When did we become a nation of deranged accountants? These United States face many critical tests, from the perilous (climate change) and exceptional (the lesser depression and the destruction of the rule of law by the plutocrats) to the merely important (rising inequality and declining opportunity). But look around and listen. What is the Most Important Issue? Federal fiscal policy. The federal debt! The federal deficit! Oh, Jerusalem!
Americans who would otherwise have difficulty balancing their checkbooks live in terror of this menace. The Very Serious People (hat-tip to Paul Krugman) in government and media have made it the true north to which every other national need must bend. It has been a gift to demagogues on the right. But your neighbor and granny are lying awake over what is actually a bunch of macroeconomic hypotheticals they do not even understand. But, but, we're deeply in debt, facing bankruptcy — look at Greece! — families have to tighten their belts, so the government should, too, and if this isn't fixed now, we'll, we'll.. (head explodes). I suppose the consequences are of the operatic kind of payback facing a high-school kid who takes just one toke of pot in the 1936 classic Reefer Madness.
It would be laughable if the damage looming from attempts to "fix" or exploit the fiscal situation was not so real.
Let's get a few things straight.
America was running a fiscal surplus when George W. Bush became president. Today's fiscal problems are entirely the result of: 1) Two unnecessary wars that lasted longer than American involvement in World War II. 2) The large Bush tax cuts, heavily tilted to the wealthy, bringing tax rates to their lowest levels in eight decades. 3) Medicare D, a major new entitlement that, like the wars, was enacted without being paid for. And 4) The Great Recession and its aftermath, which devastated government revenues and caused large demand for government services.
In addition, America is not Greece. We borrow in our own currency, which is (too) strong and in demand as a safe haven. Our long-term federal borrowing costs are nil — interest rates on Treasuries and especially on the bonds indexed for inflation show that the world is clamoring to lend us money and there's never been a better time to borrow. We have the largest economy in the world. We're the richest nation in the history of the world. Our Chinese bankers would be on the losing end of any threat to dump dollars. This is hardly the profile of a nation on the brink of bankruptcy.
In other words, if you're serious about addressing the debt and deficit, you would: 1) Stop the endless war and begin an orderly transition out of the national security state into a more productive, prudent and sustainable peacetime economy. 2) At the least, let the Bush tax cuts expire on incomes above a quarter million dollars (a common media misconception is that the rich see all their taxes go up; no, they get the same favorable rates on their first quarter million). 3) Make Big Pharma bid for low prescription prices on Medicare D just as they do for the V.A. 4) Get the economy growing again with a major stimulus aimed at job-creating and sustaining infrastructure (and not just, or even primarily, "roads and bridges").
We should do much more. A transaction tax on Wall Street and an international effort to shut down tax hideaways used by the grifter rich come to mind. Eliminating corporate welfare for the fossil fuel industries is another. In any event, the red ink is not even the biggest economic problem facing the country. Slow or no growth is. It creates debt deflation that makes it nearly impossible to climb out of the hole. The only way to really address long-term fiscal challenges is to get the economy growing at a time when demand is weak and the private sector can't fill the demand hole (more reason for the infrastructure stimulus). Where is our 21st Century Hoover Dam, Grand Coulee, Tennessee Valley Authority or Works Progress Administration? Where is a serious approach to improving exports?
Unfortunately, the Republicans, the Party That Wrecked America, are having none of this. They propose draconian reductions in federal spending to take us back to the Coolidge or Hayes administrations (but with a huge war machine). Indeed, in thrall to Ayn Rand and Grover Norquist, they are peddling — and I believe they would enact — theories lacking any real-life "try out" that might give sentient creatures a little confidence they would work. It's like believing, circa 1917, that Marxism-Leninism could really improve life in Russia. And yet this is now the foundational dogma of the Party of Lincoln. Not just dogma: It was the intransigence of the Republican-controlled House, not the federal deficit, that unsettled markets last year. Worst of all, the Romney and Ryan plans don't fix the fiscal problem and will make it worse. And yet millions are falling for this bunco.
But it takes two to tango into national suicide. President Obama accepted the ultra-reactionary right's propositions about the fiscal situation, right down to likening government to a family needing to tighten its belt in tough times. He agreed to the foolish sequestration agreement with the Congress, which presents the potential for automatic cuts next year that would bring on another recession. He has been cutting federal employment in the face of inadequate private-sector demand (a mistake Ronald Reagan didn't make in the early 1980s). Hope and change aside, he has proven to be too timid and too conservative for the fierce urgency of now. His stimulus was too small and poorly aimed. His health-care hustle for the private insurers wasted valuable time and political capital, while arming his enemies with a confusing mish-mash (god, if only it were "socialized medicine"). Whether he was weak and inexperienced or "playing chess while we're playing checkers," the outcome is the same: He allowed the national debate to become the dreaded debt rather than the most important issues, or even a bold vision of how we would move America, er, forward and actually bring down the red ink. You can't reach a bipartisan-postpartisan utopia with fanatics across the table.
I tried to write this column with no cardinal numbers. It's not that I couldn't or that they wouldn't carry the argument for the reader willing to take the time. (And you can find them on links on this site and from credible sources, such as the Center on Budget and Policy Priorities). My point is that our obsession with ideologically corrupted accounting — combined with historical and macroeconomic ignorance — is the heart of the problem. Few of the things that created the novus ordo seclorum American republic, the continental empire, planetary superpower and the many historic achievements that genuinely do make us exceptional penciled out. If we don't get this soon, the pain that began in 2008 has only just started.