Earlier this week, Suzy Khimm (the only member of the WonkBlog staff to respond to my request for a WonkBlog twitter account) wrote, The Inconvenient Truth Facing Deficit Hawks. In it, she noted that for all of the squawking of the deficit hawks—”Any day now, bond interest rates will skyrocket!”—the bond markets themselves show no concern about government credit worthiness.
In addition, today, Paul Krugman wrote, Franc Thoughts on Bond Vigilantes. He goes further, noting that if bond prices did as the deficit hawks claim, it wouldn’t be bad for the economy at all:
He then goes on to talk about the fact that there is neither theory nor historical example that indicates anything else.
This brings to mind an idea that I’ve been thinking about for a while: owners can predict their futures. Rentiers—people who own for a living—know that inflation is bad for them. If they have loaned, say, $100,000 at 10% for 30 years, any rise in inflation is bad for profits. But for actual entrepreneurs, the future is unpredictable. High inflation? Low inflation? These are not primary concerns, if they are concerns at all.
So of these two groups, one has a very real incentive to try to control politics: the rentiers. So all of the deficit hawks running around talking about how inflation is just around the corner and how horrible this is going to be are just rentiers and their propagandists. We get into trouble when we assume that they speak for business interests broadly. They only speak for the least useful of the business interests—in fact, business interests that are often harmful. These are not the people who will bring us the next Big Thing, unless that Big Thing is another financial crisis.