Deficit hawks are in the news a lot lately, and it seems that the label is one that every politician aspires to earn. Who wouldn’t want to be associated with “fiscal responsibility” and “sound financial management”? In the interest of full disclosure, I must admit to being proud of President Clinton’s accomplishment (achieved through the Deficit Reduction Act of 1993, and not through the efforts of a GOP-majority House not in office until 1995). He managed to start paying down the debt largely incurred on President Reagan’s watch. I was even aggressively critical of President Bush’s expansion of federal debt (for those with short or tea-compromised memories, he doubled the debt during his term).
Here’s the thing; in as much as I was critical of debt and deficit for debt and deficit’s sake, I was wrong. Basic economics tells us that, for the United States, there is no term risk of bankruptcy to worry about. Large and accelerating structural debt is a problem when matched with a national economy humming along near full capacity. The threat, if the above happens, is inflation. I know that techno-jargon is annoying friends, but this is important. When you hear someone frantically warning of “our debt crisis”; ask them why. Our economy is currently nowhere near full capacity, and won’t be anytime soon. The market continues to accept low interest rates on long term federal debt, meaning that it does not consider that debt to be risky. We are not Greece. We can print the money that our debt is denominated in, with the risk again, being inflation. Greece can’t print their own money. and they can’t manage interest rates within their economy either. We can.
I have a very quick post today on balancing the Federal Budget. I have previously posted on this topic here, on earmarks and reality here, and on inflation and related concepts here. The issue of deficit reduction seems to come to the forefront during recessionary periods in our history (despite the fact that the two issues are not linked). The Tea Party movement and Republican hierarchy have made a major talking point out of the issue (despite those folks lack of interest in federal debt during the Bush Administration, who tripled the debt in 8 years).
The folks at the Center for American Progress have written a short (10-20 minute read depending on your personal speed) and simple memo on the task facing the President’s Bipartisan Deficit Reduction Commission. The group has set a target of balancing primary spending and revenue by 2015. Their memo can be read here. I am urging the readers of the RM to become fluent in this process at a basic level, and to spread the knowledge to your friends and relatives. The screaming many of us have done about individual programs that may cost hundreds of millions or even billions of dollars, typically reveals how little most of the citizens of our democracy understand the scale of the Federal Budget, and the services it provides. Remember friends, that a $50 billion program in the Federal Budget represents the same value as $100-$200 in a normal American household budget.
The Federal Budget is one of the most consistently misunderstood documents in American life. The vast majority of Americans have no real idea of the process involved in the budget’s adoption, or the scale (in terms of real money) of the thing itself. This is a major impediment to sound participatory democracy; a basic understanding of how our government plans for the harvest and allocation of tax dollars is a necessity. The good news, I believe, is that the basics are within the grasp of all Americans; it really isn’t rocket science folks (except for the NASA budget…that is rocket science).
In order to quickly see the fundamental points that a voter needs to understand, I will use a two-part example; the 2009 Federal Budget (George W. Bush’s last), and the campaign platform of Republican Senatorial candidate Sue Lowden (running in my home state of Nevada). As always, I would encourage the readers of this post to follow the logic using your own primary source material; just pick a budget year and play with the numbers, then compare what you have learned to the campaign promises (and folks, that process reveals that stretching the budget truth is a bipartisan deal). For this excersise, the budget data comes from the Government Printing Office and Mrs. Lowden’s positions come from her site.
Now that we are all done with health care reform and there is no more controversy on the matter……..well perhaps not. There is of course, more business to attend to in our democracy. For the consideration of the Senate of the United States, we have financial reform! The all-encompassing amoeba of politics, finance reform is an issue that everyone seems to be interested in, and no one seems to be able to define.
For the last 18 months, the universal signs of evil were the denizens of Wall Street demanding and receiving bailouts, then giving themselves bonuses of staggering proportion. For the last 18 months, the idea that something had to be done about the greed, hubris, and audacity of the captains of finance has been embedded in the conscious of Democrats, Republicans, and Tea-Partiers alike. Surely this is an issue for which our democracy could find quick consensus and decisive action. Yeah, right!
Greece is begging for money. The home of the world’s original democracy is essentially bankrupt and is now forced to ask the rest of Europe for a bailout. Many of our nations’s newspapers, along with Conservative commentators and dim bulbs like Dana Milbank, are suggesting that the United States will take its turn if nothing is done with our fiscal crisis. Folks, we are spending a great deal of money at the moment trying to dig out from the collapse of the $8 trillion housing bubble. As a nation, we are also facing unprecedented inflation in the health care sector. We are not however, on the road to bankruptcy…period.
Please put politics aside on this issue, as it is about basic macroeconomic realities and not the difference between Democrats and Republicans. Greece finds itself in desperate straights because they are in the Eurozone (yes, it is a real place and not a bad joke); they no longer have a currency that adjusts to regional economic realities. We have the U.S. dollar and a central bank (The Fed) that can influence the supply of money. In other words, we have the flexibility to meet our challenges whereas Greece does not.