A depressing pall has been cast over American political and economic discourse -- the specter of deficit reduction. Sixteen months after a greatly pared-down stimulus package was passed by Congress, as a response to the worst economic crisis since the Great Depression, public discussion about appropriate taxing and spending priorities have become warped by an insidious, if often implicit, moralism. Official unemployment hovers around ten percent. Accounting for those who are involuntarily working part-time, or have dropped out of the labor force because they've given up looking for work (understandable, since there are about five unemployed people for every job opening), the so-called U-6 figure is closer to seventeen percent. About one in five American children lives below the poverty line and the figure is rising. Public infrastructure and public schools are suffering under the weight of long-term neglect and savage budget cuts.
But we are increasingly being told, from many of the most respectable quarters (forget the predictable bleating of Congressional Republicans or the Tea Party crowd) -- the op-ed pages of the Washington Post and the New York Times, the major network talk shows, and blue ribbon presidential commissions -- that we are living beyond our means, that our borrowing is out of control and must be reined in, that we are imperiling our children's and grandchildren's future. There is a debate about whether the stimulus itself succeeded, and to what degree. But whether people believe the stimulus helped or not, that debate is being carried out on particular premises -- that it was a lot of money to spend and that such a policy approach is not sustainable.
This scare-mongering about deficits is built on a series of fictions. Four are of note. One is that our "entitlement" programs are at risk of insolvency and threaten to swamp our economy in the future. In fact, our largest such program, social security, is fully sound. It can pay all benefits, at constantly rising living standards without any changes for the next three decades. After that, it could still pay all benefits at more slowly rising living standards out to the end of the seventy-five year window that is the limit of what actuaries could conceivably calculate (relatively minor fixes would also ensure its soundness virtually indefinitely). The long-term economic threat we face is due almost entirely to rising health care costs. This is not an "entitlement" issue, per se. It is a consequence of the way in which we pay for health care, which is far more expensively, with less broad coverage, than any other wealthy country. There are clear fixes for that (the political will to take on those fixes, as we've seen, is another matter).
A second fiction is that the United States government is like a person, or an ordinary household, that will go "bankrupt" if it doesn't rein in out-of-control spending (a notion once popularized by Ross Perot).
But the United States government is not a person or a household. In fact, it is an entity that exists in perpetuity and has a greater capacity to borrow, virtually indefinitely, than any other entity in the world. While the deficit hawks -- many of whom are living the high life on the backs of public policy interventions that have both driven the current deficits and opened an enormous gulf between themselves and everybody else -- insist that we cannot live beyond our means, the truth is that such a characterization is besides the point. The United States government can borrow vast sums of money. It can also pay back that money on terms not available to any other entity on the planet. As a friend of mine, an economist, asks his students -- how anxious would you be to pay off your credit card if the interest rate were under five percent and you knew you would live forever? Even if the analogy isn't one hundred percent exact, it is far closer to the situation the government actually faces than the anthropomorphizing implicit in this debate. Yet, despite the fact that there are differences among people concerned about the deficit, that perspective -- that we can borrow far more than we already do -- is virtually never uttered in any respectable public forum.
The third, related to the second, is that credit markets will punish the United States for its profligacy. There is, at the moment, no evidence whatsoever that this is happening. In fact, interest rates on US Treasury Bonds are at historic lows. This means that people consider the US an especially safe bet right now, a consequence of what Brad Delong has called, alternatively, a flight to safety or a flight to quality. And there is simply no evidence that this is going to change any time soon. The deficit scolds insist that at some point in the future we'll have to pay higher interest rates to borrow money, which will cause inflation. Paul Krugman and Delong, among others, have routed the scare-mongers on this point (at least on the actual evidence), but even if the concerns were more valid, there is no obvious basis for arguing that reining in inflation (which, by the way, is at its lowest point in over forty years), is a more pressing matter than dealing with mass unemployment, rising poverty and a denuded public infrastructure.
The fourth is that we spent a lot of money on the stimulus. David Brooks attempted last Friday to show that the stimulus didn't work and informed his readers that the "stimulus package [] will end up costing each average taxpayer $7,798."
But as Dean Baker noted in his thorough de-bunking of Brooks' column, the money spent was, to a significant degree, off-set by budget-cutting state governments. Additionally, the money was spread out over two years (actually, some of the money is to be spent in 2011, but the bulk of it will have gone out by the end of this year). And $80 billion was a fix to the alternative minimum tax that Congress makes every year. Relative to the size of our economy, net stimulus from government spending came out to about one percent of GDP, hardly a massive outlay relative to the size of the economic contraction we faced at the time.
It's also worth noting that people write out dollar amounts in the way that Brooks did when they want to make a point. Brooks wants to hammer his readers with a big number. It's a tactic that, as far as I can tell, he has never -- since he began writing regular columns for the Times in 2003 -- used in discussing Pentagon spending or tax cuts for the wealthy. But to put this in context, we spend nearly $700 billion every year on our military budget (including our wars), and I don't see David Brooks writing out the dollar amount that that comes to for each taxpayer, or the implications of that spending for our deficits. By the time the last of the stimulus money is spent in 2011, our military spending over the same period will have come to roughly two trillion dollars. To put that in terms that David Brooks can understand, that's $20,000 (as in twenty thousand dollars!) per taxpayer.
But beyond all of these points, at the heart of this mania for deficit reduction is a warped moralism. Let's begin with the fact that the advocates of swallowing the bitter medicine of deficit reduction, of living within "our" means, come overwhelmingly from the most affluent segments of American society. The people pushing this line come overwhelmingly from the affluent among us. Some of its main proponents are insanely wealthy.
And they are insisting that "we" swallow medicine that they, themselves, need never ingest. The incessant cant that deficits are terrible burdens passed off to our children and grandchildren is a dodge, allowing the deficit hawks to cloak their bloodless policy preferences in the garb of human compassion.
In the current circumstances, deficit reduction will do actual, concrete harm to present and future generations of school children, to the less well off among us who are dealing with expensive medical problems, to the unemployed, who, along with their families, will suffer real, adverse effects for years to come.
This, of course, is increasingly irrelevant to the deficit hawks as a class. For this reason, the use of the first-person plural is galling. As has been well-documented over the past two decades, the rich in America increasingly live in a world apart. In profound ways, from the schools to which they send their children, to the gated communities and mega-mansions in which they live, to their global jet-setting lifestyles, and their ability to avail themselves of the best, most expensive medical attention possible, they live lives separate from ordinary Americans. Their sense of entitlement is boundless and that sense has been internalized by the affluent mouthpieces who populate the op-ed pages of our "liberal" media -- the Broders, Samuelsons, and Brookses, and in the respectful treatment that the most disingenuous versions of deficit mania receives on CNN, MSNBC and the major networks.
It is in this environment that we get people like Douglas Holtz-Eakin, former economic adviser to John McCain, telling the always credulous Candy Crowley on Sunday that if we spend $50 or $100 billion more on emergency stimulus measures to prevent teacher layoffs, for example, then businesses will become "nervous" and therefore won't invest in their companies. This is simply a fiction, unsupported by any serious evidence of any kind. But in the absence of any real evidence that borrowing more money in a time of great economic difficulty is actually a bad idea, the self-satisfied and wealthy deficit hawks are reduced to such fabrications.
Of course, if such folks were real deficit hawks, and not deficit peacocks, their "toughness" on deficits would compel them to scream bloody murder about the lapse of the estate tax for 2010, a benefit enjoyed by roughly five thousand households out of one hundred million and at a cost of perhaps $25 billion. It would also require that they insist on revoking the Bush tax cuts, which overwhelmingly benefit the wealthy and for which failure to revoke could cost America a trillion dollars (or more) in the next decade. And they ought to be appalled that unemployment benefit extensions are being held up because a sufficient number of Senators (including Democrats like John Kerry) will not close a loophole in the way income is taxed for the super-wealthy that would pay for the extension.
But underneath the insistence on reining in our "out-of-control" spending, there is a disturbing moralism -- eerily reminiscent of Victorian England -- that the less well-to-do must be constrained to act with prudence and rectitude, while the affluent can mouth pietistic denunciations of excess while indulging themselves at every turn. James Surowiecki put it very well last Fall in criticizing inflation hawks (and for this purpose, they are indistinguishable from the deficit hawks):
In a way, there's something profoundly puritanical, in the original sense of that word, about the inflation hawks: we are always on the verge of sinning, always about to succumb to our worst impulses. Even the rhetoric of inflation -- the "debasement" of the currency -- carries a moralistic tinge.
(my emphasis).
these neo-Victorians rarely worry over the profligate habits of the super-wealthy, or the major financial institutions and their demonstrably socially destructive practices. It goes, literally without saying, that they are entitled to their privileges. It's government-mandated entitlements for everybody else that are the problem.
This is just an updated version of original Victorianism. Or, more to the point, Victorian hypocrisy - the notion that when certain behaviors are indulged in by the lower orders of society, it's a threat to the moral fabric of the entire society. When those same behaviors, and worse, are indulged by the privileged and the wealthy - well, mum's the word.
Deficit reduction, as currently conceived, is simply a way of making it seem as if there's nothing personal in all of this implicit moral hectoring.
The consequence of reining in spending now is, categorically, more unemployed, more neglect of our schools and infrastructure and more suffering among the less well-to-do among us. These are simply facts.
And the truth is this -- while virtually all economists agree that, in the long-term, we have to worry about our debts and deficits -- there is no concrete, compelling evidence that we need to stop deficit spending now. The United States is not a person, or an ordinary household. But even if trillion dollar deficits make some people nervous, there are ways to mitigate the borrowing. Raise taxes on the super-wealthy (who are, as a factual matter, less likely to inject their dollars into the American economy than are the rest of us). Cut defense spending (the Frank commission has proposed a trillion dollars in cuts over the next ten years). Impose a tax on financial transactions -- the so-called Tobin tax.
The bottom line is this: "we" don't need to deny a minimal safety net to the least among us, in the context of an unprecedented historic concentration of wealth among the wealthy classes, to get "our" house in order. Only a view of the economy premised on moral depravity and steeped in hypocrisy has yielded such a twisted conversation about how we should, and shouldn't, spend our money.
(comment prophylactic -- please spare me the talking point that the rich pay a higher percentage of total income taxes now than they have in the past. This is a direct function of the fact that they are *so* much wealthier relative to the bulk of the population than they were thirty years ago. And if one only considers after-tax income, they have still become *far* wealthier than everyone else over the past generation).
Jonathan Weiler's second book, Authoritarianism and Polarization in American Politics, co-authored with Marc Hetherington, was published in 2009 by Cambridge University Press. He blogs about politics and sports at www.jonathanweiler.com