I have the same disbelief at Francis Bator’s pronouncements about our lack of a public debt problem (quoted by Mark here) as I did when Vice-President Cheney said “deficits don’t matter”, but I know from experience that in America that puts me in a minority. As Jonathan noted here, even many residents of California believe the state budget can be balanced with no cuts in services and no tax increases. There is something deeply ingrained in the American character — something evident not only in how we vote but in how we use credit cards and take out mortgages — that simply can’t accept that one can take on too much debt. We have faith that the bill will never come due, or that if it does someone other than us should pay it.
Not so the British, as Bagehot makes clear. There are sizable protests about the painful public sector cuts, but 57% of the public says that the cuts are about the right size or not large enough. Britons know from bitter experience that a country can indeed take on too much debt, and that makes them as different from us as a 55-year old who has seen his share of ups and downs is from a 18 year old who sees nothing but ever-increasing success in his future.
Alex: In his latest Op-ed in the NYT he wrote:
[buzzing in sound]
Alex: Watson…
Watson: Who is Paul Krugman?
I don’t imagine that Professor Bator sees the question as a matter of religious faith or moral imperative. For him, it is simply a question of functional, almost mechanical finance. And, thinking functionally, he isn’t blindly optimistic. On the contrary he focuses immediately on the strategic significance of governance and fiscal capacity (aka the ability and willingness to collect taxes). It is interesting that you don’t acknowledge that key qualifying phrase: “as distinct from a governance crisis and a tax-phobia crisis”.
Of course, the U.S. has a problem with run-away borrowing. The last two Administrations, of opposite Party, collaborated in guaranteeing as Federal debt, a massive quantity of fraudulent loan creation. There was no ability to repay — that’s how that debt was fraudulent — and making that debt a liability of taxpayers did not magically transform it.
For the U.K., the problem is that much larger, as their financial sector is that much larger in proportion to Britain’s core, productive economy. But, there are other wrinkles. For the U.S. the greedy decadence of the financial sector is well on track to eliminate health care for more than half the population; in the U.K., same thing, but the coalition first has to cut the budget for the NHS, which makes the game a little more obvious. And, the U.K. get a bit more help from devaluation than the U.S. can.
In the end, though, it all comes down to class warfare, moving from one front to another.
Bator said there was no public debt crisis, not there was no public debt problem. A crisis is something that needs to be addressed immediately; a problem can wait for medium or long-term solutions. Did you even follow the link and read what he had to say? Your post seems to have absolutely nothing whatsoever to do with Bator’s column, and everything to do with some idiotic straw man that in no way resembles his argument.
You make good points but Bator’s argument is not a suitable segue into them - for the reason Steven desJardins explains. As Bruce Wilder stresses, Bator implies the need for tax increases. I think what Bator’s getting at is the right’s cynical use of a debt problem they helped create to push through their callous agenda.
Bator said: “..no federal debt crisis (as distinct from a governance crisis and a tax-phobia crisis,) we do need a credible multi-year budget plan soon that would over time hold the debt/GDP ratio in check..”
We don’t have a credible multi-year plan. Various extrapolations of present budget items show expenditures exceeding income by large amounts well into the future. It’s hard to believe either party’s claim that it will address this. The Demmies want ‘steady as she goes’ for every ongoing expenditure, even the most meretricious - crop supports, f’Chrissake! ethanol for fuel! and invented the idea that the economic crisis suddenly made urgent a top-to-bottom rework of the American health care system. The Reeps paid for the Iraq and Afghanistan war with funny money, and the expenditures they opposed tended to be the ones most directly aimed at helping individuals - no principled opposition to fuel ethanol there. Both parties happily cooperated in getting vast amounts of China’s, and Japan’s, and Saudi Arabia’s money invested in securities backed by USA mortgages, which then cycled through HELOCs into paying for consumer goods we could in no long-term way afford. So that’s one way to look at the governance crisis, and reaction against it has a lot to do with the tax-phobia crisis.
The Demmies are phobic against any changes in the tax system which will not be progressive. The Reeps bang the drums against class war. The public does not trust either party not to squander any revenue increases on waste, and Tea Party activism has presented itself as the best way to keep ‘squander’ to a minimum, with huge effects in the last election.
Bator’s column would have been more useful, I think, if he had suggested a mechanism to get to a multi-year budget plan in which people would believe, and what sort of tax changes he thinks would be the least harmful way to get there. Right now, citizens who are worried really don’t have any obvious idea other than ‘starve the beast’, and neither does the majority in the House.
Steven and Dylan: That’s fair comment, I made a mistake of turning a sociological observation about the difference between views of debt in two countries into an invidious judgment about accuracy of analysis of the US vs UK situation, so let me correct that: Bator and those who believe his analysis ofthe U.S. could be factually accurate, the British voters could be factually wrong (or the reverse, I don’t know).
More broadly, people who say debt does matter or doesn’t matter would have more street cred if they did it consistently. It seems to get invoked by some people only when the subject is taxation, and by others only when the subject is spending.
I understand the impulse that says America should act its age, be shrewder, more tactically savvy, understand limits. But I think it’s fundamentally wrong.
But Keith, the debt really doesn’t matter (for the federal government, for states it’s a whole other story), what matters is America’s credit. As long as we don’t default, and there’s no sense that we would default, our credit remains great. But in Congress, we have one party openly clamoring for default while the other wants us to keep our AAA credit. The problem is governance and politics, not economics.
I don’t understand how Americans can believe that Republicans lower deficits/debt over time while Democrats raise them when historically it’s been the complete reverse.
“But Keith, the debt really doesn’t matter (for the federal government, for states it’s a whole other story), what matters is America’s credit.”
And the two have no connection to each other? Of course they do: You look at two people borrowing money: One does so occasionally, and then pays it off. The other is borrowing day in and day out, borrowing the interest payments as well as increases in the principle, and even so is relying on a teaser rate to make it all work.
Which are you going to expect to default? Because we, as a nation, look a heck of a lot more like the latter than the former.
And I must have missed all this “openly clamoring for default”, but I am aware of the side that’s almost delusional in it’s conviction that nothing we can do will ever lose us that AAA credit rating. At this point the only thing that’s maintaining that rating is the rating agencies’ fear that dropping it to AA would precipitate some kind of world-wide financial crisis.
Sean: hmmm..is it really a dichotomy (default or not)? As debt get more pronounced the willingness of people to lend us money goes down meaning you must pay more interest to attract lenders, which tends to make your indebtedness greater. I don’t have the story at my fingertips but I know we had a recent treasury action where we could not sell all the debt we have on offer.
I am with you on not understanding why political parties in the U.S. and U. K. are not held responsible for accumulating debt but are hated when they take the necessary measures to clean up a debt problem that a different party created.
Keith: I guess my response is slightly tautological: Our debt doesn’t matter until it matters. But when I say that the issue is political, and not economic, I mean that right now, there are no economic principles that are putting us into a debt crisis: core inflation is still low, as are interest rates, and we’re still considered by far the safest haven for international funds. The reason is simple: if we need to lower the deficit, we have a very easily available tool at our hands which many other nations don’t - we can just raise taxes. I don’t think any economist believes that our current tax rate is at the point on the Laffer Curve where revenues would be diminished, and historically, we’ve been able to get our finances under control relatively easily. And the ACA passing, which over time will substantially reduce the deficit (though not enough), continues that historical responsibility. But if we become unwilling to make smart investments and raise revenue (I’m of the opinion that if we cut much spending, apart from defense spending, rather than making existing programs more efficient, we’ll essentially be reducing revenue thanks to increased/extended unemployment), which is the unfortunate route that both parties seem to be tacking towards, although one of them mostly out of a sense of compromise, then I think our debt might become a real problem. But I think we’re about two elections away from seeing whether that problem will genuinely manifest or not.
Actually, I read Bator to indicate that we can afford more taxes, and that if we had the proper governance we’d raise them and pay them to address the debt issue.
Which is what was done during and after every war in America’s history save the present ones, when we gave ourselves tax cuts and used the ensuing debt crisis to cut services.
In short, it’s not a matter of what the United States can afford, it’s a matter of what we’re willing to pay for. Ditto in CA, where the numbskulls here think that we can cut taxes to raise revenues. Funny how they never try that in their homes, since home budgets are what they like to refer to. No-one tries to balance their home budget but quitting their job, or by taking less pay. Certainly not Republicans.
Idiots.
Sean, Republicans this morning are proposing to cut $4 trillion over the next decade, as a way of fixing the budget. They obviously don’t believe the spending is justified, Democrats do. So the Democratic response would be - assuming deficits matter - to raise taxes, as you say. So what would a tax proposal look like that does just that? What would $4 trillions in tax increases over a decade look like to various income levels? That would be interesting to see.
Obviously, Eli, who gets what, is always what matters in politics. The top 1% has 40% of the wealth and gets 25% of the income, and would like to pay less in taxes, meet fewer restrictions on their power, be less accountable to the public for their behavior, while getting more in government benefits. We can certainly go with that. We have been going with it for 30 years, step-by-step. I do not see any reason, though, to pretend that the people pressing for this course of action are “prudent” or worried about abstractions like the “size of government” or the size of the national debt.
To Eli: I haven’t seen the Republican proposal, so I’d appreciate it if you could link it to me (but only if it contains actual specifics, unlike every other proposal they’ve put out the past two and a half years).
As for me, I’m only worried about the deficit (around $1.5 trillion), not the debt, and if I had that handy dandy New York Times “fix the deficit” chart, I could show you exactly how I would do it. Mostly, it would involve going to a single-payer health system, or the closest possible we could get (Medicare-for-all with price negotiations and imported prescriptions available would be nice), drastically reducing the defense budget, and fixing corporate tax loopholes and raising taxes on individuals making over $250,000 and adding more tiers to make the system more progressive with the highest tier (being pretty high-up in the millionaires realm) being around 75%. I’d also want us to invest in a lot more short-, medium-, and long-term projects, especially in the sciences, green engineering, and infrastructure, which will raise the deficit in the short term but lower it substantially in the long term.
That plan probably sounds like it would never happen (although all of those things were on the NYT list of “on-the-table” items), but it would happen a hell-of-a-lot faster than the Republican/Tea Party proposal.
Oh, and a microtax on Wall Street trades (along with stricter Wall Street and bank regulation/oversight, which over the long term will help prevent deficit increases, but the microtax on Wall Street transactions would raise billions in revenue immediately, do very little to disrupt legitimate trading, and discourage the crazy speculation that got us into the crisis in the first place).
No, not one cent more in taxes, until it’s demonstrated that the government is capable of restraining spending. I mean, geeze, look at a graph of revenues and expenditures some time. For almost the entire past several decades it’s the case that revenues were rising, and if expenditures had just been held constant for even 2-3 years, the budget would have come into balance. That’s not the record of a revenue shortage, it’s the record of a political class determined to spend every cent it can get it’s hands on, and then some.
So, no. Show some spending discipline, and then we’ll talk. You just want more of our money to spend.
The American electorate is, as polls indicate, fairly ignorant of the budget. So I think you can expect Americans to elect politicians who vow to cut taxes and balance the budget all while protecting the largest and most popular spending plans. Just look at the 2010 midterms. The GOP platform was to balance the budget and not cut social security, Medicare, Medicaid, and defense. And also prevent any tax increases.
Personally I’d love to see a politician try and cut social security, medicare, Medicaid, and defense. I think he or she would be lynched.
I’d like to see a politician try to just FREEZE SPENDING. Not cut anything, just stop the increases. That’s all it would take, for a few years, to balance the budget. That this is widely seen as unrealistic is about as clear an indication of how out of control our government’s spending is, as you could possibly ask.
Even suggest it, and you’re accused of wanting widespread ruin and death, as though the country were a suburb of hell just a couple of years ago.
Sean, I think I remember that - I remember “fixing” it too! (I think by mainly enacting my philosophical preferences = cuts to the military and raising taxes on the rich. Here it is: http://www.nytimes.com/interactive/2010/11/13/weekinreview/deficits-graphic.html?ref=weekinreview
Brett, but where is all that new spending really located, and how much doe sit amount to, as opposed to realities of rising costs overall?
It’s been rising faster than the rate of inflation for three decades now. Forget where it’s going, that’s just an effort to return to the log rolling dynamic which got us here. Fix the bottom line, and let the spending priorities compete against each other, rather than all driving us in the direction of more spending.
Or admit you just want more money, not a balanced budget. Which I think is the truth of the matter.