Mr Samuelson continues his vacuous nonsense

Robert Samuelson, the Jennifer Rubin of financial opinion, has another annoying piece in the WaPo. They must employ him, or something. ;-)

Anyway, his latest strawman is that governmental obligations equal debt. So if the government has promised to pay out in the event of a problem, he's arguing that the total amount that could be owed counts as public debt. One example he uses is the FDIC; it's the government's insurance mechanism to protect bank accounts - the first $250,000 of any account is protected. Developed in response to the wiping out of savings in the Great Depression, it's a popular program. But this is where Mr Samuelson goes off the rails: he argues that the obligation the FDIC program has assumed should be counted as toward the national debt.

Here's his argument:

[...] Surely we know how much the government owes. Unfortunately, it’s not that simple. The true national debt could be triple the conventional estimate, anywhere from $11 trillion to $31 trillion by my reckoning. The differences mostly reflect explicit and implicit “off-budget” federal loan guarantees. In another economic downturn, these could result in large losses that would be brought “on budget” and worsen already huge deficits. That’s the danger.

If you apply that to every insurer in America - they're all bankrupt. If you apply it to the financial insurers, AIG coming most immediately to mind, it's not unreasonable to assume the entire financial system is bankrupt. (Yes, yes, I know the Wizards of Wall St and The City, etc, are morally bankrupt. That's a different argument.)

In his redefining of the basic concept of debt, Mr Samuelson seeks to bolster the weak case that the US Government has too much debt, too high a deficit, etc. It's entirely possible to argue that the government has too many obligations, which would be a problem if the entire edifice that is modern life crumbled. If that were the case, I don't think how much the government is on the hook for would be of any particular importance. That alone undermines his argument and turns it from being a serious one to a trivial bit of nonsense, seriously presented. But Mr Samuelson goes one step further: he argues that implicit governmental obligations are the same as explicit promises. What is interesting is that Mr Samuelson doesn't suggest that US obligations to its seniors be counted as public debt, nor does he even consider flood insurance (a government provided insurance because private insurers won't touch it) or the obligation the government has to keep its infrastructure somewhat intact and beyond at least barely usable. If he included those - and there's no reason not to - the government starts off as bankrupt and it simply gets worse from there.

Now, there actually is a case to be made for the government assuming too many obligations, and some of those do have dubious merit. Some were, in typical political style, designed to be the short term implementation of policy and have ended up as long-term drags (Fannie Mae & Freddie Mac come to mind). Other obligations need to be reduced - there's an unwitting implication in Dodd-Frank, for instance, that Too Big Too Fail (& prosecute, etc) also means "Go ahead and make those risky bets, we've got your back". The banks worked very hard to make sure that while the Dodd-Frank bill reduced the government's exposure to their failure, it didn't entirely negate it, make such bail-outs actually illegal. (The banks can also be firmly blamed for the fact that the bill is huge and the regulations it produces unintelligible.) So, yes - the obligations the US government, and every state and local government in America, has assumed needs to be cataloged. That would be an impossible task, I strongly suspect. Politicians, by their very nature, won't consider past obligations when they debate future ones. But none of that supports, or even buoys, Mr Samuelson's argument. All he's doing, in other words, is providing the usual right wing alarmist, hysterical, nonsense and wrapped it in some semi-serious language.

Expect to see it produced as a talking point by the same people who brought you Chuck Hagel's "Friends of Hamas". In other words.

Carolyn Ann