I am not discussing the personal issues mentioned in recent entries today, though there have been significant developments there. This entry is an attempt to organize my thoughts on a topic by writing about it. Now watch as I expose my ignorance about economics.
So, the budget deficit is one trillion dollars this year, and the national debt is expected to hit $12 trillion dollars.
I don't understand where the borrowed money comes from or who it's really owed to, or why these people who are owed trillions of dollars don't seem in any hurry to get it back. Apparently a lot of it is actually owed to the government itself, which makes no sense to me, or to American citizens holding T-bills or whatever, which seems odd given that it seems like the way to recover that debt would be taxing those same Americans. 20% of foreign held debt is apparently owed to the government of Japan, which seems odd given that they have even greater national debt on percent GDP basis than we do. It seems like we should be able to work something out there. Wikipedia says most of the public debt is in the form of Treasury notes and bills, which typically mature in a few years. Which would seem to indicate that the holders of the debt are essentially revolving, which makes the whole thing seem like a big Ponzi scheme. Like Social Security.
I don't understand whether/at what point/how much the national debt is a problem. I don't understand the relationship between the trade deficit and the national debt.
Come to think of it, I don't understand what determines how much money exists, or what determines its value. The gold standard is understandable at first glance, but then again, what is gold "worth" and why should it have that value, and why the hell should the amount of money a country has be determined by how much gold it has on hand? We no longer use the gold standard, which isn't necessarily bad, but what does having $X really amount to? I don't know and I'm not sure anybody does. I feel like money was created as a representation of the value of tangible assets, and the value of the money depended on the value of the assets it represented. But it seems that the situation is now reversed, and the value of tangible assets depends on the money you can get for selling them. But what determines the value of the money, really? And clearly inflation and economic growth mean the total amount of money must increase, but where does the new money come from? T-bills and T-notes? I'm dizzy from the circular logistics of it all.
"It can be stated that for all of the clamorings and phobias that it generates, money barely exists. An abstraction, a symbol, an act of faith, an IOU backed only by a bankerís word, money is first and foremost a substitute. The funny part is that itís a substitute for things that often do not exist." -Tom Robbins, Skinny Legs and All
So here is what I understand about the national debt (this understanding is simple, inconclusive, and probably flawed): (1) you can't compare the federal government's budget to your personal budget, because you can't create money out of thin air, but the government can (and perhaps should); (2) though the government can create money out of thin air, it needs to be very careful about how it does that if it expects said money to be "worth" anything; and (3) the balance between 1 and 2 determines the severity of the national debt issue in a way that is unclear to me.
For a long time, economics was one of the few topics I was uninterested in. I suppose I sensed the inherent artificiality of the whole thing, as mentioned above, and thus I turned my attention to topics more firmly rooted in reality (my disinterest in law sprang (or failed to spring) from similar sources). I basically had the attitude expressed by the main character in Ursula K. LeGuin's The Dispossessed: "In a human sacrifice to deity there might be at least a mistaken and terrible beauty; in the rites of the moneychangers, where greed, laziness, and envy were assumed to move all menís acts, even the terrible became banal. Shevek looked at this monstrous pettiness with contempt, and without interest." I'm now working on a PhD in a topic more firmly rooted in reality.
Lately, however, I've gotten more interested in economics. One reason is that this imaginary system has far more influence than anything else over the material aspects of our real lives in the modern world. And to the extent that our material environment influences our "spiritual" environment, economics does too. A little understanding as to how things work can go a long way towards easing your progress through this world.
Another reason is that economics is a vast, complex system that is difficult to predict. I find the study of such systems fascinating, and the extent to which I can learn to predict them to be fulfilling. However, as noted above, I find economics extraordinarily difficult to understand. I can make sense relatively quickly of most topics in science, mathematics, linguistics, the arts, and even history. But economics never ceases to confuse me. Maybe it's just because I haven't had formal training in it like I have in those other topics. Maybe.
"I can calculate the motions of the heavenly bodies, but not the madness of people." ĖIsaac Newton, after losing a fortune in the South Sea Bubble of 1720
they are not about what is but what is not,