No clarity; no credibility

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An item from Kenya exemplifies much of what’s wrong with articles about economics: namely the writer refuses to define his terms.

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Here’s a quote…

It’s that time of the year when our government starts preparing its budget for the next financial year, usually focused more on its planned expenditures rather than revenues. Kenya will likely be brought to its knees by the insatiable appetite of our public sector to live large. If we keep on this course, our lenders may soon place us on the table for auction. We are neck deep in debt, and we are borrowing impulsively, but the taxpayers have not always felt the benefits of the massive borrowing. Our national revenues are not growing even half as fast as our expenditures.

We need to enforce austerity in the same way that the highly indebted Western countries are doing — bite the bullet! Borrowing by counties must be subjected to parliamentary approval as required by the Constitution, except for short-term facilities that can be approved by their assemblies. Or else, we shall perish.

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… because it’s meaningless. The article talks about lenders and borrowing and debt — but in what currency? In Kenyan shillings, or in foreign currency?

If the debts are in foreign currency, then there’s a problem. But if the debts are in Kenyan shillings, then the Kenyan government can always create more shillings.

The article does not explain which currency. Therefore it is meaningless. In fact, since the author talks a lot about taxpayers and revenues, he is probably talking about debt in Kenyan shillings, which is trivial.

And get this…

We need to enforce austerity in the same way that the highly indebted Western countries are doing — bite the bullet!

Really? Which “Western countries”? Those that do business in their own currency (like the USA) or those that do not (such as euro-zone nations)? Again the author does not clarify. Hence his entire article is meaningless.

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We see this same meaninglessness every day on the Internet. People believe it as long as writers use magic words such as “debt.”

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Thus the “experts” continue to warn about the USA’s fake “national debt crisis” here and here and here and here.

Comedian George Carlin said the following…

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I wish that Carlin could have included this in his routine…

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People in his audience would have laughed at how the joked reflected real life. But as soon as audience members went home, most of them would have fallen back into their trance, because bullshit offers something for everyone.

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For rich people in the rentier class, the “national debt crisis” (or public debt crisis) directs people’s attention away from the truth…

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Why are you complaining about private debt (such as catastrophic medical debt or student loan debt) when the national debt is far more serious? Actually you are a freeloader, since we have not (yet) asked you to pay back $19 trillion on the public debt that you have benefitted from.  So shut up, keep paying us, and be grateful!

hoaxes

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2 thoughts on “No clarity; no credibility

  1. ‘If the debts are in foreign currency, then there’s a problem. But if the debts are in Kenyan shillings, then the Kenyan government can always create more shillings.’

    Indeed, the author of the piece is vague and definitely fear mongering.

    Kenya’s Per Capita GDP has tripled in just a decade and a half. However, not all the necessary resources can be obtained/produced/processed locally. Therefore, Kenya may have a foreign debt load that could eventually prove problematic if the country were to significantly increase fiscal spending.

    Bottom line: As you explain, even countries that are currency sovereigns that rely too heavily upon imports (foreign debt) need to use caution when applying fiscal stimulus.

    http://www.tradingeconomics.com/kenya/gdp
    http://www.tradingeconomics.com/kenya/net-capital-account-bop-us-dollar-wb-data.html
    http://www.tradingeconomics.com/kenya/external-debt
    http://vitalsigns.worldwatch.org/vs-trend/food-trade-and-self-sufficiency

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    1. “Bottom line: As you explain, even countries that are currency sovereigns that rely too heavily upon imports (foreign debt) need to use caution when applying fiscal stimulus.”

      It depends.

      If a country has a large trade deficit (i.e. it heavily relies on imports) and its currency is not widely accepted outside the country’s borders, then the country must obtain foreign currency with which to buy imports. The country obtains foreign currency by borrowing. Borrowing causes an “external debt” (i.e. debt denominated in foreign currencies). The country services its external debt by surrendering its resources and a portion of its nationally produced products (if the country has any). If this causes the country to have a shortage of consumer goods, then the country must back off on fiscal stimulus in the country’s own currency, because the added money will cause inflation.

      All of these problems apply to Kenya (i.e. trade deficit and external debt). My point in the post was that the author was not clear. The author simply says “debt,” as though internal and external debts are the same things. They are not.

      I hold that this lack of clarity in economics discourse is often deliberate and intentional.

      Like

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