Is the United States "broke"? John Boehner, the Republican Speaker of the House, says it is. According to Boehner, the U.S. is like a family in desperate need of a loan, or like Greece that can only borrow at exorbitant interest rates and therefore needs a bailout from foreign lenders.
Discrediting the U.S. -- claiming that it is broke -- serves Boehner's political purposes and the Republican Party's anti-government obsession. Boehner, however, could not be more wrong. The U.S. government could easily raise billions of dollars at exceptionally low interest rates to compensate for the massive evaporation of private wealth as a result of the housing and financial markets if the Republican Congress would let it do so.
Think about what Boehner is saying when he says our country is "broke." A family that is "broke" would have to pay a "pay day lender" 456 percent (on an annual basis) for a two week loan. Greece is broke because it is being forced to pay 65 percent to borrow for 2 years. The U.S. Treasury on September 21, 2011 could borrow for two years at only .15 percent, 5 years at .84 percent and 10 years at 1.93 percent. Greece pays about 430 times as much for a 2 year loan as the U.S. does. The family that is broke pays thousands of times more.
The difference in borrowing costs is not the only one between the U.S. government, the badly stretched family, and Greece. There is another important difference that Boehner chooses to ignore. It is that the U.S. can pay back both its domestic and foreign creditors in dollars -- its own currency -- while Greece has to pay its creditors in Euros, in effect foreign money.
The United States is not "broke" but we are in the worst recession since the Great Depression. The housing and financial collapse wiped out $15 trillion worth of private paper wealth and it will take years to make it up. Americans are shocked and confused by this loss, which probably is why they let the Republicans run the country down without rising in anger.
Americans should be outraged by Boehner's dismal assessment of the country. The United States has trillions of dollars worth of resources that have been idled since that $15 trillion in paper value disappeared. Those idle resources could be brought back on line if the Republicans would let President Obama and the U.S. government do what they need to do. The American government found the money -- also at rates below 2 percent -- to put idle resources to work on a gigantic scale between 1941 and 1945 to win World War II. It could do the civilian equivalent in the next few years if the Republicans would support the President's proposals to create jobs, and even add substantially to them.
What are the idle American resources that the government could put to work? Obviously, we have 14 million unemployed and another 10 million who are working part time but would like full time employment. The country also has factories whose machines are idle, empty offices, stores and malls with too few customers, and service companies hungry for work. Federal Reserve data for July 2011 shows production in 89 industries still 6 percent below what it was four years ago when this near-Depression began.
The production of cement and concrete, for example, is running 30 million tons or over 30 percent below what it was in 2007. Thirty million tons of cement is not being produced because the Republicans want this president to fail just as they wanted Roosevelt to fail during the 1930s. They refuse to recognize that because private spending power has disappeared government has to spend to replace it until Americans gradually rebuild their nest eggs as they did from 1941 to 1945.
Government spending on public works or a government-backed Infrastructure Bank could bring that cement production and much else back on line by financing thousands of projects to rebuild and modernize America's roads, bridges, airports, and other projects. The borrowing could be financed under current conditions at less than 2 percent -- practically for nothing.
Boehner and the Republicans need to stop repeating the discredited prattle of laissez faire economists and turn to the first dozen lines of Federalist 12. There Alexander Hamilton, George Washington's close ally and the country's first and best Secretary of the Treasury explained how economies work. Hamilton did not bow and curtsey to employers as the Republicans want us all to do. What Hamilton emphasizes in Federalist 12 is the stimulating effect of better sales prospects on entrepreneurial activity. More spending -- a greater flow of money -- Hamilton understood, would "vivify and invigorate the channels of industry, and make them flow with greater activity and copiousness."
Hamilton and the Founders unlike Republicans today believed in government. No Founder, certainly not Hamilton, would have supported the Republican fantasy that big money can reignite the economy without the help of ordinary consumers and the government.
President Obama needs to tell the American public that this Republican contention that the U.S. is broke is a destructive, job-killing hoax. A broke country can't borrow 10 year money at less than 2 percent. The President also has to make clear to the American people that in our system of government he can not mobilize the bountiful real resources of the country if Republicans continue to stop the government from spending money on things the country badly needs and that could put us all to work.