News Flash: Economic doomsday is just around the corner, according to Roger Simon, Chief Political Correspondent of US News & World Report—unless, of course, we adopt his party-line remedy. (Guess which party; guess which remedy.)
Me? Well, whenever a political partisan predicts economic doomsday unless we straighten up and fly right, my mind's eye pictures not doomsday, but a line from Ralph Waldo Emerson:
The louder he talked of his honour, the faster we counted our spoons.
The article I’m talking about (this time) was published Sept. 20, 2005: "Sacrifice? Don't Count on it" by Roger Simon of US News & World Report. (Please don't confuse this Roger Simon with novelist/screenwriter/blogger Roger L. Simon, by the way.) Follow the above link to read Simon's entire article; the image below is an excerpt I assembled, showing seven pseudo-economic assertions that deserve a response.
Taking them one at a time, here are my responses:
"Who cares" about those large dollar numbers? That's easy: politicians and political correspondents trying to put a persuasive, negative spin on economic half-truths. Those folks deal in raw dollar numbers that look really big and scary. (This article explains how they do it.)
Objective economists, on the other hand, compare deficits and debt to the size of the economy before drawing conclusions or making value judgments. They know that, on one hand, just a few billion dollars of debt would mean near-bankruptcy for some countries; but they also know that $8 trillion debt is comfortably manageable for any country with a sufficiently large, growing economy. (The world currently contains at least one such country, by the way. I live in it.)
Last but not least: Yes, I do indeed remember the late 90s surpluses—but not with nostalgia, because those surpluses were created by dramatically cutting national security's share of federal spending. (See my article Rethinking the Surplus.)
Interest of $208 billion sounds like a lot, doesn't it? But what is $208 billion as a percent of our tax receipts? Answer: nine or ten percent. How does that compare with the early 1990s? It was eighteen percent back then. So: Why are we not celebrating the fact that interest payments today are half the burden they were back then? (Might it dampen the political spin imparted by the scary-looking number of $208 billion...?)
"Interest on the debt buys us nothing"?? I strongly disagree. It maintains our creditworthiness with the lenders of the world. Alexander Hamilton understood the importance of our nation's creditworthiness—why is it such a difficult concept to grasp today? And if we're in such dire straits financially, why do those lenders only want 5% interest from us?
And why is it so easy to talk about the interest—but forget all about the "principal" on which we are paying that interest? Because, guess what we did with the principal: We already used it to help buy aircraft carriers and highways. The aircraft carrier below, for example, was funded by a mix of 80% equity (tax reciepts) and 20% debt; it's the Nimitz-class carrier commissioned in 2003. Note its name.
The USS Ronald Reagan
So much for not getting aircraft carriers. What about highways? Well, I was going to mention the Big Dig, but changed my mind at the last minute. What about environmental protection? That's proceeding nicely, thank you; reforestation has turned North America into a net carbon-absorbing region of the globe. (However, just how much of the reforestation of North America is attributable to government spending is up for serious debate.)
Lastly, what about levees? Well, it's true we could have had more of them—if only the Corps of Engineers' Mississippi water control projects hadn't been ridiculed as "pork" and removed from the budget. Too bad those projects got rejected; seems to me levees would have been a good investment, and we could have funded them as we funded the USS Ronald Reagan: 80% equity, 20% debt. Unfortunately, that is now water under the bridge, as they say.
Xenophobia, anyone? Tell me, what's so scary about the Chinese, and why single them out? (The chart below explains in detail what I mean.)
And, excuse me, just how is it that the Chinese are "in control of our economy"? The author obviously missed this recent report to the Secretary of the Treasury, which said the following:
The presenting Committee member concluded that the large portion of debt held by foreigners does not create a substantial risk for the Treasury. A broader, global investor base should be more stable than a narrow, concentrated, solely domestic one. Moreover, if foreign buying slowed or stopped, there is ample scope for domestic investors to fill the void given broad based observance of portfolio underweighting in fixed income portfolios.
Mr. Simon also obviously missed Alan Reynolds' article explaining what happens when foreign central banks cut back on purchasing US Treasury securities:
Nothing happens – absolutely nothing.
Thankfully, however, the author did stop short of using the term "Yellow Peril" to describe the alleged future perpetrators of economic doomsday. (Don’t rule it out just yet, though, because it would fit nicely on a political bumpersticker.)
We most certainly did not put everything on a "charge card." We financed everything using the following mix: 80% tax receipts, 20% debt.
Sacrifice is needed to pay our bills? This is a false dilemma perpetuated by political rhetoric; false because it ignores another, unmentioned choice. Why can't we increase tax receipts the old fashioned way: growing the national income, while leaving income tax rates untouched? If more people are working, more people are paying taxes; and if average incomes also grow, tax receipts grow even if tax rates don't change. These are irrefutable facts supported unequivocally by the historical record; why are they being ignored?
Bush won't ask for a sacrifice? True; not until better solutions have been tried, anyway. And what's wrong with that?
I hope that is a sufficient debunking of the pseudo-economics contained in US News’ politically-motivated editorial. I’ll conclude with two snippets from my favorite quotes file.
Here's the first one:
Debt that is incurred for capital projects of benefit to citizens and their productivity, or debt that is incurred to avoid inflicting destructive taxes on growing firms—such liabilities can become vital assets of growth and progress. . . Most of the greatest episodes of economic history—from the commercial revolution to the industrial revolution—occurred in the midst of rising prices and rising debts. —George Gilder
Last but not least:
In the old days, when a community had a problem they didn't understand, they threw some more virgins in the volcano. Now, we're much more sophisticated. We throw jobs in the volcano of deficit reduction. —Dr. Rick Boettger
