I'm afraid I have a lot of trouble with the entire debate about the deficit. It's not that I don't believe in being fiscally responsible. It's that I can't take seriously someone who insists on dealing with the issue of the deficit as something that's a black and white issue. There are many shades of gray. And if the discussion fails to accomodate nuance, the discussion is simply not honest.
Personally, I divide spending into expenses and investments. Investments are money spent in hopes of getting even more money back in the future. Expenses are money spent that probably won't pay you back.
Expenses need to be monitored carefully, but not even all expenses are bad things. Social Security is an expense, but it's been earned. Some call it an entitlement, and it's strange to me that this word has gotten such a bad name. Maybe it's that people confuse the two senses of the word entitlement. There's the sense of entitlement like a king, entitled to wealth, and the sense of entitlement like a veteran, entitled to health care. Social Security is more like the latter—in most cases, it's been earned. It's not a gift but an obligation, and if we don't have the money to pay for it, it's because we've mismanaged the money that's been paid in. It may then require sacrifice to balance the books. We can't just sweep the obligation under the rug.
I fear we may need to raise the retirement age. But that shouldn't be a matter of proud principle. It should be cause for apology. The time for standing on principle about deficit spending was when diving into a needless war in Iraq. That money was definitely an expense that never had even a pretense of paying us back.
As for investments, they generally aren't bad things. Some investments don't pay off, but many do. We're having economic trouble now, but we need to believe that in the future we'll be doing better. If we don't invest, where is that belief going to come from?
For example, many young people, upon graduation from high school, would like to go to college. Since many don't have the money, they may pay for college on borrowed money. That's deficit spending. But it's also an investment.
Tax breaks for the rich are not investments. The proof? Lately I've heard that if we extend the Bush tax cuts for the rich, we might get some jobs out of it. But we have the Bush tax cuts already and we're not getting jobs. How foolish do we have to be to believe that somehow by extending what isn't working now, it will work better in the future? That's no form of investment. That's just an expense.
The bottom line is that it's not enough to “just say no” to spending. Spending falls into many different categories, and some spending is necessary, even if risky. Deficit spending may sometimes be necessary spending; pretending otherwise is either disingenuous or foolish. A proper public discussion must accommodate such nuance.
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I read yesterday that the uber-rich actually spend more when they are taxed more and save more when they are taxed less, so the trickle down idea that the right has been beating the American people with for the last three decades is a proven sham. Who could have imagined?
Of course, many of us have realized this for a long time, but how do we get the message out to those that don't believe in those pesky little things called facts?
Our Government has mismanaged our money to the tune of what now? 12 trillion dollars? I don't even know. You cannot pay that back, you cannot justify that as an investment. And we the people, whose tax money was appropriated and wasted for the most part will be the ones who feel the pain when we have the temporary collapse of our economy and the years of largess are over.
Stop the leaks.
Rated with hugs
And now you're a cartoonist, too?! Who knew!
Well done.
BBE, thanks for the praise—and for the tip on cartooning. I don't plan to change the style. It's OS's loss if they don't promo it.
bjosk, thanks for the terminological suggestion. I'm not going to change the article, though I appreciate your rationale. I think the notion of “consuming” really is the same, a notion of using something up and hence it's gone, as opposed to something that retains value from which it will pay you back. I don't like the notion of consuming, though, because it feels too much like it applies to a physical good. I understand economics wonks are OK with it, but I don't think most regular people conceive of, for example, social security as “consumption.” The metaphor is just wrong.
Deborah, ugh. Not a pleasant thought. Though they left out the consumer credit card bubble. And Climate Change may obviate the issue for some. Messy world we live in.
Linda, the thing is that even people with no money spend some if they can. Someone may prevent you from borrowing, but if you have to borrow to buy clothes for an interview for a job, to buy food so you can stay alive, to buy paper stamps so you can mail your resume around, most people would say do it.
Cartouche, hi. It's not the first in the Gray Matters series, but I'm glad you found and liked them. :)
Like you said, a deficit can be necessary, such as during a recession, but it is important to get back into the positive side during time of prosperity. Good job.
Lately when I hope to hear words rather than rhythmic sound, I tend to look for a piece by you or Tom. I rarely leave your words feeling lifted, but most always I know you have looked through the nonsense and have tried to distill the truth.
When there is no money and there are no jobs, no food on tables, no ability to pay for healthcare, will we recognize truth then or will someone hoping to be elected to a body that has used itself up still be speaking rhythmic sound to vaporize any attempt at verbalizing truth in all its nakedness?
Libmom, I note we're drifting quite close to a quote often attributed to Alexander Tytler that “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years.” I prefer to think not in terms of the amount of the stimulus but the target. We need things that have documented expectations of specific predicted effects and we need to track whether those effects happen. Personally, I'm partial to suggestions by Joseph Stiglitz in his book Freefall, which I just finished reading. He really focuses on the mechanics of what to do and why in a way that seemed at once realistic, socially compassionate, and based on hard evidence from experience in other places and other times in history. I found his arguments quite persuasive. And Obama is largely ignoring his suggestions. (He's a Nobel Prize winner in Economics and former VP and Chief Economist for the World Bank, if you don't know him.)
anna, I'm sorry my news is not brighter. I wish I could find a way to make it be. I think realism is important and there's not a lot of bright realism these days, it seems. Thanks for being willing to visit in spite of it. It's appreciated.
I find your argument compelling, and as someone who borrowed money to go to school, has had to borrow money to buy a car to get to work so I can pay back the money I borrowed, I know that deficit spending is necessary to get back on track.
As you said. If I didn't have a car, and didn't have a way to get to work, but would only buy the car when I had saved up enough money to pay for the car, how can I pay for the car if I can't get to work?
And trickle down? Please. Pissed on is what I've always thought of it as. The idea that rich people will trickle their wealth down to us little guys is laughable. Sure, there are major philanthropists, but there are far more self-interested folks who fetishize money for its own sake.
Well done.
Roy, I do think when you cut away all the rest of it, a lot of this is about pressure on the middle and lower classes to get their price more into line. When they have finally beaten down Americans to be as cheap and pliable as some other countries, they'll move jobs back home and declare success on the “jobs are restored” front. Something wrong with that.
anna, my pleasure.
I always thought of trickle down economics as (excuse me) the rich peeing on the poor. It is interesting to see the Republicans using those tired out phrases and bending over backwards for their wealthy peers. Not so interesting to see voters fall for it yet again.
Thanks, Kent.
Two cases in point. Defense spending for weapons has a limited multiplier effect because eventually the stuff is made to blow up. No more recirculation of the economy there. But when we spend money on bridges, ,roads, or sewer plants the money keeps recirculating over and over again because of the benefits to society that such spending produces.
And one could make the same arguments with public health, public education, and Social Security.
You had expense and investment. I would expand the term investment to that which can be amortized with debt.
The expense side needs to be revolving, generating surpluses in up times to offset deficits in down. Simple case, an unemployment insurance account. Transfers ... or those things spent and gone in one year's time have to balance out OVER time.
The other? Well that would be what was what I hoped would have been the Stimulus that was simply business as usual for 2/3rds which did traditional spend and tax cut things. In this would be, say borrowing for bridge repair. Bridge has a useful life of 20 years. Any borrowing for that less than 20 years is ok.
So what do you do with purchase of a Billions in weaponry? What is the amortization schedule? What happens when sent off early. Quick recoup and close out of the item? What then?
This was the point lost in the unemployment benefits extension debate I wrote about. It got spun to Dems favor as heartless republicans seeking to starve the unemployment. It was a procedural issue around the deficit seeking a change to a business as usual approach. That approach was for emergency spending to just go to the deficit. No accountability. No seeking to prioritize. Put it on the national credit card.
Judd Gregg articulated it nicely. There was stimulus money set aside for outlying years. In short, cash on hand already borrowed. Spend that, and then ... THEN ... if need be we could deficit spend to cover the unspent stimulus funds shifted over. Take it out of savings, do not put it on the card now. See how it goes. If we still need the stimulus in the outlying year THEN we can put it on the card.
There's the need to shift the mind set. But, no deficits is stupid, too. You do not pay cash for homes, or large capital items. Why should government. Prudent borrowing on the investment side for terms reasonable against useful life spans is AOK in my book. Continued borrowing for expense year obligations without trigger mechanisms for settling up is not.
And taxes on the rich ... ahem. :)
A lot of small business profit gets washed out onto personal returns for DBAs and subchapter S corps. Hitting those upper brackets takes cash out of business operations. Cash out of business operations impacts jobs. A small business loses a $100K. That's 2 to 3 bodies fully burdened for the net to be the same to the owner. That's job loss, not job creation or job maintenance.
There's a lot of movement in and out of that upper bracket as those businesses rise and fall.
80% of small business fail within 2 years of launch. Of that 20%, 80% of those fail within 7 years. High risk should have high reward.
This is the republican mantra that compares to the Democrat mantra of the idle coupon clipper who belongs on the set of the Great Gasby as Daisy Buchanan's lay about, boozie, party buddy.
Rated
I have also seen how Social Security is called an entitlement when it is really more akin to insurance and annuities. Those bent on its elimination constantly play this misinformation game with the public.
I think this is exactly right. What makes our situation worse is that, in order to gain support, politicians concerned about the the deficit almost universally say, "We need to say no to spending... except for Social Security, Medicare, and defense." That's over half the federal budget. It's fine to think that we should cut back---people can have reasonable arguments about it, at least---but I think those who want to say no to spending should be clear on what they're saying no to. (And those who claim to be concerned about the deficit and then say that the most important thing we need to do is to cut taxes... well, they're not worth talking to.)
designanator, about Social Security, part of the issue is that the social security fund hasn't been handled in the best way and expectations have been set badly. Repairing it is hard because of the odd constraints. But we need to hold “social justice” as the core part and not leave our most vulnerable out in the cold (possibly literally).
Gordon, I never know what to say in response to your often quite gratuitous digs, so I'll just acknowledge having read what you wrote and move along. I will note that the cover summary was not right, last I read it. It said I wanted to not cut spending, but really the truth is I don't want to blindly cut spending. I think cutting is needed, but it needs to be done with great care.
Rob, they're a big thing, I agree, and we need some creative way to work on addressing them, tightening where we can. But that can't happen without trust all around. If any mention of a concession possibility is going to be met with an "aha!" or a "I'm going to use that against you later", it's doomed to fail.
And certainly tax breaks for the rich won't do anything except make them richer. How about just a flat tax rate for everyone?
And I agree about deficit spending - it does come down to what it's spent on and how much.
But be aware of the dangers. Interest payments are already taking a hefty chunk of the federal budget. In 2008 they amounted to around $450 billion so it must be close to half a trillion by now. And that's with interest rates at historical lows.
There's also a real danger to democracy as debt and interest payments grow. People have a general sense of what they're getting for their taxes but as interest payments rise to 25% or 30% of government spending, their sense that they're getting nothing increases.
As I said, I don't think it's wise to try to balance the budget in the near future. But it can't be put off for too long.
And if dad is really a conservative, that means he's already "conserved them out of it" by being fiscally responsible and having savings the family can fall back on. Saying "we don't have the money" pretty much labels him a non-conservative in my opinion. The question is to get the money does he now tax someone or steal from someone who did save it?
Abrawang, I agree the deficits need to be handled. In spite of the mischaracterization on the OS cover, I'm not saying they shouldn't handle them. All I'm saying is that the dialog on what to cut and what to keep needs to be open and collaborative and much more thoughtful. Of course one cannot take politics out of the equation, but political posturing is not the friend of anyone doing serious work to come up with a good way forward.
Retablo, I don't really disagree with you in your characterizations there. The stewardship of the investment in Social Security hasn't been good.
"The time for standing on principle about deficit spending was when diving into a needless war in Iraq. That money was definitely an expense that never had even a pretense of paying us back."
On the contrary, we were told the war in Iraq would cost nothing. The $72 billion dollar "investment" would be repaid from Iraqi oil revenues. Whether that was a pretense or incompetence is yet to be determined, but I know where I'd put my bet. In any case, that war is just another sorry example of the new world of finance -- where sound investment has been replaced by wild speculation.
As for SS, I've proposed raising the age to 70 myself, but only if we also adopt needs testing so that millionaires like John McCain don't draw -- as he is now, and that the cap is removed so that ALL income is subject to FICA and Medicare deductions. But even with those changes, what are people to do when they are retired by their employers at 55? How are they supposed to support themselves for the next 20 years?
As for SS, the Republicans have made their objective quite clear -- the privatization, and in the extreme rightwing of the Party that is gaining more and more influence, the elimination of SS. They also want to be rid of Medicare. That demonstrates several things:
(1) That despite the evidence of the last three decades to the contrary, R's have not been disabused of their fanatical belief in the perfection of The Market, and it's infallible ability to cure --nay, prevent -- all economic evils.
(2) That Republicans are incapable of comprehending the disconnect between their faith-based economic ideology and reality. For their ideology to have any practical use viz a viz providing a social safety net, The Market would have to go perpetually up. But that proposition is self-negating, since by definition, a Market must be capable of going down just as dramatically as it goes up.
Even if the long term trend of The Market was only up, in the interim, the elderly poor would suffer from temporary fluctuations. To cite one obvious example, what would have happened to the elderly poor over the last several years with social security checks based on Market conditions?
But even that obvious terror isn't sufficient to dissuade those lost in blind religious fervor. They are blind, perhaps willfully, to the fact that when, not if, their reliance on The Market fails, the problem of what to do with the elderly poor will remain -- and it will be a far worse problem than that facing us now.
Of course the cautions raised above are irrelevant to many on the Right, who simply do care what happens to the poor and elderly. Let 'em eat cake or coal dust or nuclear waste seems to be the attitude of them that's got but hate to give.
Social security may need reform at some point; however according to some sources it may not be as bad as we’ve been led to believe. One option might be to stop excepting income above a certain level. This could be refuted as income redistribution as many progressive ideas are but the truth is that those that control the system are already redistributing income by setting up a corrupt system.
Zachery, the wealth redistribution thing is just smokescreen. All economics and all politics is wealth redistribution. There is a tacit assumption that the market is a fair system of wealth redistribution but it's easy to show that frequently that's not so. Politics exists to correct such inequities by distributing power in a way that, one would wish, is not aligned with money.
Tom, thanks for confirming. It was fortunately obvious from context or I would have contacted you to coordinate you posting a replacement.
al, you're not the only one to have raised that issue, but I don't recall the context in which that could have occurred. We were busy trying to convince the world it was not a move on their oil, and since they hadn't invited us to invade, it wasn't obvious to me at any time I can remember how we planned to monetize the outcome. Of course, maybe that's what you're implying since you seem to agree it wasn't well-executed.
o'steph, I don't know if they've explicitly used the trickle down phrase. It may be retired and they do have tight terminological control. But it seems to be the meaning behind their policies. And I totally agree with you about what the metaphor evokes as a bit of visual imagery.