Nobody Understands Debt
In 2011, as in 2010, America was in a technical recovery but continued to suffer from disastrously high unemployment. And through most of 2011, as in 2010, almost all the conversation in Washington was about something else: the allegedly urgent issue of reducing the budget deficit.
This misplaced focus said a lot about our political culture, in particular about how disconnected Congress is from the suffering of ordinary Americans. But it also revealed something else: when people in D.C. talk about deficits and debt, by and large they have no idea what they’re talking about — and the people who talk the most understand the least.
Perhaps most obviously, the economic “experts” on whom much of Congress relies have been repeatedly, utterly wrong about the short-run effects of budget deficits. People who get their economic analysis from the likes of the Heritage Foundation have been waiting ever since President Obama took office for budget deficits to send interest rates soaring.
Any day now!
And while they’ve been waiting, those rates have dropped to historical lows. You might think that this would make politicians question their choice of experts — that is, you might think that if you didn’t know anything about our postmodern, fact-free politics.
But Washington isn’t just confused about the short run; it’s also confused about the long run. For while debt can be a problem, the way our politicians and pundits think about debt is all wrong, and exaggerates the problem’s size.
Deficit-worriers portray a future in which we’re impoverished by the need to pay back money we’ve been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.
This is, however, a really bad analogy in at least two ways.
First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.
Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.
This was clearly true of the debt incurred to win World War II. Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than debt today; but that debt was also owned by taxpayers, such as all the people who bought savings bonds. So the debt didn’t make postwar America poorer. In particular, the debt didn’t prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation’s history.
But isn’t this time different? Not as much as you think.
It’s true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that’s already deep in hock to the Chinese, you’ve been misinformed. Nor are we heading rapidly in that direction.
Now, the fact that federal debt isn’t at all like a mortgage on America’s future doesn’t mean that the debt is harmless. Taxes must be levied to pay the interest, and you don’t have to be a right-wing ideologue to concede that taxes impose some cost on the economy, if nothing else by causing a diversion of resources away from productive activities into tax avoidance and evasion. But these costs are a lot less dramatic than the analogy with an overindebted family might suggest.
And that’s why nations with stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it — have historically been able to live with much higher levels of debt than today’s conventional wisdom would lead you to believe. Britain, in particular, has had debt exceeding 100 percent of G.D.P. for 81 of the last 170 years. When Keynes was writing about the need to spend your way out of a depression, Britain was deeper in debt than any advanced nation today, with the exception of Japan.
Of course, America, with its rabidly antitax conservative movement, may not have a government that is responsible in this sense. But in that case the fault lies not in our debt, but in ourselves.
So yes, debt matters. But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way.
By: Paul Krugman, Op-Ed Columnist, The New York Times, January 1, 2012
The GOP “Wet Blanket” Fetish
The six Republicans from the failed super-committee, in an op-ed today:
The 2001 and 2003 changes to the tax code reduced marginal rates for all taxpayers as well as the rates for capital gains, dividends and the death tax. For technical reasons, all of these provisions expire at the end of next year — meaning that if Congress does not act, Americans will face the largest tax increase in our history. This prospect has put a wet blanket over job creation and economic recovery.
House Speaker John Boehner (R-Ohio), three weeks ago:
“I think the budget deficit and our debt serves as a wet blanket over our economy.
Sen. Susan Collins (R-Maine), in late September:
“Business owners are reluctant to create jobs today when they’re going to need to pay more tomorrow to comply with onerous new regulations. That’s what employers mean when they say that uncertainty generated by Washington is a big wet blanket on our economy.”
Former Sen. George Allen (R-Va.), seeking a comeback, in mid September:
” [T]ax hikes that President Obama has been pushing since he was elected and they will put a heavy, wet blanket on an economy.”
So, to review, Republicans believe the possibility of potential tax increases, regulations, the debt, the deficit, and uncertainty are all a “wet blanket.” I can only assume some focus group somewhere told pollsters they like this metaphor, which is why it’s being used so incessantly.
Let’s make this plain, shall we? The laws of supply and demand are not subject to a Republican filibuster. The economy is struggling because businesses don’t have enough customers. We have high unemployment and depressed wages, which lead to less demand, slower growth, and fewer new jobs. It’s really not that complicated.
Republicans, who should be able to understand these basics, are eager to make matters worse, undermining demand when we should be doing the opposite. And that’s the real wet blanket we should be talking about.
By: Steve Benen, Contributing Writer, Washington Monthly, November 26, 2011
We Are Living In The Conservative Recovery, And It’s Pretty Terrible
In talking about the economy, the Republican presidential candidates are quick to blame government spending for our current woes. “On my first day in office, I will send five bills to Congress and issue five executive orders that will get government out of the way and restore America to the path of robust economic growth that we need to create jobs,” said former Massachusetts Governor Mitt Romney when he unveiled his jobs plan in September. Likewise, in his plan, Texas Governor Rick Perry touts spending cuts as part of the road toward renewed economic growth: “The cut, balance, and grow plan paves the way for the job creation, balanced budgets, and fiscal responsibility that we need to get America working again.”
The problem, as Neil Irwin reports for The Washington Post, is that sharp cuts to government have been terrible for the recovery. Thanks to lower revenue, limited federal aid, and budget-cutting state legislators, the public sector has cut 455,000 jobs since the beginning of 2010, sending the proportion of government jobs to 16.7 percent, the lowest level in three years. These cuts have been a huge drag on the recovery -– to wit, October saw private-sector job growth of 104,000, which was offset by the loss of 24,000 public-sector jobs, for a net increase of 80,000 jobs. This dynamic has been true of every month since the recovery officially began.
Far from unleashing the power of the private sector, cuts to government have prolonged the economic pain, as demand is removed from the economy without an adequate replacement. Despite this, conservatives continue to press for further and greater cuts to government spending –- the Pentagon notwithstanding. What conservatives refuse to acknowledge is that we are living through the recovery they say they want, and it’s been disastrous.
By: Jamelle Bouie, The American Prospect, November 7, 2011
“In God We Trust”: In Congress We Stagnate
The House Republican leadership is determined to keep the chamber’s schedule to important matters, freeing up congressmen to do more important things, such as attend committee hearings and spend time in the district. That is largely a good idea, as long as it doesn’t keep members from spending time together and learning to work together.
What, then, possessed House leaders to allow the following onto the Tuesday schedule for bills to be considered “under suspension” of the rules?
“Reaffirming ‘In God We Trust‘ as the official motto of the United States and supporting and encouraging the public display of the national motto in all public buildings, public schools, and other government institutions,” the resolution says.
Seriously? Is there any practical importance of this resolution? They surely can’t force schools or even government institutions to display the motto. Schools in particular might be reluctant to do so, rightly worried about offending students and their families who worship different gods or no God at all. Let them worship learning. Let them trust in scholarship and study.
But that isn’t the point of the resolution—and bills considered “under suspension” (meaning they didn’t got through the committee process and require a supermajority for passage) don’t tend to have serious policy implications. They are all about campaigning, often to convince a voter group—in this case, religious voters—that Congress is on their side. And they are also meant, at times, to convince voters that the other party isn’t on their side.
If Congress wants to earn the trust of voters, it might try something that requires a bit more heavy lifting—passing legislation meant to create jobs, for example, or coming to a compromise on legislation to avert the automatic cuts in domestic and defense spending set to occur if the so-called “super committee” cannot find an alternative. “In God We Trust” might be a nice slogan on a coin. But when it comes to healing the ailing economy, the vaunted phrase is barely worth the dime it’s engraved on.
By: Susan Milligan, U. S. News and World Report, November 1, 2011
If Only GOP Lawmakers Were More Like GOP Voters
I imagine everyone has seen the bumper sticker that says, “Lord, protect us from your followers.” I have an idea for a related sticker that reads, “Republicans, protect us from your elected officials.”
In the existing political landscape, the real problem is not with GOP voters; it’s with GOP policymakers. This isn’t to let the party’s supporters off the hook entirely — they’re the ones who supported and elected the officeholders — but it’s hard to overstate how much more constructive the political process would be if Republican lawmakers in any way reflected the priorities of their own supporters.
Last week, a national poll found that Republican voters broadly support the Democratic jobs agenda — a payroll tax cut, jobs for teachers/first responders, infrastructure investments, and increased taxes on millionaires and billionaires — in some cases by wide margins. This week, Tim Noah noticed this observation can be applied even further.
I’m liking rank-and-file Republicans better and better. Earlier this month we learned that they favor Obama’s plan to tax the rich. Now we learn that a 55 percent majority of them think Wall Street bankers and brokers are “dishonest,” 69 percent think they’re “overpaid,” and 72 percent think they’re “greedy.” Fewer than half (47 percent) have an unfavorable view of the Occupy Wall Street protests. Thirty-three percent either favor them or have no opinion, and 20 percent haven’t heard of them. Also, a majority favor getting rid of the Electoral College and replacing it with a popular vote. After the 2000 election only 41 percent did. Now 53 percent do. How cool is that?
Every one of these positions puts the GOP rank-and-file at odds with their congressional leadership and field of presidential candidates.
I don’t want to exaggerate this too much. The fact remains that the Republican Party is dominated by conservative voters, especially those who participate in primaries and caucuses. I’m not suggesting for a moment that the party’s rank-and-file members are moving to the left.
But the recent poll results are also hard to miss — many if not most GOP voters are perfectly comfortable with plenty of progressive ideas, including tax increases on millionaires and billionaires. It’s starting to look like the party’s rank and file is made up of mainstream conservatives who want their party to help move the country forward.
And yet, when we look to Republican officials in Washington, how many GOP members of Congress are willing to endorse any of these popular measures? Zero. Literally, not even one Republican lawmaker has offered even tacit support for ideas that most GOP voters actually like. In the Senate, a united Republican caucus won’t even allow a vote — won’t even allow a debate — on popular job-creation ideas during a jobs crisis.
If the actions of GOP lawmakers in any way resembled the wishes of GOP voters, our political system wouldn’t be nearly as dysfunctional as it is now.
Congratulations, congressional Republicans. You’re far more extreme than your own supporters.
By: Steve Benen, Washington Monthly Political Animal, October 25, 2011
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