O Debt

A man clambers aboard a steam shovel and digs a hole 9.5 feet deep. You happen along, notice that he's botched the job, and take over. Smoothing things out requires another half foot, so you dig it. The man jumps in and starts screaming that you've put him into a 10-foot hole. Worse, he claims, it's the deepest hole ever dug -- deeper than all other holes combined -- and you're the one who dug it. When, with good reason, you want to shave another tenth of an inch off the bottom, he screams even louder: You're making the hole deeper and there won't be any way out. The man's children and grandchildren and great-grandchildren will be stuck in this hole, and it's all your fault.

Incredibly, people believe him because he's shouting so loud and because his friends add their voices to the cacophony. We must, they say, fill in the hole shovelful by shovelful, no matter how many people must fall by the wayside in the process. All work on new buildings must stop in order to fill this hole.

I refer, of course, the federal debt and Republican calls to pay it down now rather than later. Setting aside that they ran up the debt in the first place, their approach amounts to contracting an economy in the middle of a major recession, a strategy that is downright reckless. How taking money out of a the current economy will allow it to rebuild isn't something they address, and with good reason: It's never worked historically and there's now reason to think that now is any different. 

Republicans love to point out that the debt is historically high, and that the accrual during Barack Obama's seventeen months in office exceeds that of all other administrations combined. (This line of "thought" conveniently omits the fact that the Bush administration prepared the 2009 budget.) But is that debt in fact the highest ever? It's rarely a good idea to compare absolute dollars across decades and centuries. Statisticians dislike comparing baseball records across eras for good reason: Too many outside factors render a straight comparison meaningless, so they attempt to compensate by adjusting for era.

It's the same with money. Inflation, economies, wars, population increases and so forth all change the value of a dollar across time. Just as baseball statisticians adjust for era, economists have come up with a way to think about the debt historically. The following chart (courtesy usgovernmentspending.com) depicts the historical debt as a percentage of the U. S. Gross Domestic Product:

As you can see, the debt is high but not unprecedentedly so. The debt's peak came during World War II, after which it declined during a long period of prosperity. Similarly, the economic good times that followed the Civil War (excuse me, the War to Prevent Southern Independence) and World War I contributed to a falling debt.

During the Reagan-Bush I years, the debt rose because the government began a policy of decreasing taxes and increasing spending. The dot.com boom of the Clinton terms helped reduce the debt, but it increased dramatically during Bush II. The reasons why aren't hard to discern: You can't cut taxes, fight two wars, and introduce a major unfunded entitlement (Medicare, Part D) without the government debt increasing. It will happen every time.

What is unprecedented is that President Obama faces high debt and a declining economy. On the other hand, the economy is all but deflationary, so adding money to it isn't an issue. And how else are we going to get out of a recession unless people start spending? The best way I know of to do that is to create jobs, and in a recession, the best means of job creation is the federal government. The government alone has the resources to help states align their budgets (and therefore avoid layoffs and cuts in services), develop jobs programs aimed at upgrading skills, repair infrastructure, and create new jobs for new industries, such as clean energy.

There's nothing new here. The stimulus blunted the recession, but didn't reverse it. Another stimulus is needed, but given the political climate -- which is squarely in favor of addressing the deficit -- that's unlikely. The pathetic part is that voters seem anxious to return power to the crowd that created the problem in the first place, as if strident rhetoric somehow means that they'll get it right this time...

One sure way to reduce the deficit is to pull out of Iraq and Afghanistan. The drawdown is underway in Iraq, but it's time to be pragmatic about Afghanistan: There's no point in throwing good money after bad. It's a losing battle, as it was from the beginning...

Not that it's news, but the Republicans really are a rotten bunch:

The total number of people continuing to claim benefits rose by 43,000 to 4.6 million, the department said. But the number of people collecting extended benefits fell by 376,000, as Republican lawmakers have refused to continue the extra aid... For the third time in as many weeks, Senate Republicans blocked a bill Wednesday night that would have continued unemployment checks to people who have been laid off for long stretches...

Sounds like ice cream and battery acid to me. Aretha must have been in the giving vein...

Republicans often speak longingly of the those halcyon days of the 80s or the 50s or even the 19th Century. But I've never heard of one wanting to take us back to the good old days of 1619. Until now...

Rainbows of death in the Gulf here and here...

Other than attacking President Obama for shaking down BP, the Republican establishment has been pretty quiet about the BP/Halliburton Catastrophe. For one thing, they don't need to make noise as long as they have Chris Matthews and Huffington Post conflating BP and Obama for them. For another, as I wrote the other day, most of them fantasize about being president some day: They can see this happening to them and don't want to be bitten by their own words...