Podcast Failures: Friedman and Chile, Hume and Public Debt

I listen to a few podcasts during my commute. Two that I often appreciate are Know Your Enemy, associated with Dissent Magazine,* a series of interviews on mostly right wingers by Matthew Sitman and Sam Adler-Bell, and Past, Present and Future, a series of monologues by David Runciman, sponsored by the London Review of Books.  Both are always entertaining and informative. I'm not a specialist in most of the subjects they discuss. However, two recent episodes (or at least I listened to them recently), one from each, dealt with economic issues, and they did leave a lot to be desired, to say the least.

Very briefly, the issue with the interview with Jennifer Burns about her biography (in many ways, from this interview, and the one with Tyler Cowen, it is hard not to see it as a hagiography; more on that as soon as I read the book; it's been ordered. I hope that's just a perception and that the book provides a more balanced view of his contributions and political views) of Friedman is that the hosts accepted almost all of her very monetarist interpretation of the Allende government, and her whitewashing of Friedman's relation with the Pinochet regime (see on that this and this). In all fairness, at least one of the hosts (sorry, not sure that was Matt or Sam) questions (around 1:16) the validity of her interpretation of the relation of Friedman with the regime. But there seems to be a complacent view according to which inflation in Chile was caused by excessive monetary printing driven by the expansion of the welfare state.

The role of the US sanctions, and Nixon's infamous instruction to "make the economy scream" are never cited. And the lack of dollars was at the center of the depreciation of the currency, inflation and the collapse of the economy. Let alone that the Pinochet period wasn't that good (yes they do claim that it created the basis for future growth, a typical conservative trope, that I should write about; in another occasion). I also recommend this post by Tom Palley. On a general evaluation of the regime see this piece by Jim Cypher in Dollars & Sense.

The issues with Runciman's podcast are considerably more problematic. They don't entail a misrepresentation of the ideas of a crucial intellectual, in this case, David Hume. In fact, Runciman is relatively correct when it comes to Hume's essentially negative views of public debt (which were not all that different than those of Adam Smith, at least according to Donald Winch**; btw it was called public credit at that time, so nothing weird about it). He makes to much of Hume's drastic solution, default, for public debt, and its comparison with suicide, for the nation not the individual. And he does recognize that events essentially proved Hume wrong.

But then he commits all of Hume's (and modern mainstream economics). Presumes that the only way out of debt is to run persistent surpluses, printing money and reducing its value in real terms (endorsing a Monetarist view of inflation; it's amazing how pervasive it is), and default. He misses that debts can fall as a share of income (GDP), that is, the ability to repay, if the economy grows faster than debt (the rate of interest), and that most debt consolidations actually happened that way, while running deficits. He also gives Argentina as an example of a country that has defaulted without noticing the differences between debt in domestic and foreign currency. It's a mess. Worse, in an environment in which many conservatives want to promote default in the US he suggest that talking about it would be reasonable. He is out of his depth, should apologize and invite someone to explain the problems with his analysis.

Again, I'm only commenting on these two episodes, because they do seem off, when compared to the quality of both podcasts in general.

* I published almost 20 years ago on Dissent. Because of this I did search their online archive and my piece, and my name was misspelled. Also, it was published in the Winter of 2004, and not of 1984. In the original magazine it was spelled correctly. Oh well.

** See Donald Winch, "The political economy of public finance in the 'long' eighteenth century," in John Maloney (ed.), Debt and Deficits: An Historical Perspective, Cheltenham: Edward Elgar, 1998.

Can Genetically Modified crops improve food security?

You have to remember that corporations, like Monsanto, are certainly NOT in the business of providing food security. But on the other hand, it is also important not to forget that without genetic manipulation the Green Revolution would not have been possible. In fact, certain crops (like corn, shown above) would not even exist.

The documentary below provides a very skeptical view of GM crops and their role in economic development.

The guy in the documentary, Jimmy Doherty is an advocate of what they term sustainable farming, and while he is not for the use of GM crops he is not completely against them. In my view, progressives have been unable to untangle their dislike for corporations use of GM crops to further their power, with their anti-GM stance.

Debt dynamics for dummies

Krugman again does a great job showing that the risks of explosive debt are way overblown.  As he says:

"So even with substantial deficits, the pace of long-term budget worsening is very slow."

It is not difficult to understand debt dynamics.  The ratio of debt to income (GDP) is a measure of the capacity to repay debt.  If the economy grows faster than debt, the debt-to-GDP ratio falls.  GDP grows with demand expansion, and debt grows at the pace of the interest on the debt.  In other words, if the economy grows faster than the rate of interest, then the debt-to-GDP ratio will fall even if the government runs deficits.

The graph below shows the growth rate and the real rate of interest on government bonds for the US since 1990.  As it can be seen, since 2003, with the exception of the Great Recession, the rate of interest has been below the rate of growth.

The debt-to-GDP ratio has only increased (see graph below), because the crisis has caused significant deficits to accumulate.  Note that in the 1990s, a combination of lower interest rates, higher growth and fiscal surpluses had stabilized debt, which starting growing in the Reagan years.

Finally, note the growing deficits in the figure below have reversed with a very mild recovery in 2010. Interest will remain low. What is needed is a stronger recovery to get growth going and that would increase revenue (allow for reduced spending on several things like unemployment insurance) and eventually lead to a lower debt-to-GDP ratio.

The way out of the fiscal problems is growing!  Even dummies should get this right.