Debt reefer madness

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.

Got that?

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.

 

 

Comments

[Gaylord]

Perfect distillation! Spot on, clear language, no wasted words.

[Petro]

#Occupy is oft-derogated around these parts, but I can't help but recall that about exactly one year ago the national "conversation" was on the debt ceiling, and the unruly hordes broke out. The one thing that even its critics agree on is that it changed that conversation.

We come up on the anniversary, this September 17th.

It's an election year. We've got LIBOR which, in spite of the mighty efforts of the media, is as smokingest a gun we can get. So smokey-licious that it has everyone shrugging in that "that's just the way things work" kind of way.

Will America's September spring be even more interesting this time 'round?

A rhetorical question, yes - even if I am not sure if the implied answer is the one I prefer.

In any case, it was an interesting deja vu to wake up this morning to read you fretting over the manufactured "national debt" debate, one year hence.

(Nice jab on Medicare D. The Republican Party so wants to clip the power of the federal government - in this case its potential leverage as a sole-purchaser of drugs & medical services - except, of course, when that power enables the blowing up of brown people... I was going to say "abroad," but the NDAA "Homeland Battlefield Bill" begs to differ. In which many of us shall aspire to "honorary brown".)

[Donna Gratehouse]

"When did we become a nation of deranged accountants?"

January 20, 2009

[cal Lash]

Excellent article. I agree with the absurdites that you have pointed out. But where the real debt exists is in the Reserves we have extracted from the enviornment we exist in.

And the singing Petro is back with a great comment.
And Petro also brings us back to the fact no one is safe from our government. And while this may have always been the case, the last two administrations have made it very scary. Kafkanesen gulag to a drone. No one is safe!
The film Syriana demonstrates how and why our leaders will drone anyone.
From my phone at the Peoples Book Store in Austin, TX

[Donna Gratehouse]

What neighbors and grannies lack in macroeconomic knowledge they fill in with the stories they've been told for decades about "those people" stealing your hard earned money from you in the form of welfare. The layabout poors have flat screen TVs and refrigerators dontchaknow! So of course Gingrich and Santorum ran around screeching about food stamps and "blah people" during the primaries. It doesn't matter that social safety net programs to the poor are a much smaller percentage of federal spending than others. Voters have been taught to think that the majority of government spending is going to undeserving people (which now includes gov't employees).

[ChrisInDenver]

This column should be required reading of every member of Congress, especially Paul Ryan, John Bo(eh)ner, Mitch McConnell and Marco Rubio. Then, send it to the Chinese.

[cal Lash]

but az legislators cant read

[ChrisInDenver]

Petro wrote: "#Occupy is oft-derogated around these parts, but I can't help but recall that about exactly one year ago the national "conversation" was on the debt ceiling, and the unruly hordes broke out. The one thing that even its critics agree on is that it changed that conversation."

Petro, the right's "sudden" fetish with the national debt developed shortly before Obama was elected POTUS. In late fall 2008, when the stock market tanked and the economy crumbled, Congressional leaders scrambled to enact emergency measures to stimulate the economy. Hence, the initial TARP package, or stimulus. If I recall correctly, the first TARP cost around $700 million, and Republican House and Senate members had a big problem with that.
Then Obama entered office and a second TARP was approved. That's when shit really hit the fan with the GOP. Recall in mid-February 2009, CNBC reporter Rick Santelli was broadcasting from the floor of the CME Group in Chicago. He criticized the government's plan to aid homeowners struggling to make their mortgage payments, calling for a "tea party" in Chicago. These remarks may have planted the seed for the Tea Bag movement that we see today.

[Donna Gratehouse]

Santelli's rant was the catalyst for the swift transformation of a nascent broad-based coalition of people pissed about the bank bailouts (some of my lefty-est friends were joining conservatives at protests in the banking district on Camelback in the fall of 08) to a right wing mob blaming poor minorities for everything. "Pay no attention to the bankers looting your home equity and IRA. Look, over there, welfare queens!"

[homeless]

The Ryan Medicare proposal is intended to cull older, poorer people from the population. The aging demographic bulge nearing retirement threatens to weaken productivity numbers for the US. By extending the age for medicare eligibility and shifting significant costs of medical care to retirees, the mortality rate for retirees will increase and life expectancy will go down. For the ideologue Ryan, front man for the GOP, this is just fine as long as the wealthy continue to receive lavish medical care.

[Petro]

ChrisInDenver - I was noting the event that broke the spell of the debt fetish "debate." Of course you're right that the red herring had/has been waved in our faces for awhile.

[phxSUNSfan]

When Obama wins this election, what will is the likelihood of a "public works" stimulus? I'm asking because the commuter rail network planned by MAG in metro Phoenix would benefit from such a feat.

Intel just announced a new research and development facility for Chandler that will eventually employ 1,000 employees. I've heard that many Intel employees reside in Central Phoenix. Now, I'm sure the "reverse commute" isn't as bad as the commute into Phoenix but a commuter rail is desperately needed here.

Morecleanair, I am guarded in my enthusiasm because I wonder if Obama and his team will really go after the Ryan budget plan. It does seem like they will focus on it but I want to hear it being dissected so that the Tea Baggin' "entitlement" queens and kings get the picture; lest they live this world indigent as medical costs gobble up their Medicare voucher.

[phxSUNSfan]

The last sentence above should end: "lest they leave..."

Is this latest Intel expansion a better deal for metro Phoenix than the Apple deal for Austin? It doesn't seem like Intel will pass the buck onto the state for the pleasure of bringing more jobs. It is just too bad that Intel can't share the wealth and build in the Phoenix/Tempe "Discovery Triangle."

[ChrisInDenver]

Sorry, Petro. My bad.

[Petro]

Hey, no worries! :)

[m]

The numbers are so big, most people do not understand them. It is much easier to sell fear of all sorts of imaginary evils. Lurking taliban old people in wheel chairs at airports that need legions of security. Evil government employees who have worked hard for promised pensions. Boomers who have the gall to grow old and get sick. You can look around and see this. Most of us have no idea what a billion dollars or a trillion is. Can we get our head around 300 million people in the usa? Nope. Much easier to cultivate fear instead of discussing real solutions. Who notices if I make my friends and myself rich once I get elected....

[Emil Pulsifer]

I was fully occupied Monday and out of town most of Tuesday, but a quick read makes this column look like a winner (little that I would disagree with -- the Russian issue is complicated and a passing point: I don't intend to hijack the thread to discuss THAT).

More commentary tomorrow, maybe some numbers to show why revenue is the major problem, not spending.

I might add, stimulus programs, whatever their nature, will not alter the long-term fundamentals, and those are what will drive the U.S. economy in the coming years. That's why I suggested a program of direct redistribution of income, from the top to the bottom third, via taxation (not borrowing) at the top, and via the earned-income tax credit at the bottom (an already established program that requires recipients to be employed and cannot be classified as welfare).

That said, a temporary stimulus would help build much needed infrastructure while helping in the short-term.

[Donna]

Emil, I'm interested at the EITC as a useful redistribution tool too. Please look at this: http://www.nycfuture.org/images_pdfs/pdfs/TheNoChildPenalty.pdf

[eclecticdog]

Obama will never come up with a jobs stimulus. He's already bought and paid for by the very corporations and rich that are cozying up to Romney, but he'll stay bought even though it looks like the Wimps took the leash off Biden this morning (if he slipped it, expect a new VP).

That the EITC and CTC have lasted this long is amazing. That they are both Republican initiates more so, but maybe its more bleed-the-beast and blame-the-poor-folk politics.

[cal Lash]

The logic of the above article on the No Child penalty has its points but what i feel it dosent recognize is that the planet would be a lot better off with 5 less billion people.

And god.

[Emil Pulsifer]

The problem is low federal revenues, not high federal spending. This can be demonstrated easily, clearly, and briefly, without any "interpretive" accounting or economic theory.

The last pre-recession budget year was fiscal year 2007 (October 2006 through September 2007, with the recession officially starting in December 2007).

The latest completed budget year is fiscal year 2011 (October 2010 through September 2011).

To compare revenues and deficits for different years, we'll want to use inflation adjusted constant dollars (all figures expressed in 2005 dollars).

Federal revenues in FY 2007 were $2.413 trillion. Federal revenues in FY 2011 were $1.999 trillion. So, already, we see that revenues for the most recent year are still well below pre-recession revenues.

The deficit in FY 2011 as a percentage of GDP was 8.7%. (GDP in 2005 constant dollars was $12.961 trillion.) If federal revenues in 2011 had equalled 2007 revenues without changing spending, the deficit for 2011 would have been 5.5% of GDP.

However, in a healthy economy, revenues would have grown from 2007 through 2011 (as the economy grew tax collections would grow, all else being equal). If we postulate an annual growth in revenues from 2007, of a rather mediocre 2.5 percent annually, then after four years, from the end of 2007 through 2011, revenues in 2011 would have been $2.663 trillion, and the 2011 deficit would have been a little less than 3.8% of GDP. The annual average deficit under Ronald Reagan, as a percentage of GDP, was 4.2%.

So, Obama's spending would have yielded deficits less than Reagan's average. There is more, however, because spending does enter into it: massive unemployment has made expansion of unemployment benefit payments necessary, as well as expanded rolls for Medicaid, food stamps, etc., all of which increase federal spending over what it would have been in an ordinary year (economically speaking). When that is factored in, the 3.8% of GDP deficit for 2011 would shrink substantially further.

So, it has to be said that revenues, not spending, is the problem, though a decrease in emergency spending would lower deficits even more.

The federal government does not predict revenues to rise above FY 2007 levels until FY 2014, seven years later (though 2013 will come close). Contrary to some conservative propaganda, the Obama administration projects deficits as a percentage of GDP to decline to 3.9% for FY 2014 and 3.0% by 2017. Whether those predictions are unduly rosy need not concern us here. The figures I have provided are a matter of historical record, not projections from an administration eager to put the best face on the future.

See Table 1.3 for the data:

http://www.whitehouse.gov/omb/budget/Historicals

We can now ask, why are federal revenues so low? The answers are simple and straightforward:

(a) Massive unemployment has reduced the number of households that have payroll taxes withheld and that owe income tax.

(b) Beyond layoffs, many employers reduced the hours of their employees, thus reducing their total wages, thus reducing their payroll tax withholdings as well as reducing their income tax liability.

(c) Tax cuts such as the 2% payroll tax cut that the Obama administration pushed through as a form of economic stimulus; also, assorted tax holidays for households and for businesses designed to stimulate investment in capital goods and large consumer purchases such as cars.

(d) Massive decline in wealth from the housing and commercial property crash as well as from stock and other investment losses, as well as record low interest rates and increased caution on the part of investors; all of which has reduced capital gains and thus reduced federal revenues from capital gains tax.

[Emil Pulsifer]

I'm almost out of time this session. Plenty left to say about the issue of federal debt and other thread related issues, later or tomorrow.

Again, an excellent job by Mr. Talton, who has covered so many of the most important issues that I need only mop up a little (e.g., Robert Robb left another puddle on the topic of federal debt on today's Arizona Republic).

[cal Lash]

Speaking of debt and joints. I am a few bucks lighter now that I am back from Austin after a happy tine with TSA and a ride on a claustrophobic Mesa Airlines jet for which I suspect would make many folks want a reefer.

Christopher Hitchens once said we have created a system that guarantees the only people armed on an airplane will be the terrorists.

Or there is the Onion idea of security, that you can't board a plane until you eat a ham sandwich.

Sorry about bringing the humidity with me.

[Donna]

cal, wouldn't giving non-parents a more generous EITC incentivize choosing not to be a parent?

[cal Lash]

U right Donna

[morecleanair]

cal: am sure you can advance a cogent argument for fewer people on the planet . . . but your inclusion of "god" is way too facile in my opinion. I'd be interested in what kind of logic train you've taken. Thank you.

[cal Lash]

i failed that class
logic
i ll look up those words tomorrow and get back to u
its past my bedtime.

[Petro]

Overpopulation, like immigration (legal or otherwise), is an effect, not a cause. To treat either as otherwise is folly.

[cal Lash]

Petro: and how do you have effect without cause?

Morecleanair: I looked up cogent and facile and if it were not for "God" would we not have less people.

[Petro]

Petro: and how do you have effect without cause?

Well, I didn't say that you could, only that overpopulation/immigration wasn't a cause itself.

Of course these things, once they appear, are "causes" of other problems, but my point is that even if one were able to address them, the underlying reasons for their appearance would remain, and re-manifest (if unsuccessfully addressed) or re-emerge in another undesired consequence.

Off the top of my head, I would say that - if they are remotely feasible or possible - the moral decay involved in effectively stopping border migration, or suppressing natural reproductive impulses, could be classified as "undesired consequence." Though there may even be others that are beyond my imagination.

A major underlying reason for the population explosion is, of course, the harvesting of the millenia of "ancient sunlight" we've gotten our hands on during... the population boom. Now there's some cause-and-effect for you. It has historical precedence - the plant/harvest/storage cycle of agrarian society began the first population booms, with their consequent problems (resource depletion, land protection/acquisition wars, etc.) Even before sweet crude, coal and wood burning in the service of steam power laid the groundwork for population "success."

Of course, this can all lead to the same infinite regression that dogs theology ("Who created the creator?" = "What caused the cause?"). I mean, Nature ultimately gave us the brains to exploit the ancient sunlight, and the quite rational desire to expand our families, so it was all unavoidable in the end, right?

Perhaps. I avoid despair by noting that of all the things in Nature, human consciousness is the most plastic. It is the one thing that defies - in spite of the efforts of the Freuds & Pavlovs & and classical philosophers of the world - a concrete set of "physical laws" that seem to guide it. So maybe we will "wake up" and solve these problems without resorting to barbed-wire fences, forced sterilization, or the natural cycles of plenty/starvation that continue to dog the less self-aware species that inhabit the planet.

Or, we just might be tragically self-aware witnesses to inevitabilities that are simply beyond little critters on a tiny Earth, regardless of the scale of our hubris. One hopes that the rumination accompanying our demise is preserved for... some reason. That last bit, of course, is hubris again...

[cal Lash]

Petro i will get back to U
after much thought
and a walk and galk trip

[morecleanair]

cal lash says: "Morecleanair: I looked up cogent and facile and if it were not for "God" would we not have less people." OK Cal, one last try . . what does God have to do with this line of reasoning? Is this "God" the reason why folks have more kids? I know that the Catholics and LDS have this tendency to want to "go forth and multiply". Is THAT it?

[morecleanair]

PS: Jon nails it when he suggests that the NY reporter dig into the LDS' influence over AZ. As I recall, they're only about 6% of the population, but their influence seems much larger and sometimes even omnipresent. My ancestors were big deal Mormons and my last name is highly recognizable by some LDS who ask "are you one of us?" (I give them the same answer I give the far right Geezer-Kooks)

[phxSUNSfan]

morecleanair, I don't mean to answer that for Cal, but not really. At least for many modern Catholics. A sample of the most Catholic-centric populations in the Americans shows that the average birth rates for Hispanics in both Mexico and the U.S. have fallen dramatically. In the past, the "go forth and be fruitful/multiply" may have had some effect. In reality, medical advances and a better food supply have led to an increase in the population worldwide.

If we look at the most populous nations around the world, most of those people in the leading population centers don't believe in a God that Cal or we in the Western world speak of.

[cal Lash]

its impossible for me to have an intelligent conversation about tooth faries.

[eclecticdog]

I think the "go forth and multiply" was just biblical acknowledgement and cover that sex and sin were going to happen according to our biological makeup. Populations of any species ramp up until they fall. Mother Nature has her ways.

Tragically, now that humans have the technology to prevent pregnacy, it's use is a moral/God issue. Look a squirrel!

[cal Lash]

electicdog, try The Good Book by David Plotz