Last week, I received an angry email accusing me of ignoring the number one political story, "...the USA is broke, and has $14 TRILLION DOLLARS worth of debt!" It wasn't unusual as many Americans are overwrought about the US public debt. Sure, it's a problem but not number one and here's why.
If you and I owed $14,280,782,221,253+ we'd be stressed. But the US isn't an individual, or a corporation, and so there is an imperfect analogy. Imagine that you and I are the only two working members of a family and I lose my job. You continue to work, but we need two incomes to pay our bills so, until I find suitable employment, we borrow against credit cards to meet our obligations. That's roughly the situation the US is in: we have about 15 percent un- or under-employed and, as a result, our tax revenues are down; so we must borrow to make ends meet. (This year's deficit is estimated to be $1.6 trillion running our cumulative debt to more than $14.2T+.)
To complicate the analogy, only 67 percent of the US debt is debt held by the public, the other 33 percent is "Intragovernmental Holdings ...securities held by Government trust funds, revolving funds, and special funds," the most important of which is the Social Security Trust Fund -- in other words money we borrow from ourselves. Of course, families don't have "intragovernmental holdings" but many borrow from family members or friends. Suppose that you have a trust fund you can access only in an emergency; if we borrowed from it because I am unemployed that would be analogous to the circumstances that account for one-third of the US national debt.
Nonetheless, $9.5T is debt in the conventional sense; still a big number -- $31,000 per US resident. $4.5T is owed to foreigners -- for example, we owe the Central Bank of China $1.1T -- and the balance to US entities including the Federal Reserve, state and local governments, mutual funds, and pension funds.
Returning to my analogy, suppose you and I have a combined debt of $62,000 and I cannot find work, what would we do? We might chose to either sell our possessions to pay off our credit cards or put more energy into my finding work.
That brings us to the present political situation where we are faced with two similar stark choices: Republicans want to cut back government in order to pay off the debt and Democrats want to invest more in government to increase employment and thereby raise tax revenues. Before we consider the merits of these alternatives -- debt reduction versus public investment -- let's ponder another consideration, how did this debt accumulate?
If you and I amass a debt of $62,000, entirely because I am unemployed for a lengthy period, we might consider selling our house. On the other hand, if much of our debt accumulated for other reasons -- such as paying the legal expenses for your deadbeat brother after he was arrested for a DUI -- then we might look at the debt in a different light.
It turns out that much of the US debt results from decisions made by our own version of the "deadbeat brother." When Bill Clinton left office, the public debt was $5.73 trillion. When George W. Bush left office, the debt was $10.7 trillion. Under Clinton the US ran yearly surpluses and paid down the debt; under Bush the US ran deficits and ran up the debt. Four Bush programs contributed to the almost doubling of debt: the 2001 tax cuts ($2.48T), the wars in Afghanistan and Iraq (1.12T), the 2003 Prescription Drug Program ($1.1T), and the laissez-faire fiscal policies that produced first the housing bubble and then The Great Recession ($1T+). (Many Liberals believe that most of the $3.5T in US debt accumulated under President Obama is due to the financial legacy of the failed Bush presidency.)
Republicans pretend there is no history behind the US debt; they want the public to believe that the $14.2T was all Barack Obama's fault. Given this false starting point, they ring disaster alarm bells, shout "the USA is broke," and argue the only solution is to massively downsize the Federal government and savage entitlements such as Medicare and Social Security. This tactic serves the conservative objective to "shrink government until it can be drowned in a bathtub;" Republicans are using the debt as an excuse to demolish the US social compact and give free rein to wealthy individuals and corporations.
Let's be clear: the US is not broke. The problems the Obama Administration faces are problems caused by the failed Bush presidency.
Sure, the debt is a problem. But it's not the number one problem facing us, which is how to get America back to work. If we do that and return to a commonsense tax system, where corporations and the rich pay their fair share, then we will once again run annual surpluses and begin to pay down the debt.