EconomicsUS

Is the concern over US Debt paranoia and are we creating permanent unemployment?

To place a lot of importance to the debt that the US has accumulated is to ignore the other strengths from which the US comes to table with.  The impact of debt in case of US specifically is the sum total of its economic, military and political clout.  Fortunately for the US, and unfortunately for the world, debt is not the only thing that plays a role in the debt-dynamics between US and the world.  We saw that in the 1980s as well, when Dollar was the currency for Oil Trade despite an eroding Dollar.  This helped the US Dollar to bounce back despite a big mess at home.

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Paul Krugman, leading economist, winner of Nobel Memorial Prize in Economic Sciences

So, personally I do not quite have a lot of concern on the debt front.  What I worry about is the lack of investment in the right areas which is leading to converting temporary imbalances in the country – economy and society – into permanent imbalances.

Paul Krugman, a leading economist, talks about the unemployment situation in this context.

To test this hypothesis, Mr. Ghayad then did an experiment, sending out résumés describing the qualifications and employment history of 4,800 fictitious workers. Who got called back? The answer was that workers who reported having been unemployed for six months or more got very few callbacks, even when all their other qualifications were better than those of workers who did attract employer interest.

So we are indeed creating a permanent class of jobless Americans.

And let’s be clear: this is a policy decision. The main reason our economic recovery has been so weak is that, spooked by fear-mongering over debt, we’ve been doing exactly what basic macroeconomics says you shouldn’t do — cutting government spending in the face of a depressed economy.

He too suggests that concern over debt is somewhat of a paranoia… in case of the US.

Well, the famous red line on debt, it turns out, was an artifact of dubious statistics, reinforced by bad arithmetic. And America isn’t and can’t be Greece, because countries that borrow in their own currencies operate under very different rules from those that rely on someone else’s money. After years of repeated warnings that fiscal crisis is just around the corner, the U.S. government can still borrow at incredibly low interest rates.

I personally agree with his analysis and take on debt and its impact on the other things that do make a difference.  I personally believe that this brouhaha by Republicans over debt is more to do with their hatred for Barack Obama and the Democrats as opposed to a sensible policy stand.

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Desh Kapoor

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