Tuesday, August 25, 2015

Debt is Good

The Richardson City Council voted to hold an election in November to issue new bonds totaling $115 million. The four propositions residents will vote on:
  • Public Buildings - $67,000,000
  • Streets - $38,570,000
  • Parks - $7,230,000
  • Sidewalks - $2,200,000

I haven't studied the details, but the numbers seem to be in the right ballpark for my support. Should the total be a little more...or less? Perhaps. The total seems to be of a size that doesn't require a tax increase. That's important to many. Should buildings get less money and streets get more? Perhaps, if the money for streets goes not to building more streets but goes instead to filling potholes and reconfiguring existing streets to improve walkability. That's important to me. I'll have my ears open for discussions along these lines, but I expect that I'll support all four bond propositions regardless whether the numbers are exactly what I would have come up with myself.

There are some people who don't just want to fiddle with the numbers. They want to cut the numbers to zero. For them, debt is evil, or at least bad. This attitude provides us with another opportunity to challenge conventional wisdom. Public debt isn't evil. It's not even bad. In fact, debt is good.

Nobel Prize-winning economist Paul Krugman explains:
Believe it or not, many economists argue that the economy needs a sufficient amount of public debt out there to function well. And how much is sufficient? Maybe more than we currently have. That is, there’s a reasonable argument to be made that part of what ails the world economy right now is that governments aren't deep enough in debt.

Having at least some government debt outstanding helps the economy function better. How so? The answer, according to M.I.T.'s Ricardo Caballero and others, is that the debt of stable, reliable governments provides "safe assets" that help investors manage risks, make transactions easier and avoid a destructive scramble for cash.
Source: Paul Krugman.

Read the whole article. There's much in there to challenge conventional wisdom. In the real world, common sense doesn't always make sense.

So, I'll be listening to arguments about what the right mix of capital projects should be, but I won't be paying too much attention to calls to vote no because debt is a bad thing. Conventional wisdom isn't always right.

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