Debt and taxes, Part V.
By Raymond Freeman 03/06/2014
Republican irresponsibility created almost all the national debt. The GOP now says this red ink is a problem only “conservatives” can fix. This propaganda runs wild for a simple reason.
People would rather drink paint than discuss economic policy … because … it’s ... sooo … borr-rring! Voters now believe Republicans are better at managing the economy. Washington Post’s Wonkblog surveyed the rubbish they’ve planted in voters’ heads, but omitted the biggest whopper. Here’s the lot.
“We can’t run deficits forever!” Why not? Some countries have debt that will never be repaid. Britain’s had it since 1757 (3 percent Consolidated Treasuries). It is a fact not universally acknowledged that Mr. Darcy in Jane Austen’s Pride and Prejudice had loads of moolah “in the three percents.” The U.S. has unpaid debt from 1836. It’s not fatal. What matters is whether paying the interest is a burden. Yes, there is a limit. Glad you’ve realized it, finally, you “conservative” purists (irony alert). So, debt shouldn’t be used for stupid wars, tanks the Army doesn’t want, or bridges to nowhere. Debt should be used wisely, to build infrastructure to make the private sector more efficient, and then repaid from cash flow (e.g., Hoover Dam). Progressive taxes should pay for all other spending, and pay off debt, just as it did under Republicans Eisenhower and Nixon.
“The debt’s passed on to our children’s children!” So? Who owns those bonds? Americans own two-thirds. They’ll pass them to their kids in their wills, as they’ve been doing since 1836.
“The Chinese will have us by the throat!” The Chinese hold about $1.25 trillion. Dumping it would devalue the dollar, leading to a collapse in Chinese exports to the U.S. — highly unlikely.
“America’s going to be bankrupt!” How, exactly? We control the global currency. We can always create more. That could lead to global inflation, theoretically. But that’s not remotely a problem (see below). America’s No. 1 problem is unemployment, caused by low demand and extreme inequality (economists Paul Krugman and Joseph Stiglitz; Professor (and political economist) Robert Reich).
“Deficits will cause inflation!” The conservative Economist doesn’t think so (Nov. 9, 2013). The International Monetary Fund doesn’t think so. Its chief economist Olivier Blanchard wrote, “A common criticism of this stress on the budget deficit is that the data rarely shows a strong positive association between the size of the budget deficit and the inflation rate.” Translation: deficits don’t cause inflation.
“Every dollar taken by the U.S. government is a dollar not put into private enterprise!” This is the old “crowding out” argument. But it’s only true during high inflation. That’s not the case now. Interest rates are super-low, and corporate America is swimming in money.
“Countries with debt over 90 percent of GDP enter a danger zone!” This gem came from conservatives Kenneth Rogoff and Carmen Reinhart. They later admitted that their calculations were wrong, that 90 percent was plucked from thin air, and they’d shown correlation, not causation (a logical fallacy). Consider that Britain had debt-to-GDP of 265 percent after defeating Napoleon. But the prosperity of the Victorian era, and progressive taxation, reduced it to 30 percent by WWI (Financial Times). It grew to 250 percent after WWII, then fell to 50 percent in 1980. Debt is not a problem if you “Keep Calm and Carry On.”
“Deficit-spending in good times makes it harder to do in bad times!” Agreed. Debt should be paid down instead, as stated. Deficit-spending must absolutely be used in emergencies to pull the economy out of depression. FDR’s New Deal got unemployment down from 25 percent in 1933 to 10 percent in 1940. Obama’s stimulus rescued America’s economy from losing 700,000 jobs each month. (Fun Fact: why do Republicans run up huge deficits once they get into power? Answer: They’re obsessed with tax cuts for the super-rich.)
“The Government has to balance its budget like a family!” This is the greatest whopper of all. A family is a small, closed system; an economy is a huge, open system. There’s no comparison. We considered this earlier.
Curiously, conservatives are silent about Uncle Sam’s balance sheet. Sam has assets as well as liabilities. The federal government owns vast lands in the West, charging a mere pittance in rents and royalties. It’s high time these were raised to market levels to pay down national debt. Those rock-ribbed conservative ranchers are all flag-waving patriots, right? They love free markets, right? And Republicans are silent about subsidies to corporations, the real “welfare queens,” costing the average taxpayer $6,000 per year. Curiously, they make a huge fuss over the $36 per year for welfare.
My friends, the conclusion from this miniseries is simple. Despite all their fine noise, so-called “conservatives” aren’t worried about deficits once they get into power. They just want to run up the tab and stick you with the bill. “By their fruits shall ye know them.” (Matthew 7:16.)