Nobody but wild-eyed, fringe Austrian economists believes we need to pay off the debt to zero in order to have a healthy economy and public sector.
You can’t just make up a number, though; the amount of GDP that could be made available for debt reduction might be $2tn, or it might be $5tn.
This chart is handy. Since the beginning of social programs in the 1930s, debt as a percentage of GDP as consistently risen. We are currently spending more as a percentage of GDP as we were at a HEIGHT of the first World War!
ETA: Spending…not debt. It’s a spending problem…
US participation in WWI was fairly limited and lasted all of a year, so that’s really not an impressive statistic. It’s like saying we spend more on defense than Canada.
Ah yes, don’t we all long to return to the glory of the United States during the Guilded Age?
Nitpick: Gilded.
Ahem. I was referring to the time of our history when economic production was controlled by bands of compulsive online gamers.
Well, not really. I regret my error.
Of course not. Almost everyone agrees that we need social programs and a strong military, but we have to structure these programs so that they are sustainable in the long term without a debt explosion.
If that means that people have to be age 75 before Social Security and Medicare start, then that’s what that means. If it means that we can’t have the capacity to fire on, say, Syria at an hour’s notice, then that’s what it means. We have to explore the consequences of each and choose the worst option available.
We don’t need to do it, now, now, now, but we need to put a plan in action so it happens very soon. Saying that there are no worries because the treasuries are selling at all time low rates is theater. Treasuries are at all time low rates because the Fed is buying them by the bushel. The fact that foreign investors are buying with these low rates is nothing more than confidence that we will straighten ourselves our financially. It is nothing structural, but simply faith and confidence.
It’s why we accept payment in US dollars instead of chickens. Because we know that eventually something will have to happen before we hyperinflate our currency. We know that the smart guys in Washington will come up with something before that happens.
So let’s do it now instead of when our grandkids are saddled with $1 trillion per year in interest payments alone. Do it now instead of making the age 80 before social programs start or we can’t police the world anymore. The cuts won’t have to be as harsh now if we set the programs on the right path.
Not really. If you want to include the total U.S. income private and public, doesn’t it make sense to compare that to the total U.S. debt private and public? I believe this number is closer to $56 to $60 trillion, not $16 trillion.
I think you are looking at this backwards. We shouldn’t be looking to grow our economy to be able to fit our debt; our debt should be growing to accommodate our growing economy. This is like an oil wildcatter going to his bank after defaulting on his loan and saying that he is going to just drill his way out of the problem. The bank wants to loan more money to the guy who is growing his business successfully, not just send good money after bad.
But to be fair, aren’t people saying that we should be reducing spending by adjusting long-term entitlement spending? Nearly everyone realizes that we are going to still be running short term deficits, people want to deal with the deficits further out the curve.
Except that the bank still wants to lend us money, unlike the wildcatter. In fact, it’s so desperate to give us money it will do it at historically low interest rates.
Growing the economy fixes many, many problems, not just the debt. The approach you suggest – make fiscal decisions that are chained to the health of the economy – leads to absurd consequences.
For example, when are social services like unemployment insurance, health care for the poor, food stamps, and job retraining most needed? We can argue about whether too many or too few people are eligible for these programs, but it is plainly obvious that the greatest need for these programs will be when the economy is not doing well. With your proposal of making fiscal decisions that fit the state of the economy, we would have lots of funds for food stamps when there is full employment, and very little for food stamps when people are actually at risk of starving. That doesn’t even make any sense.
Similarly, how should defense spending levels be set? Should we look at the dangers of the world and figure out what we need to spend to assure our security? Or shall we peg defense spending at an arbitrary figure – say, 4% of GDP – so that our defense capabilities grow during times of prosperity and shrink in times of recession, no matter what the heck is happening overseas? That’s pretty foolish, too.
Please note that I have never once argued that we should not be making decisions today to adjust revenue and expenditures to better manage the fiscal situation. However, this notion among fiscal conservatives that the debt must be slashed in the short term in order for the economy to recover is a preposterous notion that doesn’t withstand five seconds worth of intelligent scrutiny.
I won’t dispute that the U.S. has had no problem financing its deficit spending. And of course there are many reasons why people like to buy treasuries, not the least of which is the lack of other options in the world today. However, I do think there are some interesting things to note about the makeup of treasuries.
Prior to 2008, the Federal Reserve held negligible amounts of U.S. debt; since 2008, the Fed has been buying more like 50-60% of treasuries issued. Furthermore, the average maturity date of U.S. debt is something like 60 months while the average maturity date of debt held by the Fed is more like 120 months. So, in effect, a pretty damn good argument can be made that the Fed is propping up and distorting demand for Treasuries, artificially keeping rates low, and while foreign and domestic private investors are buying short-term debt, the Fed is buying all of the long-term debt.
Yes, because expansionary monetary policy, fiscal stimulus, and higher tax rates worked out so well for us during the Great Depression.
Actually, it did.
Vastly preferable to the unstable turd of an economic system we had while on the gold standard.
Quoting you out of order.
Who is making this argument? It certainly isn’t me. I don’t even think it is Republicans, of which I am certainly not one. It isn’t the Bowles-Simpson coalition. Everyone serious is saying let’s work on reducing entitlement spending. This approach still allows for short term deficit spending.
But I didn’t say make fiscal decisions chained to the health of the economy. You seem to be making the statement that okay, now we’ve taken on a bunch of debt, let’s just fix that by growing the economy into a position that improves the ratio of the size of our economy to the size of the debt. I am saying that the debt load increases as we grow. We don’t increase the debt and then grow into it.
To illustrate this, I am saying that as our economy has grown, we have needed to increase our infrastructure to accommodate this. We have debt financed much of this. As our economy has grown so has our standing in the world. We have increased the size of our military in order to protect our interests. A big part of the growth of our economy has related to our increasing population base. Our growing economy has also allowed us to increase our standard of living. This has resulted in the need to increase services at home.
Again, I didn’t make a proposal of cutting short term recession driven spending. I am saying cut long-term spending.
Again, this is nothing like what I have said.
But you have made statements that indicate you think we can grow into our higher level of debt (which is currently increasing at a rate far exceeding any reasonable projected growth rate for the U.S. economy). I’m saying that the size of our government and government services needs to be tailored to our economy’s ability to finance it. We can certainly finance the amount of debt we currently have. I don’t think we can finance our projected future debt, and therefore, I think we need to take steps to address that.
This concept that the debt is dragging down our economy is part of the Republican platform: “[T]hese levels of spending and debt are already harming job creation and growth…” But if that isn’t your view, that’s great.
I’m seeing these two statements as contradictory. If our economy worsens, the ability of government to pay for things declines. If our economy improves, government can pay for more things. Can you reconcile your two statements?
No, I’m saying that the debt load should decrease as the economy grows.
The economy during the Great Depression was “vastly preferable” to the period of the most robust growth in US history? Gotcha.
The economy during the Great Depression resulted from the laissez-faire principles you want reintroduced, smart guy.