By James Kwak
It seems as if the Republicans, meaning both John Boehner and Mitt Romney, are trying to turn the national debt back into a major political issue. Now, a visitor from Mars might wonder how this is possible. How could a party that (a) passed the massive tax cuts that were the single largest legislative contributor to today’s record deficits, (b) increased spending rapidly the last time it controlled the federal government, and (c) cannot talk in detail about anything except deficit-increasing tax cuts possibly think that calling attention to deficits could be a political winner?
Well, despite the Republican Party’s abysmal record when it comes to fiscal responsibility, it could still turn out to be smart politics, for a few reasons. One is that many Americans reflexively associate large deficits with excessive spending, even though reductions in tax revenues have played just as big a role since George W. Bush became president. (Compare, for example, receipts and outlays in 2000 and 2011 as a percentage of GDP.) Then they associate excessive spending with Democrats, although the only president to reduce spending significantly in the past forty years was Bill Clinton. It turns out that if you repeat the same tired attack lines year after year—Democrats are all tax and spend liberals, for example—people believe them.
The other, more important reason why Republicans like talking about the national debt is that Democrats don’t have a good response. Sure, Democrats have lots of policy proposals, and theirs make a good deal more sense than the Republicans’; it was President Obama who proposed trillions of dollars in spending cuts and tax increases, which is what people supposedly want (according to opinion surveys, at least).
But most Democrats just don’t like talking about deficits and the national debt. They think it’s a distraction from talking about jobs and unemployment, or they think simply broaching the subject is succumbing to a vast right-wing conspiracy to slash entitlements, or both. The result is that there is no
liberal progressive position on the national debt. There’s the Republican one (Romney, Boehner, Ryan), which is to cut taxes (boggle); and there’s the Obama one, which is basically the Republican-Lite position of George H. W. Bush, and which many liberal Democrats run away from. On the left, all there is is a vague belief that you can balance the budget by increasing taxes on the rich, but no one really wants to come out and say it. (Also, the numbers don’t add up unless you’re willing to boost the tax rates on millionaires to very high levels; just, say, repealing the Bush tax cuts for the rich won’t cut it.) Instead, the strategy is to demonize RyanCare, which is effective as a short-term tactic, but doesn’t really amount to a coherent message on the national debt.
This is one reason why I wrote White House Burning. I say “I” because Simon probably wouldn’t call himself a liberal, but I do call myself a liberal, and I think liberals need to have a coherent message on the national debt. I think the message should be something like this: the national debt is a real problem that needs to be addressed; we need to address it in the way that’s best for the American people as a whole; that means preserving the social insurance programs that almost everyone depends on; and we can preserve those programs, while bringing the debt under control, through a set of policy changes that make sense on their own grounds (eliminating distorting subsidies, eliminating tax expenditures, introducing Pigovian taxes like a carbon tax and a financial activities tax).
You don’t have to agree with our recommendations. But as long as the liberal wing of the Democratic Party has nothing to say about the national debt, conservatives will be free to lead the debate, and the most likely outcome will be some sort of compromise between the moderate Republican Barack Obama an the now-“severe” conservative Mitt Romney. And you can expect the Republicans to bang on this drum from now until November.
28 thoughts on “Because They Can”
although the only president to reduce spending significantly in the past forty years was Bill Clinton
According to this table, federal outlays increased every single year of Clinton’s presidency.
I would love to hear how that gets counted as “reducing spending significantly”.
Under Obama, federal outlays have gone from just under $3 trillion to $3.8 trillion. (Somehow in spite all of the “proposed trillions of dollars in spending cuts”.)
I am not saying that Bush was better — far from it — but to claim that Democrats are the “fiscally responsible” party is ludicrous. The U.S. has no fiscally responsible party.
First of all, the term “debt” is completely misleading. Families have debts. Countries with sovereign currency (like the U.S., unlike Greece) have nothing resembling family debt. Please, show me a single family who can create, out of nothing, the repayment for its debt.
So the “debt” of the U.S. doesn’t exist, any more than a scorekeeper at a sporting event owes the points he uses. Government could literally mint a few trillion-dollar coins and pay the entire thing back tomorrow.
Yes, there are some constraints, like inflation, to government issuing currency, but that, and political will in pursuit of some illusion called “fiscal responsibility,” are all that keep government from issuing literally infinite currency.
And this is not a theory. It’s a historical observation. In the wake of Lehman’s collapse in 2007, the Fed issued $16 – $29 trillion to cure the ills of the financial sector. (BTW, neoclassical economists, where’s the inflation from more than doubling the money supply?).
The big question: Why do the banksters who crashed the economy get $16 – $29 trillion instantly (no congressional authorization, certainly!)…and social safety net programs and revenue sharing to cure state deficits get the “one finger salute”?
One answer is that the banksters have bought the finest government money can buy, and understand perfectly well that the money pot is bottomless. They’re willing to grind the productive economy to dust rather than surrender their commanding position. I wonder if Jamie Dimon says “My precious!” …
A couple years ago the New York Times published a federal budget puzzle:
It really isn’t that tough to get the budget in order.
Nemo, if you look at that chart, outlays as a percentage of GDP dropped every year from 1992 to 2002. That counts as reducing spending significantly. Nominal and constant dollars are interesting, but the real question is the macro question – what percent of GDP is the government spending? That’s the column that matters in making an informed comparison across time.
The Democratic Party did the fiscally responsible thing in the 1990s, and were repaid for it by G.W. Bush spending those savings on tax cuts for the rich. The Democratic Party is the only fiscally responsible party – the Republican Party only cares about tax cuts for the rich.
The debt service for the US fed. govt. is at a 30yr low as a percentage of gdp.
Mr. Kwak, when you allow your banks to lend to your government without basically any equity, but require your banks to hold quite a lot of capital when it lends to small businesses, you are de facto imposing an immense non-transparent tax that does not show up in your national accounts; in fact it hides the truth, since the government, because of that, can borrow at much lower rates than it would be able to borrow absent that regulatory favor.
As an external observer, your problem, as a liberal, as is the problem of many, is that you seem to care more about your own agenda and about badmouthing the other’s agenda, than what you care about your country…. Capice?
James, why not talk about all U.S. economic debt not just the federal national debt? See for example http://www.debtdeflation.com/blogs/2012/05/15/paul-krugmans-economic-blinders-by-michael-hudson-2/
You are right, the progressive wing of the Democratic nothing to say about debt – and Hudson explains why it should it should for economic reasons and why it doesn’t for political reasons.
If the government needs money to promote the general welfare (it’s chief legitimate peacetime function), it should get it from those citizens who have it. Period. What’s so hard about that? Oh, politicians are for sale …
@Per: but Mr. Kwak is correct that unless we recast the argument in terms more oriented towards the overall good (again, transparency, linearity of financial playing fields, shared responsibility for foundational aspects of democratic societies) the right will once again frame the argument in less communitarian terms. Your argument, as his, is fundamentally the same: make the game fair for all. That’s neither a liberal or conservative argument. It’s a very sensible one.
“The national debt is higher than it should be, but the people who say it’s a terrible immediate crisis are dead wrong. [They kept quiet and didn’t think it was a crisis when the huge Bush tax cuts for the wealthy while an expensive, unnecessary war was launched eliminated the surpluses of the Clinton administration.] We have had higher ones before and reduced them through a strong economy. What is a terrible immediate crisis is over 20 million Americans unemployed or in low-paying, no-benefits part-time work when they want to work full-time.
We issue our own money. The important thing is that over the long term the debt should be brought under better control compared to the size of the economy. The main way to do that is to get people back to work at good wages and paying taxes. It will also help to make sure all people, especially the wealthy, are paying their fair share of the tax burden. Right now, the middle class is paying at least its fair share, and its important for growth that they maintain the incomes to spend.
Bottom line: you have to put first things first. We will not solve the deficit and national debt without more jobs. Jobs has to come first. There are things we can do to create millions of high-paying, non-outsourceable jobs improving and modernizing the country so we aren’t left behind, and we need to do them now.”
That’s mostly one or two-syllable, commonly understood words with straightforward concepts that appeal to the self-interest of the people and can battle successfully with the well-honed Republican talking points. Keep cutting down on the words even more — that takes work that Democrats never seem willing to undertake — with bumper-sticker spinoffs (“1st things 1st: Jobs, Jobs, Jobs”), and we might start to make progress.
James, the liberals have come out with a plan. It’s called The People’s Budget, look it up. It is the only sensible proposal, yet because President Obama will not support it and the Republicans are, well Republicans, no one, including you, has heard of it, let alone assessed its merits. Part of the reason for this is because liberals are considered ‘partisan’ if they dare speak what they believe. However, if you are a radical fascist like Paul Ryan, you can say whatever you want and you will be considered a Very Serious Person by the MMS.
The ‘F’ word was not hyperbole.
@urban legend “1st things 1st: Jobs, Jobs, Jobs”
Absolutely correct, and so I ask, do your current financial regulations have anything to do with job creation?
And the answer is, NO! In fact, by discriminating against those perceived as risky, and who are already more than sufficiently discriminated against by the markets, precisely because they are perceived as riskier, and these include small businesses and entrepreneurs, the current bank regulations actually hinders job creation.
Thanks for the link, Stefan. (P.S. I am still partial to jobs creation as a feasible solution.)
@James: which is what people supposedly want (according to opinion surveys, at least).
We already know what people want, if we were to imagine what they supposedly want, the list would literally be endless.
@Adameran: Please, show me a single family who can create, out of nothing, the repayment for its debt.
Hello, my name is buddy, I cost nothing and can reap hugh rewards from the rich to feed the poor, is there anybody home over there? All I see is an empty hollow brain
“The national debt is higher than it should be, but the people who say it’s a terrible immediate crisis are dead wrong.+We have had higher ones before and reduced them through a strong economy.
It is a crisis for many middle class family’s. There purchasing power has been reduced to a survival level and there is very little hope for a turn around. And a stong economy is best built when the cost of energy is low, as it was during the housing boom of 2000-2007 era. Today and far into the future, the cost of energy is only promising to rise, especially from foreign sources, keeping the cost high here at home too. That in turn would suggest that we can not service our debts as easily as just saying “Oh, just wait for a strong economy to solve the tax problem.”
This summer the fight over the Raising The Debt Ceiling.
It looks like the Debt Ceiling is going to raise it’s self.
Like a pan of boiling water that boils over,
Because the Caretakers, are not doing their job.
Search “U.S. National Debt Clock”
The first step in eliminating the national debt, eliminate our debt based currency.
If the liberal or progressive parties had any real wish for change, the above would be the starting point.
You don’t think the collapse of the banks under a system of minimal regulation, um, kind of hindered job creation? Allowing unpunished fraud by banks is not a way to create jobs.
You also have a backwards notion of why banks aren’t lending. It’s not because they perceive risks relative to their capital requirements to be too high, it’s because they don’t see enough demand for the goods and services offered by the businesses who say they want to borrow. First things first means the consumer and derivative business confidence that will support high sustained demand (and higher incomes and higher tax revenue) will not be restored until unemployment is brought down to low levels (like 5%) and kept there. Forceful policy intervention by the agent for all of us — what is supposed to be “our” government — is the only way to break through the economic paralysis of waiting, now over four years, for private industry to come to the rescue. Besides, the massive infrastructure effort that will create jobs is stuff we need and have been neglecting for decades anyway. It’s not make-work.
@Patrick – thank you for pointing out to Nemo that spending as a % of GDP declined from FY 1992 through FY 2001, so Bush #41’s last two budget years and eight Clinton years.
@Nemo – Because of inflation and population increases, most economists evaluate taxes and spending as a % of GDP, rather than nominal or real dollars, to allow for better year-to-year comparisons. Also, since fiscal years start in October of the prior year, you need to lag the data a year when referring to presidential budgets. For example, Clinton was elected in 1992, but didn’t take office until late January 1993, approximately four months into FY 1993. Thus I credit the spending cuts in FY 1993 to Bush, not Clinton. Likewise, FY 2009 was President Bush’s last budget year. FY 2010 was President Obama’s first budget year. Interestingly, SPENDING ACTUALLY DECLINED in President Obama’s first budget year, even by your standard of nominal dollars. This was the first nominal dollar decline since FY 1965. I would argue that this was a mistake and contributed to the fizzle of the “recovery summer” of 2010, but that is another discussion.
Kwak addresses the question of how to cut the deficit. I agree that President Obama’s budgets have not done a good job of addressing future deficits and rightly bring him criticism. Howefver, Kwak ignores perhaps the more important question of WHEN to cut the deficit. The “Fiscal Cliff” scheduled for January is an argument that we are planning to cut too soon. Too many politicians and commentators are ignoring the question of WHEN to cut the deficit.
In the early 1980’s we set post WW II records for spending as a % of GDP in FY’s 1981, 1982 and 1983. We did not stop until all of the 2.7 million private sector jobs lost in the downturn of 1981-1982 had been recovered. Then we cut spending and increased revenues as a % of GDP to cut the deficit. In practice, Reagan was a Keynesian who increased spending during economic downturns. By contrast, during the Great Depression we attempted to balance the budget in FY’s 1937-38 before the recovery was complete and got a double dip recession. Reagan’s (i.e. Keynes’) approach got a better result.
We lost 8.8 million private sector jobs from February 2008 through February 2010, more than three times as many jobs as were lost in the 1980’s. Over the last two years we have recovered 4.2 million private sector jobs, more than enough to recover from any recession since the Great Depression except this one. In my opinion we should not implement deficit reduction until the remaining 4.6 million jobs have been recovered, which will likely take about two more years. Otherwise we risk a double dip recession.
This does not mean that we cannot take steps now to phase in deficit reduction in the future based on the status of the recovery. In early 1983 we passed Social Security reform that called for increased taxes and gradually increasing retirement ages. We just didn’t implement the changes until after the recovery was complete. We could do the same thing today, although I would argue for increasing the income subject to Social Security taxes rather than an increase in the tax rate. We should phase out agricultural and oil subsidies. We should bring down military spending as we exit the conflicts in Iraq and Afghanistan Also, we should continue our efforts to reduce Medicare, Medicaid and tax fraud.
I agree that Simpson-Bowles is a pretty good framework for HOW to cut the deficit, but given the depth of the recession, it was always premature as to WHEN to cut the deficit.
@urban legend “Kurowski — You don’t think the collapse of the banks under a system of minimal regulation, um, kind of hindered job creation?”
No, I think that think the collapse of the banks under a system of BAD regulation, hindered job creation
Review all the major bank exposures that went wrong… and you won’t find one single of them that belongs to the group perceived as risky… they all belong to what was officially perceived as not-risky.
Your program crucially misses making high social return investments of the kind the pure free market will grossly underprovide due to long established in economics market problems (externalities, asymmetric and poor information, inability to patent,…) Things like education (how about universal pre-school, making college affordable without having to flip burgers 20-40 hours a week, hurting learning and graduation odds badly), alternative energy, infrastructure, basic science,…
If you invest trillions in projects that return 10% real (or much more) and you’re borrowing costs are close to 2% real, that makes you far wealthier over the long run, and it makes your debt as a percentage of GDP far smaller, very easy to bring to zero.
This post should have been called “As Best They Can” Because obstructionist Republicans aim to F**CK–up this country as best as they can.
This essay/comedic routine is dedicated to Romney/Boehner/McConnell/McCain/Gingrich and “the likes”
This Youtube Vid is a similar idea to Burroughs in above comment, but as said in a more humanistic, less antagonistic way. You see, it’s not an indictment against government, but those who choose to obstruct it (See Webster’s definition John Boehner) , and abuse it to their own means. As “Ikiru” realizes what he can do to help people, the system adjusts. Yes, it’s unrealistic as to “one man” changing the system, but is the idea so bad, as the idea spreads like a “contagious smile” ???
If US health care was not such a profit-feast, we would have no long term deficit problem. How could you leave that out? Single-payer health care, Medicare for all, is the liberal answer to deficits.
I find it humorous that anyone gives all the credit or all the blame to the President for what transpires on his (or her) watch. Congress plays a significant role in in what occurs. To infer otherwise is far too simplistic.
Needless to say, much of the establishment politicians of both parties have been supportive of big government and high spending. It was TARP and the first bank bailout that led to the formation of the Tea Party (without the moniker yet) to form in protests.
Going back over the last 60 years, federal tax revenues generally run between 17-19% of GDP. This has been the case during times of high taxation and not-so-high taxation. So the key to higher tax revenues is not higher taxes, but a larger GDP. This is best accomplished through a lower and simpler tax code, simple and fair regulations, and smaller government.
People seem not to realize that the largest companies don’t mind the myriad of regulations afflicting our markets because they have the capacity to navigate them (often times in by leveraging for waivers or tax loopholes). The excessive regulations (including tax regulations) stifle new competition from entering the market place.
You have to be fairly down in the dumps to think making toy rabbits in 1951 was fun. But those folks just had their whole world and ideals taken from them so I expect they weren’t to concerned about a shortening of their live’s for some unknown reason. I believe he just wanted to give up because his lifestyle had been changed by another country, and he was beneath him to simply make something like jumping rabbits. Although today that rabbit might fetch a hefty fee from some collector.
Republican pols are a bunch of %&)$(@
Strike a nerve there Bondy? Or were you on your last one??
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