I am reading Reinhart and Rogoff’s This Time Is Different. Interesting, in a scary sort of way.
One thing that struck me with particular force, particularly in light of recent news, is their lament at the difficulty of ascertaining just how much debt governments have issued. They state quite forcefully that government accounting is notoriously opaque, and that governments are the enemies of transparency.
Ripped right from the headlines, that. Think all the news stories emanating from Europe, focusing on Greece, but making it clear that dodgy accounting and budgetary gamesmanship is rife throughout Europe. Not that the US is much better. Just look at the steadfast refusal to account honestly for the impact of the Federal takeover of Fannie & Freddie–which follows the refusal of the government to account honestly for the contingent liability inherent in the implicit guarantees extended F&F (which weren’t all that implicit, were they?)
This is of direct relevance to current fiscal policy debates. Krugman and other pro-stimulus/pro-deficit types argue that the current debt/GDP ratio of the US is nothing to worry about. We had a higher one after WWII, and we grew out of that, right? But things are very different now. The demographics are extremely different. The US’s relative economic standing is very different. Moreover, and most importantly, the true debt burden is far larger than the “official” figures would suggest–think Social Security, Medicare, Medicaid, and the vast unrecognized but very real contingent liabilities and guarantees and implicit commitments the government has undertaken. And it makes sense to borrow from the future to fund an existential conflict like WWII; the spending proposed by Obama, let alone Krugman et al, is certainly not needed for any such existential end.
So, remember: most of what you read about the government’s finances is incomplete and/or misleading, when it isn’t an outright lie.
This, of course, from the very same people who lament the lack of transparency in various private endeavors (e.g., dark pools, OTC derivatives, corporate accounting). Yes, there are some concerns in these areas, but the systemic consequences of government finance here and abroad are far more important. Far more. Those in government–legislators, Treasury, the Fed, regulators–who want to mandate greater transparency for private actors should therefore start their sunshine campaign a little closer to their work. A lot closer, actually.
Like that’s going to happen.