James Hamilton on Debt, Default, and Oil

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🗓️ 21 December 2009

⏱️ 67 minutes

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Summary

James Hamilton of the University of California, San Diego, and blogger at EconBrowser talks with EconTalk host Russ Roberts about the rising levels of the national debt and the growing Federal budget deficit. What is the possibility of an actual default, or an implicit default where the government prints money to meet its obligations and causes inflation? What might signal an impending default? And what is the long-range forecast for the U.S. government's obligations? Later in the conversation, the subject turns to oil prices, an area of Hamilton's research. Hamilton explores the causes of the increasing price of oil over the last decade and the implications for the economy.

Transcript

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0:00.0	Welcome to Econ Talk, part of the Library of Economics and Liberty. I'm your host Russ Roberts
0:13.9	of George Mason University and Stanford University's Hoover Institution. Our website is econtalk.org
0:21.2	where you can subscribe, find other episodes, comment on this podcast, and find links to
0:26.5	another information related to today's conversation. Our email address is mail at econtalk.org. We'd
0:33.6	love to hear from you.
0:39.3	Today is December 15th, 2009, and my guest is James Hamilton of the University of California. It's
0:44.9	San Diego. He blogs at econ browser. James, welcome to econtalk. Glad to be with you, Russ.
0:51.0	Our starting topic for today is the federal government's budget deficit.
0:55.5	And what that deficit might mean, if anything, for the future. In a recent post at econ browser,
1:01.0	you reacted to Paul Kruegerman's claim that deficit wasn't really worrisome, but you seem to
1:05.0	be a little worried about it. What are your concerns? Well, first, I'd like to clarify that I'm
1:10.9	in complete agreement with Paul that we don't need to balance the budget right away. A large deficit
1:17.9	in 2009 and 2010 is quite desirable and the necessary. And I think if we tried to balance the
1:27.4	budget right now, it would be counterproductive to the point of being infeasible. So where I have my
1:33.7	concerns is with what's going to happen a couple years down the road. What's the longer term
1:39.9	trajectory? And Paul's position is that we can grow our way out of whatever we dig ourselves
1:47.7	into. Just as at the end of World War II, we had a debt to GDP ratio in the US that got above
1:54.2	100%. We worked our way down from that with economic growth. And Paul also points out there
2:00.6	a number of other countries in the world that have those kind of debt levels and have worked out
2:07.3	through economic growth. I think it's important just for listeners who aren't used to thinking about
2:13.0	debt. When you talk about the debt to GDP ratio, debt is a stock, I think, and GDP is a flow that is
2:23.0	one is at a point in time and one is describing something that occurs over time. So if you think about
	...

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