Omigod, dude! You’re killing us!

It is becoming truly painful to read the bullshit coming out the progressive wing of the Democratic Party these days. The latest example is this piece of specious reasoning by some shithead named Marshall Auerback, who blogs at Huffington Post and on the website, New Deal 2.0:

We’ve said it before and we’ll say it again. As a matter of national accounting, the domestic private sector cannot increase savings unless and until foreign or government sectors increase deficits. Call this the tyranny of double entry bookkeeping: the government’s deficit equals by identity the non-government’s surplus.

So, if the US private sector is to rebuild its balance sheet by spending less than its income, the government will have to spend more than its tax revenue. The only other possibility is that the rest of the world stops saving on a massive scale — letting the US run a current account surplus. But that is highly implausible and socially undesirable, since it means we export our economic output, rather than consume it domestically. And if the government deficit does not grow fast enough to meet the saving needs of the private domestic sector, national income will decline, which, given the size of the private sector’s debt problem, will generate a huge debt deflation.

So, now the economy operates like the ledger of a green-shaded accountant? The “private sector’s” surplus, in the absence of foreign trade, has to accrue as a deficit in government spending?

So, how is the present massive federal government deficit being financed?

According to Auerback, minus the contribution of foreign trade – which itself is in deficit – this deficit has to be funded out of the saving being accrued in the non-government sector.

But, wait a minute. Haven’t most Americans been accruing debt of their own over the last 10 years? And, if that is true, that would imply that the whole of the federal government deficit must be coming from the saving of a relatively small portion of Americans who are saving.

It would also imply that the household deficit being accrued by the larger portion of Americans, who have not been able to save over the same period, must have been financed by this same lucky portion of Americans who have been able to save.

In other words, there has to be at least three players here:

• Creditors – those with savings to lend out
• Private debtors – who have been borrowing from the savers
• Public debtors – who have also been borrowing from the savers

So, Auerback is telling us that if the wealth of the savers is increasing, or the debt load of the debtors is declining (or both) that the debt load of government has to increase!

But, if the debt load of government increases – they borrow more from the savers – wouldn’t this just increase the rate at which the savers are saving? In addition to their present wealth, they begin to enjoy a stream of income from this increased government debt.

And, if it increases the rate at which the savers are saving, wouldn’t this require that government increase the rate at which it accrues more debt? Would not the rate of government borrowing be driven up as well to offset the increase in the savings rate?

Economists, with their fancy ciphering and unintelligible Greek symbols, go right over our head, but we still can do simple math:

If:

Excess savings by the savers amounts to $1000

And:

Government borrows this $1000 at an interest rate of 10 percent.

Then:

At the end of one year government must pay the savers $1100

Which means (all else unchanged):

Government borrowing must increase to $1100.

That’s right, at some point that debt has to be repaid, and when it is repaid, with interest, the initial problem continues to confront the society. Borrowing the excess savings only intensifies the problem when the debt is cleared.

The upshot of this exercise is that attempts to restore the balance to the economy by increasing government deficits appear only to exacerbate the problem. A large part of the material wealth of the nation is tied up in the excess savings of a relative handful of individuals. Since these excess savings cannot be profitably invested, progressives advocate that government borrow it. However, interest payment on this new debt only add to the excess savings of this wealthy minority and makes the underlying problem worse absent the appearance of profitable outlets for investment.

Of course, this is only an exercise based on this idiot’s assumption that a national economy can be conceived as a sort of accountant’s ledger. In fact, it is not, and any attempt to treat it as such runs into such logical problems as this one we have highlighted.