Ideas Esteemed For Their Acceptability: Lazy Block-Quote Edition

A gem from Bloomberg:

President Barack Obama is poised to increase the U.S. debt to a level that exceeds the value of the nation’s annual economic output, a step toward what Bill Gross called a “debt super cycle.”
[...]
Dan Fuss, who manages the Loomis Sayles Bond Fund, which beat 94 percent of competitors the past year, said last week that he sold all of his Treasury bonds because of prospects interest rates will rise as the U.S. borrows unprecedented amounts. Obama is borrowing record amounts to fund spending programs to help the economy recover from its longest recession since the 1930s.

Dan Fuss, one might add (but not Bloomberg in this case), and not too many others at the moment. Treasury notes of the longest maturity (10-year) are currently selling off at a yield of 3.17. That is, even with all that debt, even with all those like Dan Fuss and Bill Gross and Bloomberg journalists who are so worried about the long-term solvency of Uncle Sam, investors as a whole are still willing to lend the government money, to not see their full return for another decade and are willing to accept a return of just over 3% for the trouble. That is lower, by the way, than this years annual average. And the one from last year. And, unless I'm missing something, from every year since they started collecting the data in 1962.

So with that in mind, here are a few paragraphs to chew over. The first batch come from Paul Krugman. He's talking about a recent IMF study on future sources of U.S. government debt:

First, since cutting stimulus would weaken the economy, it would reduce revenues — that is, a substantial part of the debt growth the IMF attributes to stimulus would have happened even without stimulus, through lower revenue. Second, for the US at least the core reason for long-run budget concern is rising health care costs — in fact, health cost control is the sine qua non of long-run solvency — which has nothing whatever to do with how much we spend on job creation now.

So how much we spend on supporting the economy in 2010 and 2011 is almost irrelevant to the fundamental budget picture. Why, then, are Very Serious People demanding immediate fiscal austerity?

The answer is, to reassure the markets — because the markets supposedly won’t believe in the willingness of governments to engage in long-run fiscal reform unless they inflict pointless pain right now. To repeat: the whole argument rests on the presumption that markets will turn on us unless we demonstrate a willingness to suffer, even though that suffering serves no purpose.

Next, Martin Wolf who asks the question, "if not the government, then who?":

A consensus is forming that policymakers should tighten fiscal policy, sharply, in countries with large fiscal deficits. Yet what makes these policymakers sure that business and consumers will spend in response to austerity? What if they find that it tips economies into recession, or even deflation?...Premature fiscal tightening is, warns experience, as big a danger as delayed tightening would be. There are no certainties here. The world economy – or at least that of the advanced countries – remains disturbingly fragile. Only those who believe the economy is a morality play, in which those they deem wicked should suffer punishment, would enjoy that painful result.

Last, Stephan Gordon on the "stimulus":

There has been much talk of the size of the US federal stimulus, and much debate about whether or not it has been an effective counter-cyclical policy instrument.

But it's important to remember that the proper measure for fiscal stimulus is not spending by the federal government; it is spending by all levels of government. And when you look at the contributions to US GDP growth (Table 1.1.2 at the BEA site), total government spending has been a drag on growth over the past two quarters. The increases at the federal level have not been enough to compensate for the spending cuts at the local and state levels.

I suppose that this could be interpreted as good news: despite a contractionary fiscal stance, the US economy is in recovery. But it raises the question of how much better it could be doing if it had an expansionary fiscal policy.