The Debt Illusion

28 Jan

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Scouring the Internet for things to read, I came across this article by noted Communist Bruce Bartlett about the lackluster arithmetic of people who are sounding the alarm over the US debt.  Bruce Bartlett, as I’m sure few regular people recognize, is not a Communist actually, but a former economic official in the Reagan and Bush 41 administrations, who worked for the enactment of massive tax cuts that epitomized supply-side economics.  He is also noted as having an independent mind, willing to question the economic dogma of his (former) party.  

His article is a great read, as it explains clearly how the public debt of the United States is not the massive crisis you might have heard.  People who own our debt are not typically malicious foreigners who are either doing us a huge favor by giving us money or are seeking to gain influence over our policies by giving us money.  In fact, the majority of people lending money to the United States are institutions, such as investment firms and central banks looking for a safe place to put their money who constantly roll over their investments, foreign AND domestic.  As Paul Krugman has incessantly noted, throughout our ongoing “debt crisis” and economic slowdown, there has been no indication that any of these lenders have been less willing to invest their money in the good ole US of A.  In fact, it has become easier for the US to borrow over the course of our economic travails, as interest rates are at record lows.  This means that despite Republican complaining over our “exploding debt,” investors continuously come back to US debt for a safe place to put their money.  This makes sense, the US has never defaulted, as despite Republicans’ best efforts, never will.  

Also, as the article notes, the only part of our debt that in the future will be exploding to unmanageble levels are the interest payments on our debt.  Important, but not what you would expect.  What is surprising is not the exploding debt, but the stability of our deficit, which remains large, but not at unheard of levels. This does mean, however, our debt continues to pile on, but our deficit remains so stable and manageable, that you can see just by eyeballing the relative sizes, that modest and balanced cuts in our entitlements, defense, and discretionary spending, would close our primary (interest payments not included) deficit.  This would then help reduce our interest payment, bringing our total deficit down to manageable levels. 

What does this mean for the upcoming budget fight? The most important takeaway for me is that Obama needs to put forth a plan.  Without his plan, a sensible, balanced plan, he looks like a spendthrift first of all, plus there’s a vacuum of leadership that is filled by the GOP, who will just further enflame public fears that a budget crisis is imminent, and the only way out is the remove what remains of our tattered safety net from beneath the impoverished, elderly, and sick in this country.  

Why would they do this? Reading another article over the weekend about a speech Paul Ryan gave where he predicted, correctly after all, that Obama would try to portray the Republicans as heartless protectors of the 1 percent out to destroy the impoverished in the upcoming budget fights.  My question was that if the Republicans are so self-conscious about how people view their policies, why do they propose ideas that would needlessly hurt so many people while protecting so many people that don’t deserve or need it.  That’s a question for the Republicans to answer, but I believe Obama might be being too kind to the Republicans in Congress: they probably aren’t heartless, they most likely are just stupid.  They are stupid in that when they see a modest long-term primary deficit that translates into an exploding deficit because of interest payments, they think the only way out is to slash the smallest portion of our budget (discretionary spending) and fundamentally transform Social Security and Medicare and decimate Medicaid.  

The fact is that we can bring down our deficit by restructuring our budget and tax code to reflect our country’s priorities of rewarding hard work and not spending money on unworthy causes.  We can eliminate a lot of waste in our government’s budget by eliminating programs that just swell money from middle class taxpayers to wealthy individuals: I”m talking about subsidies for huge agricultural corporations, weapons systems contracts that the military does not even want, and wasteful spending by Medicare on procedures and tests that benefit the doctor and the hospital’s bottom line, not the patient.  We can reform our entitlements by making sure the wealthy pay their fair share by raising the payroll tax limit, because now only income up to 110k is taxed, which makes no sense when people in that income range already pay a higher marginal income tax rate than those at higher income levels.  Or we could means test these benefits, so the wealthiest earners who can more afford, relatively speaking, better private insurance do not receive help they do not need.  We can find savings in our tax code, by capping deductions at a certain percentage of income and end the mortgage interest deduction, or at least cap it: this may sound controversial, but we have to ask ourselves why we are encouraging people, through this deduction, to buy bigger and bigger houses that they may or may not afford if we are unwilling to protect them from the unfair practices and foreclosures of the big banks, as Obama’s failed housing policies have demonstrated we are unwilling to do.  

We can do these reforms, we can tackle our debt problem, once we realize that this is not a crisis, we don’t have to come out slashing every entitlement that the rich white Republicans in Congress think is wasteful just because they benefit from it.  Obama can end this issue and do the greatest service to the poor and middle class in this country if he, for the foreseeable future, sures up our nation’s finances and removes the impetus for Republican budget slashing.  But to accomplish this, to seize this moment as he said in his inaugural, we must seize it together, he has to go out on the road and get the public on his side with the very simple question: why should we expect the elderly and poor, minorities and unemployed to bear the pain of our debt problem until we can say we have not wasted a cent of this nation’s money on people who neither need nor deserve the money? 

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One Response to “The Debt Illusion”

Trackbacks/Pingbacks

  1. Eliminate the payroll tax ceiling « The Meeting Place - February 7, 2013

    […] Interestingly, some of the same people who sound the loudest warning cries on the alleged impending bankruptcy of our Social Security Trust Fund (SSTF) are the same individuals pushing most aggressively against any increase in taxes. Actually, this is more than interesting. It’s blatantly hypocritical, as Patrick argued in a recent post. […]

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