Debt Wish: Dark Days Ahead
Earlier this month it was reported President Obama said, “We don’t have a spending problem.” And now it seems that a growing chorus is joining the president on this claim, arguing that five straight years of trillion dollar deficits and a national debt of more than $16 trillion are no cause for concern. Yet leading experts say otherwise, including former Federal Reserve Vice Chairman Alan Blinder, who earlier this week called trillion dollar deficits “stupefying.” Additionally, high levels of debt are associated with low levels of growth. With our debt-to-GDP ratio now on track to reach 200 percent by 2040, let’s hope Washington wakes up before the American dream turns into a nightmare.
“WE DON’T HAVE A SPENDING PROBLEM.”
Growing Chorus Emerges Around The Idea That Spending And Trillion Dollar Deficits Aren’t A Real Problem:
President Obama: “We don’t have a spending problem.” (Stephen Moore, “The Education of John Boehner,” The Wall Street Journal, 1/6/13)
White House Press Secretary Jay Carney: “Deficit reduction is not a worthy goal unto itself.” (Daniel Halper, Carney: “Deficit Reduction Is Not A Worthy Goal,” The Weekly Standard, 1/10/13)
Sen. Mary Landrieu (D-LA): “I am not going to keep cutting the discretionary budget–which, by the way, is not out of control despite what we hear on Fox News.” (Congressional Record, p. S322, 1/28/13)
Paul Krugman: “On my list of things to worry about, the long-term deficit is number five or six. It just doesn’t belong up there. … We are not actually running up debt any faster than we should.” (Paul Krugman, MSNBC’s Morning Joe, 1/28/13)
New York Times Columnist Gail Collins: “You have to give my guy [Paul Krugman] credit, he said all along, look people are worried, they’re worried and they’re screaming … ‘inflation’, ‘loss of confidence’, all these things and they haven’t happened. They haven’t been the problems. The problems haven’t been inflation. The problems haven’t been loss of faith in our credit. The problem has been a lack of juice for the economy.” (Gail Collins, MSNBC’s Morning Joe, 1/29/13)
BUT LEADING EXPERTS SAY OTHERWISE
“Stupefying” Deficits Could Have Costly Consequences:
Former Federal Reserve Vice Chairman Alan Blinder: “The federal government borrowing more than a trillion dollars a year? That’s a stupefying number. … That spells less business investment, less homebuilding, fewer automobile sales, and so on.” (Alan S. Blinder, “How to Worry About the Deficit: (1) Don’t; (2) Wait a Few Years; (3) Then Worry About Healthcare Costs,” The Atlantic, 1/25/13)
Former Treasury Official Steve Rattner: “We are borrowing (stealing?) from our children to pay far more in benefits to seniors than we are paying into the system. We have something like $60 trillion in unfunded liabilities to Medicare and Social Security. Paul Krugman would like us to just wait until those programs run out of money, at which point those unfunded liabilities would be just that much larger.” (Joe Scarborough, Editorial: “Paul Krugman vs. the world,” POLITICO, 1/28/13)
MSNBC’s Joe Scarborough: “How long will politicians fool themselves into believing that their version of a Washington-based trickle down economics will save America from itself? When will they figure out that our economy will grow from the bottom up when Washington cuts the debt, balances the budget and finally gets out of our way?” (Joe Scarborough, Editorial: Trickle-down liberalism and a decade of debt,” POLITICO, 1/27/13)
Council on Foreign Relations President Richard Haass: “As I argued to @NYTimeskrugman on #Morning_joe, the deficit deniers are right until the day they are wrong. & that will be one costly day.” (Richard Haass, Twitter, 1/28/13)
Fitch Ratings: U.S. Credit Could Be Downgraded Without “Credible” Plan To Reduce Deficit In Six To 12 Months. “Fitch warned that the United States could still face a debt downgrade if policymakers don’t pull together a ‘credible’ plan to reduce the country’s massive deficit over the medium term, which it defines as six to 12 months.” (Luciana Lopez, “Fitch backs away from downgrade of U.S. credit rating,” Reuters, 1/28/13)
Fed Survey: “U.S. Should ‘Urgently Enact A Plan That Puts It On A Path Toward A Sustainable Budget Deficit.’” “Wall Street is sending a sharp and unambiguous message to Washington: cut spending and solve the deficit problem now and don’t do it with more revenue. The January CNBC Fed Survey finds eight of 10 respondents agreeing with the statement the U.S. should ‘urgently enact a plan that puts it on a path toward a sustainable budget deficit.’” (Steve Liesman, “Wall Street to Washington: Cut Deficit Now,” CNBC, 1/29/13)
HIGH LEVELS OF DEBT ASSOCIATED WITH LOW GROWTH, LONG-TERM HARM TO ECONOMY
SHOT: GDP Slows As Debt Levels Rise. “Perhaps the biggest finding is that high levels of public debt have been associated with lower growth. The vast majority of the episodes — 23 of the 26 — coincided with substantially slower growth, and average annual growth was 1.2 percent lower during periods with debt-to-GDP levels above 90 percent (2.3 percent growth) than below 90 percent (3.5 percent growth). (Larry Swedroe, “How Our National Debt Hurts Our Economy,” CBS, 11/12/12)
CHASER: Debt Expected to Reach 200 Percent of GDP By 2040. “Scheduled spending cuts from the 2011 budget deal, combined with the fiscal cliff agreement, put the debt on track to reach 200 percent of GDP by 2040, five years later than was projected prior to the passage of the two deals. … Many economists suggest keeping debt at or below 60 percent of GDP, with research showing that economic growth slows for countries that have debt levels exceeding 90 percent of economic growth.” (Vicki Needham, “US debt headed toward 200 percent of GDP even after ‘fiscal cliff’ deal,” The Hill, 1/29/13)
Lower Standard Of Living And Fewer Opportunities For Americans. “Historically, America’s strong growth and high living standards were built on our relatively smaller government. The ongoing surge in federal spending is undoing this competitive advantage we had enjoyed in the world economy. CBO projections show that without reforms federal spending will rise by about 10 percentage points of GDP by 2035. If that happens, spending by American governments will be more than half of GDP by that year. That would doom young people to unbearable levels of taxation and a stagnant economy with fewer opportunities. (Chris Edwards, “The Damaging Rise in Federal Spending and Debt,” Cato, 9/20/11)
In The Long Term The Economy Will Suffer. “Even if you buy the broad Keynesian arguments for deficit-funded stimulus, there are inevitably tradeoffs to boosting the economy in the short-run through added government spending. Choices that keep the economy up now will hurt it later.” (Peter Suderman, “The Keynesian Tradeoff: Boost the Economy Now and You’ll Slow Growth Later,” Reason.com, 11/9/12)
Wealth is not Created at the Top: It is Only Devoured There
The UK has left the EU and we can argue about the minutiae of Wealth until we’re blue in the face. But the overriding factors are apparent and in one of the richest countries in the world it is shocking that so many people can’t even be sure if they are going to be able to eat enough today or provide for their loved ones.
These days, politicians from the left to the right assume that most wealth is created at the top. By the visionaries, by the job creators, and by the people who have “made it”. By the go-getters oozing talent and entrepreneurial-ism that are helping to advance the whole world – Opinion by Rutger Bregman
… across the spectrum virtually all agree that wealth is created primarily at the top and so entrenched is this assumption that it’s even embedded in our language. When economists talk about “productivity”, what they really mean is the size of your paycheck. And when we use terms like “welfare state”, “redistribution” and “solidarity”, we’re implicitly subscribing to the view that there are two strata: the makers and the takers, the producers and the couch potatoes, the hardworking citizens – and everybody else.
Bankers, pharmaceutical giants, Google, Facebook … a new breed of rentiers are at the very top of the pyramid and they’re sucking the rest of us dry
In reality, it is precisely the other way around. In reality, it is the waste collectors, the nurses, and the cleaners whose shoulders are supporting the apex of the pyramid. They are the true mechanism of social solidarity. Meanwhile, a growing share of those we hail as “successful” and “innovative” are earning their wealth at the expense of others. The people getting the biggest handouts are not down around the bottom, but at the very top. Yet their perilous dependence on others goes unseen. Almost no one talks about it. Even for politicians on the left, it’s a non-issue.
To understand why, we need to recognise that there are two ways of making money. The first is what most of us do: work. That means tapping into our knowledge and know-how (our “human capital” in economic terms) to create something new, whether that’s a takeout app, a wedding cake, a stylish updo, or a perfectly poured pint. To work is to create. Ergo, to work is to create new wealth.
But there is also a second way to make money. That’s the rentier way: by leveraging control over something that already exists, such as land, knowledge, or money, to increase your wealth. You produce nothing, yet profit nonetheless. By definition, the rentier makes his living at others’ expense, using his power to claim economic benefit.
But here comes the rub. Most rentiers are not as easily identified as the greedy banker or manager. Many are disguised. On the face of it, they look like industrious folks, because for part of the time they really are doing something worthwhile. Precisely that makes us overlook their massive rent-seeking…
The problems we face are that the politicians are firmly in the hands (pockets) of the uber wealthy. We live in a corporate plutocracy and those holding all the wealth and therefore power have no intention of changing the status quo, even if it isn’t sustainable. They remind me of bacteria (or cancer) devouring the host body more and more even though eventually it will kill them too.
Donald Trump Forgets Important Lesson From Grandad:
Harper’s Magazine reprints an interesting letter from US President Donald J. Trump’s own grandfather that may get you thinking. Here is it then:
The Emigrants – By Friedrich Trump – From a letter written in 1905 by Friedrich Trump, Donald Trump’s grandfather, to Luitpold, prince regent of Bavaria. Trump had been ordered to leave Bavaria for failing to complete mandatory military service and to register his initial emigration to the United States twenty years earlier.
Prince Luitpold rejected Trump’s request for repatriation; the family later settled in New York. Translated from the German by Austen Hinkley.
Most Serene, Most Powerful Prince Regent! Most Gracious Regent and Lord!
I was born in Kallstadt on March 14, 1869. My parents were honest, plain, pious vineyard workers. They strictly held me to everything good — to diligence and piety, to regular attendance in school and church, to absolute obedience toward the high authority.
After my confirmation, in 1882, I apprenticed to become a barber. I emigrated in 1885, in my sixteenth year. In America I carried on my business with diligence, discretion, and prudence. God’s blessing was with me, and I became rich. I obtained American citizenship in 1892. In 1902 I met my current wife. Sadly, she could not tolerate the climate in New York, and I went with my dear family back to Kallstadt.
The town was glad to have received a capable and productive citizen. My old mother was happy to see her son, her dear daughter-in-law, and her granddaughter around her; she knows now that I will take care of her in her old age.
But we were confronted all at once, as if by a lightning strike from fair skies, with the news that the High Royal State Ministry had decided that we must leave our residence in the Kingdom of Bavaria. We were paralyzed with fright; our happy family life was tarnished. My wife has been overcome by anxiety, and my lovely child has become sick.
Why should we be deported? This is very, very hard for a family. What will our fellow citizens think if honest subjects are faced with such a decree — not to mention the great material losses it would incur. I would like to become a Bavarian citizen again.
In this urgent situation I have no other recourse than to turn to our adored, noble, wise, and just sovereign lord, our exalted ruler His Royal Highness, highest of all, who has already dried so many tears, who has ruled so beneficially and justly and wisely and softly and is warmly and deeply loved, with the most humble request that the highest of all will himself in mercy deign to allow the applicant to stay in the most gracious Kingdom of Bavaria.
Your most humble and obedient,
… Well then. Long ago, yes.. Still applies? You tell me.
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