Today's topic: When will Washington ever be able to pay down its overall debt, which is approaching $11 trillion? Given what's happening with the aging population, when might we be in a position to reduce the debt load? Or will we simply count on a growing economy to make the debt look smaller in comparison to gross domestic product? Previously, Henwood and Doherty discussed the risks of deflation versus inflation in light of the Fed's recent interest rate cuts and how big the national debt should be in relation to the gross domestic product.
Enough with the national-debt boogeymanPoint: Doug Henwood
I have a problem with the premise behind every question for today.
Why does Washington really need to pay down its overall debt? When does any nonhuman entity ever pay down its debt? Individuals do go through a life cycle of accumulating debts while young and reducing them with age (if circumstances cooperate, of course). But why should a corporation or especially a government, whose life spans are usually presumed to be infinite (not literally, but practically), ever pay down its debt? General Electric, one of the most solid of our large corporations despite recent wobbles, has a debt of almost $550 billion supported by annual revenues of $185 billion. GE's debt is equal to almost 300% of its revenues.
By contrast, the U.S. government's debt, "approaching" $11 trillion (actually, less than half of it is held by the public, but let's not quibble), is less than the country's GDP, which is more than $14 trillion -- a 78% ratio.
So by these measures, the government, which has considerable powers to tax as necessary, is in far better shape than GE, which can only hope that people will continue to buy its products. But you never hear anyone complaining about the unsustainability of GE's balance sheet. The worst you hear is that it might lose its prime credit rating sometime in the next few years.
Ah yes, the aging U.S. population. We hear that one all the time. I've been taking these claims apart for a long time (click here for the latest). Yes, the elderly share of the population is going to rise in the coming years, but in 2080, we're projected to have a lower dependency ratio (nonworkers per worker) than we did in 1980. Our major spending problem is an insane system of healthcare finance, which is what's driving Medicare spending through the roof. Paying for retirees isn't anything like the burden that everyone says it is. Our crackpot healthcare system costs far more money and covers far fewer people than the "socialized" systems in more civilized countries.
Finally, counting on a "growing economy to make the debt look smaller" makes such a strategy sound like a confidence trick. But it's an absolutely standard way of measuring the burden of public debt. According to official projections, gross federal debt will be 67% of GDP in 2013; the Congressional Budget Office's projections are a few points higher. That's about what it was when Bill Clinton took office and a little more than half what it was at the end of World War II.
According to the Organization for Economic Cooperation and Development, our debt burden is a little lower than the Euro area and less than 40% of Japan's (pdf). And if we ever get too worried about that burden, we can always tax rich people. That's a much better strategy for the long term than borrowing the money from them. It's OK to borrow big in a pinch, and God knows we're in a pinch right now, but it'd be much better to take their money and spend it on schools and healthcare rather than on paying interest to people who have plenty of money already.
Most of what I've written over the last few days is about the short-term strategies of addressing a profound economic crisis. But there are some long-term considerations as well. One that immediately comes to mind is a fundamental re-thinking of our market-driven, finance-centered economic model. It's badly broken.
Brian, I guess that you would attribute this to too much government interference, but I doubt many would find that persuasive. Since the government is getting so deeply involved in rescuing a private sector that screwed up badly, we could actually do something meaningful with that intervention, such as creating new, publicly owned or cooperative banks. If we're bailing out the auto industry, the government could require equity for the workers and give them seats on the boards of their companies.
The "free market" era is over, but you'd hardly know that from our political discourse.
Doug Henwood edits the Left Business Observer and does a weekly radio show on WBAI-FM in New York and KPFA-FM in Berkeley.
More debt means Washington gets more of our money Counterpoint: Brian Doherty
Doug, since you have larger interests beyond just the political wrangling and policy decisions of today -- figuring out ways to squeeze our way through any given crisis with whatever expedient can be pulled out of a hat or with whatever money can be borrowed or squeezed out of the American people -- I'll step back here to some larger issues of political economy, the type of big-picture issues that your intellectual influences like Karl Marx and my intellectual influences like Ludwig von Mises were concerned with.
But to quickly address your specific points first: As a public policy matter, we hear complaints about the sustainability of the federal government's balance sheet more than GE's (though people heavily invested in GE should worry, since the events of the past four months show that private companies can indeed sink quickly under the weight of debt, even if perhaps they could have dealt with it in the long term) is that "we" are not all responsible for paying off GE's debt somehow. (Though in the current political climate of bailouts as far as the eye can see, we probably will be.)
Every dollar spent living beyond the federal government's means now is a dollar that will have to be paid off with interest, either in our lifetime or another's -- and for the reasons we talked about in previous go-rounds, bears a risk of wrecking the entire fiat paper-money house of cards to boot. While it's nice to know that Social Security will once again have a manageable worker-to-retiree ratio in 2080, it's the years between 2015 and then, when the baby boomers are all relying on it, that we should be worrying about now.
Back to the big picture. The "free market" era never really began; the current crisis is fully rooted in government policy decisions, from monetary and credit policy to mortgage-guarantee policy. Far too many decisions about what happens with people's lives and resources are made by people other than ourselves in our ongoing era of big government. Government overreach, in its functions and its costs, is the cause of all the monetary policy and debt questions we've been hashing over.
Crises like our current one should inspire us to rethink the big picture. In doing so, I think it's best to turn not toward giving more power over everyone's lives and decisions to a tiny elite that can do whatever it wants and take whatever it wants from us -- and do so largely unaffected by our wishes.
Anyone who pays attention to how politics works should recognize that those government elites who command more and more of what we earn, who circumscribe our choices more and more, who wage wars on drugs and wars overseas at great extent and for little purpose, are far more likely to line their own pockets and those of their friends and prop up the status quo at whatever cost (as we are seeing happen quite clearly these days) than give power and choice to the people.
Whether or not you agree that monetary and debt policies we've been hashing over risk ultimate crisis and collapse, as I fear they might, they and the government power and resource grabs to which they lead limit the spaces where we can make our own choices about our lives and the world around us. They ensure that more of those decisions are made -- and more of our and our children's money is spent -- the way a small gang of people in Washington and their friends want, not as Doug, or I, or you might want. And that's always worth worrying about.
Brian Doherty is a senior editor at Reason magazine and author of "Radicals for Capitalism" and "Gun Control on Trial."