THE BLOG
02/16/2011 03:05 pm ET Updated May 25, 2011

The Big Deficit Deception and Boehner's Mouth

The single most craven political propaganda effort ever undertaken in America is underway right now. It's distilled into one quote last Sunday from Mr. Boehner, Speaker of the House of Representatives. That quote is "We're broke," which is a statement without any basis in reality.

True, some of us are broke. About two fifths of us can't find two dimes under the couch cushions at the end of the month. Another fifth of us don't have a couch. We're scrambling to find/keep jobs for which the paychecks keep dwindling.

But the highest earning fifth of us are definitely not broke. In fact, that demographic is doing better than it ever has. Corporations are not broke. Wall Street bankers and investment firms are not broke. Defense contractors are not broke, nor are oil companies. After the Republican Great Recession, earnings and wealth are on the rise again, setting new record highs in profit, while wage earners can't afford a McLunch.

Deficit hawks, like Pete Peterson and his cohort of paid shills, have spent millions orchestrating a media and lobbying campaign to frighten the public into believing that the current deficit/debt of the U.S. government and states endangers the economy in some way that they should be concerned about. Interestingly, they don't really explain why. Like true propagandists, they rely on implied threat with no specifics, the credibility of authority figures in delivery of the message, and the gullibility of a conservative leaning public. Government is like a family they say, and families go broke if they don't live within their means.

Makes sense if you don't understand that government is not a family, at least not in the simplistic sense of the deficit hawk analogy. If a family encounters hard times, belt tightening is the understandable response. But there can be more options than that. You can borrow money to go back to school or startup a business or move to a better job market. Response to hard times is not restricted to perseverating over the check book.

Businesses, good ones, don't just sit at the kitchen table and fret that somebody somewhere will make things better. If there's a path to a better future income stream that requires borrowing, to re-tool or retrain or change market emphasis, they will take out the loan. In business parlance it's called leverage, leveraging future income with the resources available. Reduced income stream can be responded to with means other than just woe.

GM and Chrysler are models of what can be done by competent people whose markets for present products have evaporated. In their cases, they borrowed from the government because the scale of what they needed to do was so enormous.

So incurring further debt is not an unequivocal bad. There just has to be some demonstrable upside. Just borrowing to make ends meet, year after year, is a reliably bad idea in absence of any plan to service/retire the debt. In this sense, the deficit hawks prey on a reasonable assumption, that you can't borrow your way out of debt without changing things. But belt tightening and prayer are lousy changes to make, inexorably dragging the economy to further and deeper cuts and, well, economic ruin.

The Pete Petersons seem to have also successfully indoctrinated the American public to the idea that high deficits cause a variety of bad things to happen to working people. "Job killing deficits" is the staple of conservative rhetoric even though there is no history or even logic offered in support of that bald assertion. The historic record indicates quite the opposite.

When government spending is high, jobs are created both in government and in the private sector. It's highly likely that among the reasons why the Pentagon budget has not been cut and why the private health insurance industry still exists is because we are in a recession and these are parts of the economy that employ people at taxpayer expense and are immune to conservative cuts. The GOP funnels money to business which employs people whether effectively or not. For them, government is a giant workfare program, and keeping those people employed is good for the economy even if relatively wasteful.

So "Job Killing" is not something that government does until it cuts spending. A reality John Boehner inadvertently admitted, just yesterday, with his acceding with a "so be it", to job losses in government employment as a result of cutting government spending.

On a theoretical standpoint, too much debt could effect employment if and when debt service took up so much of government outlays that there was nothing left with which to pay its employees. It would occur if taxes to service the debt got so high on the Laffer Curve that everyone from the CEO to the parking attendant just gave up trying to make a living. But we are no where near those night fright levels of spending and debt, and we aren't going to get there from here if we stop listening to the greedy idiots who are force feeding the nightmare into the public consciousness.

Now, nobody can deny that the ratio of public debt to GDP is nearly as high as it was during WWII. But the cost of interest on that debt is in line with the historic norm of about 1.5% of GDP. The cost of interest is now, in fact, half of what it was relative to GDP during the Reagan/Bush/Clinton years, higher total debt and all. Rates may change in the future, but the interest on current debt will not. But in fact the interest the U.S. pays on new debt is not likely to rise.

Interest on the public debt is not likely to rise because it's the only game in town for reliable low risk return. There's a lot of money out there seeking that return too. The M1 money supply measure trails the M2 and, now unpublished, M3 money supply measures by historic levels. What this means is that there is more money not actively participating in the economy than ever before. The wealth represented by M2-3 is a staggering 10 times as much money as changes hands in the real economy, represented by M1. It's popular to cite the estimated $2 trillion that U.S. corporations are sitting on as fat off which our economy could feed. That's just the tip of the ice berg. Taken together, we the citizens and businesses of the U.S. are not broke, not by any long shot pathetic attempt at misrepresentation by the conservatives.

Deficit fear is a an entirely political propaganda putsch. The people in control of $14 trillion dollars in uncommitted wealth do not want to have to pay any of it to sustain the operation of this country. The deficit hysteria they peddle and promote is as easily solvable as a 5% tax hike on the wealthy or by printing that much money, the equivalent of taxation. To some a 5% tax increase is fair and to the deficit hawks, professional purveyors of deception, it's an atrocity. The deficit hawks would rather see this country fail than spend one dime to support it. They represent interests that want to graze on the largess of American culture while investing not a farthing to plant or cultivate the field. They are the poorest shepherds from whom one might seek counsel.

But there's more. Not satisfied with simply having their taxes cut by Republicans, they also want to steal money from the basic safety net programs of this country that are so essential to the prosperity on which they want to keep feeding. They have, with scaremongering over the deficit, set the political table to cut their taxes further by eliminating the need for revenues to fund a decent society. They are accomplishing it with the simple minded family checkbook analogy and demonstrably false fear mongering over jobs.

It may actually be the best time in history to borrow money in order to build a new operation to fix the problems of the old operation, crumbling infrastructure, inadequate education/training, energy inefficiency failing financial regulatory agencies/law. But, borrowed money needs to be spent here exclusively. It's certainly the best time in history to raise taxes on the wealthy and get some of those trillions of idle wealth back into the economy, but you won't hear that from John Boehner.