Worrying About Long-Term Panic

For indispensable reporting on the coronavirus crisis, the election, and more, subscribe to the Mother Jones Daily newsletter.

Generally speaking, I’m part of the crowd that thinks we should be spending more now and tackling the deficit only in the long term. After all, as Paul Krugman and others point out endlessly, the “bond vigilantes” are nowhere to be seen. Interest rates are at historic lows and investors — as measured by their real-world actions — seem to have no concerns at all about America’s ability to grow and service its debt.

However, there’s one contrary argument that’s long given me pause. Carmen Reinhart and Kenneth Rogoff, who have written the standard reference about the dangers of countries piling on too much debt, make it here:

Several studies of financial crises show that interest rates seldom indicate problems long in advance. In fact, we should probably be particularly concerned today because a growing share of advanced country debt is held by official creditors whose current willingness to forego short-term returns doesn’t guarantee there will be a captive audience for debt in perpetuity.

Those who would point to low servicing costs should remember that market interest rates can change like the weather. Debt levels, by contrast, can’t be brought down quickly. Even though politicians everywhere like to argue that their country will expand its way out of debt, our historical research suggests that growth alone is rarely enough to achieve that with the debt levels we are experiencing today.

Interest rates are low today. Consumer debt overhang continues to dampen demand and generate massive unemployment. Because of this, government borrowing now not only makes sense because it’s cheap, it makes sense because it will put people back to work and help get the economy back to its long-term growth trend. Especially given the fragility of the world economy — including but not limited to the property bubble in China, the unsustainable flow of hot money into developing countries, and the crisis of the PIIGS in Europe — this is about the worst possible time to take any chances with economic recovery in America.

And yet. Still. Reinhart and Rogoff have a point: investors can get nervous and start fleeing with virtually no notice. One month they’re fat and happy, the next they’re running for the doors. Although we should be spending more now to get the economy back on track, this is why a long-term deficit deal with teeth is something that both liberals and conservatives ought to be willing to compromise to achieve.

SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

payment methods

SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate