A Progressive Primer on the Issue of America’s Debt Problem – Ten Things You Really Need to Know (Part 2: 6-10)

6.      The proposals currently on offer from the Republicans are more likely to increase the federal deficit than to bring it under control.

The modern Republican Party is currently proposing to do three things at once: maintain the entirety of the Bush tax cuts, increase the size of the military budget, and reduce the federal deficit without cutting either Social Security or Medicare/Medicaid. But those three proposals fall victim to the test that Bill Clinton suggested had guided his budgetary planning in the 1990s: the test of arithmetic itself. The Romney budget numbers just simply don’t add up. On the contrary, to make them work at all, “you have to assume that by the end of his presidency, Romney will have cut every federal program that is not Medicare, Social Security or defense spending by 57 percent.”[i] The implementation of the latest Ryan budget (the original one was even more draconian) would involve $4.5 trillion in new tax cuts over ten years and $3.3 trillion in cuts to non-defense federal spending on things like education, infrastructure and basic R&D, and yet still leave the federal budget in substantial deficit as late as 2030.[ii]  Of course, both Romney and Ryan claim to offset their tax cuts by closing tax loopholes: but loopholes closed are actually taxes raised. The earlier Bowles-Simpson proposals had a transparency and an even-handedness about them that the Ryan-Romney proposals have yet to match; and in the Bowles-Simpson proposals, two major tax loopholes that were to be capped (and in relation to health care, were ultimately to be phased out) were those giving tax relief to the middle class on mortgage payments (particularly on equity lines of credit) and on employer-provided health care insurance.

Ryan-Romney have either to go that way – adding to the tax burden of the very middle class they claim they are liberating from the cost of federal government largesse – or put all the emphasize of their loophole-closing on corporate America, adding to a corporate tax burden they already claim is too high. As Fareed Zakaria put it, “you can use euphemisms such as ‘ending tax expenditures’ and ‘closing loopholes,’ but when you do that, someone’s taxes will go up. And when you close big loopholes such as the deduction of mortgage interest – which is the only way to get real tax revenue – tens of millions of peoples’ taxes will go up.”[iii]  No, the numbers don’t add up; and the politics of making them add up are beyond the capacity of the Republican ticket to manage.

7.      The Republican emphasis on debt reduction is so often a cover for a sustained assault on welfare programs.

Many of the key conservatives making the repeated calls for deficit reduction are also on the public record as advocates of fundamental reforms to mainstream welfare programs. Indeed it is remarkable with what speed in the conservative presentation of the debt crisis case (and even in bipartisan presentations of the Bowles-Simpson variety) cutting Social Security, or limiting Medicaid, or voucherizing Medicare, emerges as the way to bring federal deficits under control. Nowhere do we see any similar speed or focus on taxing speculative financial transactions, or on taxing capital gains at the same level as income is taxed; and nor will we. For beneath the Republican assault on public spending is a covert strategy to undermine/remove entirely the last institutional legacies of the New Deal. The strategy has to be covert because those legacies are generally popular – and they are popular because they work. Social Security does provide security. Medicare does give seniors peace of mind. Medicaid does get health care to at least the children of the poor. All three, when taken together, do point to the superiority of public over private provision in key aspects of American life. These are not pointers that Republicans care to hear; and so though normally I would argue against criticizing the messenger when properly we should be criticizing the message, here is an exception. So many of the messengers in this conservative attack on welfare are writing the messages themselves,  that they become legitimate targets for criticism: alongside the message they preach. Alan Simpson, for one, is on record as recently describing Social Security as “a milk cow with 310 million tits.”[iv] He is clearly no fan of publicly-funded pension provision: so when he (and others) speaks loudly of deficit reduction, we need to be on our guard. Deficit reduction is not the only target here. It may not even be the major one.

8.      The immediate crisis we currently face is not one of federal debt. It is one of inadequate private sector investment and job-creation. If this was a genuine crisis of federal debt – if the United States’ standing in the financial world was equivalent to that of, say, Greece – the financing of the budget deficit would be an on-going problem. But it is not. We do not face a sovereign debt crisis in the United States. Nor is one imminent. On the contrary, interest rates in America are currently at historic lows, and yet still the U.S. government has no problem in selling Treasury bonds. In fact, with “record demand this year for government bonds,” it is actually “cheaper for the U.S. to finance its debt now than it was during the surpluses of the 90s. While Congress [is] mired in a battle over the deficit, the market [is] begging the government to borrow more.”[v] With interest rates lower than inflation, people are effectively “paying the U.S. government to borrow their money;” which is surely exactly the time for us to “accept more of these gracious offers and use the funds to finance pressing needs for job programs, infrastructure projects, even mortgage foreclosure mitigation.”[vi] After all, Debt-to-GDP ratios have been higher in the United States in the past – and have been higher without causing difficulties – because those ratios have been brought down by subsequent GDP growth. In the wake of a recession that will cost us at least $7.6 trillion in lost GDP by 2018,[vii]and in the lee of a limited stimulus that did hold rising unemployment briefly at bay,[viii] it is rapid GDP growth that should be our singular focus now – rapid GDP growth that no immediate cutting of public programs should be allowed to block.

There is no squeezing out of private sector investment by over-costly federal programs going on right now. Corporate America is currently replete with profits and with cash. What it is not replete with are customers and confidence. America’s debt will only come down when the economy picks up; and the economy will not pick up unless and until consumer demand grows (and continues to grow) on a trajectory that the private sector can both see and believe in. Building that demand, and that belief, does not require the immediate culling of federal programs. Programs culled mean jobs lost and wages gone. Building that belief requires putting demand back into the whole economy by targeted public investment on projects with long-term economic benefits (buildings roads is good!) Building that belief requires putting money directly into the hands of those who will spend it – into the hands of the American poor, into the hands of the American middle class – not into the hands of the American rich who already have more money than they know how to spend. There is no “austerity route to growth,” as the recent UK experience of a double-dip recession demonstrates so well.[ix] No matter how often the Republican Party tells us that public austerity and private growth go together, they do not. Growing the immediate federal deficit to stimulate economic growth is the only viable way forward: growth to generate the tax revenues that will then bring the deficit down.

9.      National Security is not threatened by the size of the federal deficit. Nor does it require cuts in discretionary federal spending to guarantee it.

A serious assault on the scale of the federal budget and on the size of the military budget within it – of the kind that “going over the fiscal cliff” in January might actually trigger – would only directly threaten national security if the existing size and character of U.S. defense spending was deficient in comparative terms. But it isn’t. On the contrary, the United States is currently responsible for over 40 % of total global military expenditure, with a Pentagon budget bigger than that of the next five countries taken together. As report after report has now documented,[x] what the Pentagon actually does is waste enormous amounts of public money, particularly on programs of nation-building abroad that ideally would be redirected home. So if cutting the Pentagon budget can trigger the more efficient use of a limited set of military resources, then that part of “going over the fiscal cliff” cannot happen soon enough. And if the rejoinder comes that, because of the trade deficit with countries like China, part of our foreign policy independence is in hock to Beijing,[xi] then the solution surely lies in the pursuit of policies that reduce trade dependency by reconstituting a strong and competitive U.S. manufacturing base, not in the pursuit of policies designed to reduce a set of federal discretionary programs which makes no direct contribution to our existing trade imbalance. Indeed, the case could equally be made that, for reasons of national security as well as of social justice, the federal government should spend more (rather than less) in a discretionary manner, targeting infrastructure programs and support for basic R&D, both of which over the long term will enhance U.S. competitive capacity in ways that further Pentagon spending will never do.

We already know that cutbacks in public spending made by state governments in the wake of the wind down of ARRA assistance (the Obama 2009 stimulus package) added to unemployment rather than reducing it. These were cutbacks that cost public sector workers their jobs without generating any compensating rise in private sector employment.[xii] We also know that the number of federal and state employees is currently falling, not rising;[xiii] and that “if government employment under Mr. Obama had grown at Reagan-era rates, 1.3 million more Americans would be working as schoolteachers, firefighters, police officers etc., than are currently employed in such jobs.”[xiv] So much for the myth that public spending is “out of control” under this administration – it is not. Nor is excessive public spending currently our major current problem. Looming austerity is the real issue facing us right now: the genuine danger that, by cutting government spending too rapidly and too deeply, we will tip ourselves back into the very recession that Republicans imply excessive government spending caused.

10.  The answer to the problem of long-term debt lies in economic reconstruction, not in welfare reduction.

Conservatives are fond of comparing the federal debt to the debt known by so many American families, and of telling those families that, just like them, the federal government must live within its means. But the comparison is a false and a misleading one.[xv] Families don’t print their own money. Families don’t tax their neighbors. Families don’t design the rules by which they and others work. Families don’t, but governments do.  Money spent by governments has a multiplier effect through the economy as a whole. Properly targeted on those with a high propensity to consume, a dollar released into the economy by a government program generates incomes for everyone that the dollar reaches as it passes from hand-to-hand; so that it is possible to calculate – just as soon as we know peoples’ marginal propensity to save – how much extra income that dollar will create. There are even tables available for this purpose – tables that tell us that giving tax breaks to the rich generates a far smaller injection of extra demand into the economy than giving a welfare check to a young unemployed mother.[xvi] If Republicans really want to see federal debt come down, they need to join more progressive political forces in directing public resources to those parts of the US economy and society best positioned to trigger the economic growth which alone – over the long haul – will bring federal spending and revenues back into balance. Right now, that means a more generous welfare net, not a thinner one.

But of course, the rejoinder always comes back that unless we cut welfare programs savagely now, we will leave a huge burden on generations to come. “Taking hard decisions” is the normal euphemism, obscuring the fact that those taking the decisions will rarely directly experience themselves the consequential hardness. To which the response has to be two-fold. First this: that generations to come, like this generation now, will contain both debtors and lenders. They will not be generations full only of debtors. “It’s always important to remember that one person’s debt is another person’s asset.”[xvii]  So any debt left by us on the public accounts will be paid to children also yet unborn; and so – like this generation – those children in their maturity will be free to decide who bears the cost of whatever debt comes down to them. And second – if we spend wisely now, we will leave them economic growth, a strong infrastructure and high quality human capital.[xviii] We will not leave them debt; and we will particularly not leave them debt if, instead of pruning programs to avoid some hypothetical burden to unspecified people in years to come, we focus our attention and our spending on real people experiencing real burdens now. One in seven Americans currently lives in poverty. More will live in poverty if basic welfare programs are cut.[xix] The children of the poor remain locked there unless and until we (the non-poor) direct public resources disproportionately in their direction, and unless and until the non-poor design economic programs to bring back well-paying jobs to non-college trained young Americans. Let’s see the Republicans put their energies into that, if they really want to leave an America to future generations in which public debt is low, controlled and only mildly burdensome.

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The current Democratic Party platform is not perfect for this more progressive purpose; nor is the President’s America’s Jobs Act. Both give way too much credence to Republican enthusiasm for tax cuts and program culling.[xx] But both point in the right direction – the one we really need to take.  At least the President appears to understand, and is prepared publicly to say, that the Republican vision “is less about reducing the deficit than it is about changing the basic social compact in America.” That basic social compact is one that he is prepared to defend and to champion. In relation to the sick, the disabled and the poor, Barack Obama has committed the Democrats to “not abandon[ing] the fundamental commitment this country has kept for generations.”[xxi] We need not simply to take him at his word. We also need to hold him to that word. Rejecting Republican pressure for Balanced Budget Amendments and federal spending caps is a crucial first stage in a vital progressive campaign to strengthen America by uniting it in social justice again.

First posted at www.davidcoates.net

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