about problem solving then at the Keynes’ time. MMT is Keynes with better knowledge of fiat money.

    1. Jordan,

      “But, lets say that changes and Keynesian prescriptions are implemented again, which of course would requier change of neoliberal mentality and it seems imposible from the present. I believe that is exactly how it looked in 1933 also.”

      That is certainly false. After the Democratic Party’s massive win in the 1932 elections, everybody knew big changes were coming now.

    2. Jordan,

      You say:

      “All this was known 70 years ago and it was forgoten. Today, some of economists have even more powerfull knowledge about problem solving then at the Keynes’ time. MMT is Keynes with better knowledge of fiat money”

      Keynes was in no way forgotten. We are all Keynesians now and have been for quite some time. Federal Government deficit spending was much larger post 2008 than during the Great Depression. Check Steve Keen’s blog for good reference material on this. Deficit spending peaked at a rate of >10% of GDP of 2009; it never reached 10% of GDP during the 30s. The economy contracted so much more in the 30s than it has now, so when measured against pre-crisis GDP, the current regime of deficit spending is much larger — almost 2X — than what was done in the 1930s.

      The difference between then and now: deleveraging or lack thereof. The debt bubble (private + public) was smaller in pre-Great Depression than the debt bubble leading up to 2008. Debt/GDP peaked at ~320% in the early 30s post massive GDP contraction versus ~345% in 2008 prior to any GDP contraction. In the 30s there was massive deleveraging in the private sector that overwhelmed any government spending (debt expansion) from the public sector. Here post-2008 we have modest private deleveraging coupled with government debt growth that has nearly offset private deleveraging dollar for dollar.

    3. Bonesetter,

      That is a nice summary.

      The economists of FDRs administration were working almost by trial and era. Hence the large number of initiatives, often clashing. They were not Keynesians in our sense of the term, since his “The General Theory of Employment, Interest and Money” was published in 1936, and took years to be understood. Despite ample real-world demonstration of its key theories, I wonder how well it is accepted even today.

      The true Keynesian of the 1930s was Hitler (yes, every discussion comes around to Hitler). After taking power he implemented a sort of guns and butter demand management strategy. Objections to his unorthodox policies were met with … strong if non-intellectual rebuttals. Tools FDR lacked.

      Elsewhere it was the massive deficits of ww2 that ended the depression. We would take measures for war that we would not do in peace, unfortunately. This was true in this cycle as well.

      The conditions of 2008-2009 were similar to 1929-31. That we had a different outcome was due to Keynes insights — and those who built upon his work.

    4. Keynes recomends spending money on those that will spend it, not on those that have so much that will only save it as it is being done more and more.
      So we were not truly Keynesian.
      In the 30′ debt default was recognized right away which forced banks to go belly up. Today banks are hiding loses and do not want to recognize defaults using mark to market and are zombie banks since they refuse to lend for production activity.
      While private debt deleveraged, government controlled spending in the market/ rationing for war efforts. So, people were forced to save untill the end of WII. Now with pushing for even higher leveraging while peoples wages are burdened by debt already or too low to get a sizable credit, of course that debt can not grow as it used to untill the wages start to grow.

    5. Jordan,

      As usual it is not clear what this is addressing, or even what you are talking about.

      If you are referring to post-crash US fiscal programs, you are wrong. Most of the funds spent were broadly distributed: the aid to States to continue basic services, extended unemployment insurance benefits, including Medicaid and food stamps with them, funding capex at all levels, cutting FICA taxes, etc.

      The large income tax cuts were the only component that meets your description, and these did not “only benefit” people with low propensity to save (I assume you mean the rich), although they were the largest beneficiaries.

  3. Growing US debt is a potential problem?
    Only politicaly can be a problem, not operationaly.
    US debt grew for 65 years out of last 70 years. It was only politics that made it a problem now. It wasn’t a problem for 65 years, why is it now, or why it should become in the next 65 years?
    Ah yes, income growth that is suposed to service such debts is slowing and ground to a halt. That is where is the problem, not in amount of debt. Isn’t the horrible inequality the result of stagnating income growth?
    That is why 90% marginal tax and rising minimum wage are of outmost importance, to return wage growth.
    90% tax is not about financing government but to prevent small wealthy minority from using huge resources that are needed elswhere. Also prevents greed of CEOs from taking everlarger share of income from other employees that is then saved instead of spent to raise AG. 90% tax also prevents emptying corporate cash to finance management salaries causing more stability in recessions. 90% tax also leaves more cash to corporations for investing in technology.

    Low marginal taxes allowed for savings glut and stagnating wages that pushed interest rates over time down to 0.
    It is the saving glut that pushed for deregulation of finance so that they can speculate with CDOs rising total debt. and caused low interest rates because investing in production did not promise enough profit due to low buying power of low wages. Saving glut enabled further replacement of wage growth in buying power with ever-rising debt.

    At the same time saving in private retirement funds decreased agregat demand. State retirement is Pay-as-You-Go while private retirement funds is save then spend later while it is not specific if it will be invested in productive activity or paper assets. Paper assets is investing in finacial instruments, it does not go into productive activity directly, only very indirectly with tangential benefits to production.
    PAYGO means that savings are imediatly spent on mostly rising agregate demand while private retirement savings are reducing agregate demand and at the same time increasing public debt.
    My spending is someone elses income => reduce spending (save) and agregate demands falls so does total income.
    Government investments in infrastructure and technology/ dirigist role of the government.
    This would be Keynes in a nutshell.

    1. Jordan,

      “It wasn’t a problem for 65 years, why is it now, or why it should become in the next 65 years?”

      Wow. Since debt/GDP was a not a problem when small and shrinking in 1980, it cannot be a problem today when large and growing.

      The logic of that is not apparent to me. Esp since our demographics in 1980 were very different than today — boomers entering the workforce then, now retiring.

    2. Debt was not shrinking nominaly, only as a precentage of GDP.
      It was because the income was rising that debt as a percentage was shrinking even tough in dollar terms it was still rising.
      It is about normal for public debt to nominaly rise forever, for most of the countries. I can think of only Australia that did pay off some of the nominal term debt. And maybe Norway, but not sure.
      Even Germany that is the second largest surplus country has evergrowing nominal debt.
      Public debt of Japan, USA, UK, Australia and Canada is just an accounting stuff. It has no implications on their economy. Just look at the Japan.

      Savings go into the banks, then into their reserves. Bank reserves do not get lent as credit, reserves are the basis for requierd reserves for lending. In order to be returned back into the economy, FED replaces extra reserves with Tsy’s and proceeds the money to Treasury that spends it as deficit.
      Amount of savings is everincreasing so is the amount of reserves.

      In order for monetary policy to have any teeth on bank lending, FED have to reduce reserves to the level where it forces banks to search for reserves. That is how you get LIBOR. The natural interest rate without issuing Tsy’s would be 0 because there would be more then enough reserves for requierd reserve ratio. If banks are not forced to look for reserves there would be no interest rate management by FED.
      Interest rates are 0 and look at the amount of reserves in the banks and still record ammount of Tsy’s in the world.
      There is too much savings in the world that is the problem, pushing down interest rates over time untill it reached 0. It can not go lower so monetary policy became ineficient.

      Australia does not have requierd reserves, their economists realized long time ago that it is better to work with forward guidance then to have to empty reserves with Tsy’s in order to have any power on monetary policy.
      FED does not issue enough Tsy’s to empty bank reserves. There is so much savings in the US, and not enough Tsy’s for them so now FED pays interest rates on reserves also.

      Basically, paying off all Tsy’s would only fill bank reserves today, it would not increase ammount of money in the economy. It would fill bank reserves or pockets of those that have so much money that they can not ever spend it so it would not be spent since it was not asigned for it. It could only go into some other financial asset. There is so much saving in the world today, and at the same time, so many hungry and suffering from lack of money.

    3. Jordan,

      “Debt was not shrinking nominaly, only as a precentage of GDP.”

      That’s a weird rebuttal, since I explicitly said “debt/gdp”.

      Second, in terms of the debt burden to the economy only debt/gdp (or other relevant ratio) matters. The nominal debt burden is a number used to scare the ignorant.

      You sound like a nice person, but know little about economics.I tried writing explanations, but you showed a remarkable resistance to learning even the simplest facts.

      It’s a mystery why you write these long comments about economics. I suggest sticking to quotes from experts. If nothing else, that will help you learn something about it.

    4. It is the saving glut that pushed for deregulation of finance so that they can speculate with CDOs rising total debt. and caused low interest rates because investing in production did not promise enough profit due to low buying power of low wages. Saving glut enabled further replacement of wage growth in buying power with ever-rising debt.
      — Jordan

      Bingo!

      I wish more folks would get this: that inequality is a cause of deregulation just as much as the converse. Real investment can’t fulfill the needs of the wealthy for something to do with their money, because aggregate demand is insufficient for additional investment to produce returns. Hence, the need to open a giant casino. If it weren’t done legally, it would be done illegally. (As far as I can follow it, that seems to be what happened: by the time Glass-Steagall was repealed, it had already been rendered little but a technicality for banks and regulators to circumvent.)

      The corollary is that re-regulation by itself would solve nothing. The underlying problem—runaway concentration of wealth—must be addressed before significant change is possible. At present, that idea barely registers as thinkable in America.

    5. Coises,

      “It is the saving glut that pushed for deregulation of finance so that they can speculate with CDOs rising total debt. and caused low interest rates because investing in production did not promise enough profit due to low buying power of low wages. ”

      Jordan’s statement is a mish-mash of gibberish. To mention just one thing, a “savings glut” is a condition, not an actor. The rest is equally confused.

      Your statement that “inequality is a cause of degregulation” is quite correct, and been documented by a wide range of experts.

      Regulations, esp those established during the New Deal era, tend to restraint the actions of the 1% (not always, those promoting cartels, for example, boosted profits and limited competition). This is esp true of regulations of the financial sector. Hence the long campaign, started in the Reagan era, to dismantle this structure. By 2000-2005 they had succeeded to a large extent.

      To over-simplify, a point of being the 1% is to allow unrestrained use of economic and political power to further increase inequality. That’s been the story since the crash. There is nothing on the horizon to change that. We seem to be on the slippery slope, where positive feedback reigns.

    6. Even tough i expressed a saving glut as an actor it is a condition that forces actors to react to such conditions in the market, hence ” saving glut pushed for deregulation”. Coises added that Glass Steagall was already ineffective at the time it was repealed. Financial inovations were used by market actors to use huge savings lying arround, not having enough of productive activity and invested it into finacial assets.

      I am really trying to remove the emotional and morality play in order to describe mechanisms that work on long time scale that led us here today. Using knowledge of a banking system accounting provided by MMT (started by bankers and followed up by economists, acceptance of MMT as correct description of banking accounting is rapidly growing by many economists; Stglitz, even Krugman is accepting issues raised by MMT, altough very slowly. Brad De long is almost there) and my knowledge of communist money system compared to the capitalist money system i can easily cut trough the fog of many years of economic missinformation.

      Orthodox economic missinformations led us here. If you still trust them after 2008…….

    7. Jordan,

      “saving glut pushed for deregulation.”

      Can you cite any expert analysis supporting this theory?

      These are highly complex matters. Just saying them doesn’t help much, any more than if you posted some musings about quantum mechanics.

    8. FM
      Yes, i can recomend economist Yanis Varoufakis and his book Global Minotaur. In the book he describes Bretton Woods system and the collapse of it, reversal of surplus recyclying mechanism and US as global Minotaur that uses its debt as agregat demand of the world and what happens with the world saving glut that was sent to US economy and its investment banks. How they used it to speculate, buy politicians to deregulate so that they can use such world surpluses to inflate bubles in the US.
      To understand it you need to know banking system and how it works.

      http://yanisvaroufakis.eu/books/the-global-minotaur/

    1. Jordan,

      There is zero point to posting just a URL. Professor Xavier knows what you are attempting to communicate, but nobody else does. Please do use the courtesy of providing a basic citation : title, source, date. Or at least a description of what this says.

      Both would be better.

      Otherwise it is a waste of your time and effort.

    2. I appologise.

      Standard & Poors rating agency paper on accounting rules of banks titeld; Economic Research: Repeat After Me: Banks Cannot And Do Not “Lend Out” Reserve

      “Overview:
      Many talk as if banks can “lend out” their reserves, raising concerns that massive excess reserves created by QE could fuel runaway credit creation and inflation in the future. But banks cannot lend their reserves directly to commercial borrowers, so this concern is misplaced.

      • Banks do need to hold reserves (as a liquidity buffer) against their deposits, and banks create deposits when they lend. But normally banks are not reserve constrained, so excess reserves do not loosen a reserve constraint.
      • Banks in aggregate can reduce their reserves only to the extent that they initiate new lending and the bank deposits created as a result flow into the economy as new banknotes as the public demands more of them.
      • QE does aim to ease financial conditions and spur more bank lending than otherwise would have occurred, but the mechanisms by which this happens are much more subtle and indirect than commonly implied.
      • If the excess reserves created by QE were to be associated with too much credit creation, central banks could readily extinguish them.

      The central bank”

    1. Washington’s Blog, 14 October 2013

      Above link is a short debunking of economic missinformation about money mechanisms with numerous quotes by FED chairmans or regional FED’ presidents or CB governors:

      “For example, a 1960s Chicago Federal Reserve Bank booklet entitled “Modern Money Mechanics” said:

      [Banks] do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers’ transaction accounts.”

      “(1) William C. Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, said in a speech in July 2009:

      Based on how monetary policy has been conducted for several decades, banks have always had the ability to expand credit whenever they like. They don’t need a pile of “dry tinder” in the form of excess reserves to do so. That is because the Federal Reserve has committed itself to supply sufficient reserves to keep the fed funds rate at its target. If banks want to expand credit and that drives up the demand for reserves, the Fed automatically meets that demand in its conduct of monetary policy. In terms of the ability to expand credit rapidly, it makes no difference.”

    2. Jordan,

      This is of course correct, but to what comment or post is this directed?

      The first is a description of fractional reserve banking. While many on the extreme right disapprove of it, does anyone disagree with this description?

      The second is a rather technical description of the bank lending mechanisms. What is the common misconception?

    3. FM, all of what i wrote is to prove that there is no and will not be a “potential crisis: growing US debt”. AT least no operationaly, only politicaly potential crisis as this recent kerfufle with debt ceiling and government shutdown shows.
      Banking system i shown with quotes and economists citations clearly shows that US government can not run out of money. There is no public debt problem, nor there it would be for countries like Japan, US, UK, Australia and Canada. And potentialy EZ.
      Clear distinction of these countries is floating exchange and no debt in foreign currency which allows them to print money as much as is needed without consequences of inflation or a blowback untill full employment. When full employment is reached then US debt has potential to become a problem, but only a potential.
      WHat is done with such money is another issue, i covered in the first comment what it should be done with new money.

      Growing US debt is not a problem nor it will be, the problem is stagnating wages of majority of US population.
      My prescriptions concentrated on improving lives of bottom 50% americans that earn less then $33,000. That is where the income growth is needed and where GDP growth can come from.

      Yes, i prescribe dirigist role of the government on the scale of WWII and post war period, but that is contrary to neoliberal policy that says: Government should stay out of market (even tough that is impossible except in Somalia)

      There is no operational problems to achieve income growth of bottom 50%, there is no energy or resource limitation, limitation is only in thinking of what is possible. Do we have a vision on how it should be and work towards it? As long as we think, wrongly, that there is a problem of US debt, we will not work on solutions that help. Or, as FDR says, “All we have to fear is fear itself”. or, if we think that US debt is a problem, when knowledge of banking system that most economist avoid talking about, clearly shows that there isn’t any problem, we will try to solve problems that aren’t there while the real problems fester and threaten to destroy society.

      To me, thinking of US debt as a problem is a gold bug thinking. Gold bugs still do not realise that we are off the Gold Standard and using fiat money. Gold bugs still do not realise why we got rid of the GD and that fiat money gives much more options in solving economic problems. Fiat money does not help on micro level only on macro level.

      I tried to post citations and economists who know banking system of fiat money and what that entails. They all say that there is no US debt problem, directly or indirectly. Yanis Varoufakis is the economist who put it all togheter in his book Global Minotour. He talks about money flow on the global scale while others are talking on a state level.

      Clear distinction of othrodox economists who lead us to this global crisis is that they talk about goods and services and stock (static POV) while heterodox are describing money flow (dynamic POV) as determinant of economic outcomes, but still it is just more detailed description of Keynes.

    4. Jordan,

      “all of what i wrote is to prove that there is no and will not be a “potential crisis: growing US debt”. ”

      None of those citations do anything even remotely like that. This is the ever-popular “google stuff and say it supports me”.

      I suspect those who wrote those articles would be shocked that you would draw such a conclusion from their articles. Especially Standard and Poors’, whose sovereign debt credit ratings are based on measures of debt burden.

      It is a support if you cite an expert saying “there will not be a potential crisis from growing US debt”. Quoting someone describing the fractional reserve banking system to support your view is daft. Really really daft.

    5. “This is of course correct, but to what comment or post is this directed?”

      I posted those links to show citations and quotes of “experts” as you asked in response to my detaild comments without quotations that will prove my :

      “It wasn’t a problem for 65 years, why is it now, or why it should become in the next 65 years?”

      Description of Banking system is proving that US debt will not matter in the next 65 years, not operationaly, only politicaly and philosophicaly.

  4. Here is Pr. Krugman entering MMT paradigm.

    Think about it: China selling our bonds wouldn’t drive up short-term interest rates, which are set by the Fed. It’s not clear why it would drive up long-term rates, either, since these mainly reflect expected short-term rates. And even if Chinese sales somehow put a squeeze on longer maturities, the Fed could just engage in more quantitative easing and buy those bonds up”

    1. Jordan,

      Thanks for posting this link to Krugman’s post. I was going to put this up.

      However, Krugman is NOT “entering MMT territory”. This is straightforward mainstream analysis. MMT is a variant of the consensus, and nearly as different as many of the laypeople following it believe.

      There are several posts on the FM website about MMT discussing this in detail, with links to several experts for more information.

  5. Wonderful example of the kind of self-deluded “American exceptionalism” FM talks about here, at science fiction author David Brin’s website:

    “Pondering Pax Americana and the Government Shut-Down,” David Brin, 1 October 2013.

    …[A]t risk of offending both left and right in my contrarian way, I must demur. Daniels’ response blatantly ignores many things. Like why the United States has spent so much more money than any twenty other nations on defense. He deems it a mark of shame, but it has been a burden that largely saved the world.

    Brin has a doctorate and is highly intelligent. Yet he spouts this kind of nonsense non-stop, constantly describing America as “the greatest country in the history of world,” the country that “saved the world,” and so forth. While giving lip-service to critiques of America’s bizarre social and financial behavior in 2013, Brin continually defends even the most indefensible American craziness — spending circa 1 trillion dollars a year on endless unwinnable foreign wars, setting up the world’s most comprehensive East-German-style surveillance system aimed at our own population, shredding with the consitution by making it legal for the president to order U.S. citizens abducted without trial, murdered without charges, etc.– as some convoluted way of “saving the world” and “rescuing civilization.”

    It truly does appear that the best and brightest in America now use their vast knowledge and impressive intellects to find rationalizations for America’s insane policies.

    Hard to see how things will improve in America when its best and brightest spend most of their time and energy justifying our current bizarrely self-destructive policies.

    1. Thomas,

      “It truly does appear that the best and brightest in America now use their vast knowledge and impressive intellects to find rationalizations for America’s insane policies.”

      This is something I’ve wanted to write about. In history we read often read of educated people worried about the enemy within — the ignorant masses ruining civilization. Now we have the opposite, our best adn brightest more dysfunctional than the middle or even lower middle class.

      Science fiction authors have a history of poor political understanding. Robert Heinein and his libertarian fantansies, and crazy paranoia about the USSR. Aartur C Clarke fleeing the violence of western civil for the eastern harmony of … Sri Lanka. Jerry Pournelle and his right-wing musings. And Orson Scott Card, who makes Pournell look like Aristotle.

  6. Is it complacency or short term thinking? If you look at the thinking behind sprawl development pattern, short term thinking is a powerful lure.

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