Over the weekend, the New York Times is publishing two longer pieces about the coming fiscal crisis in Washington. There’s the Paul Krugman piece previously noted by Henry, and “Dizzying Dive to Red Ink Poses Stark Choices for Washington” by David Firestone.
Both are detailed and well worth reading. My favorite succinct take on it, however, is a editorial by Matt Miller from August. Andrew Tobias has the whole thing, but I can’t help but quote:
Start with basic but poorly understood facts. Seven programs make up 75 percent of all federal spending: Social Security, Medicare, Medicaid, military pensions, civil service pensions, defense and interest on the debt. That’s “big government.”
Republicans aren’t trying to cut a dime of it but are calling for big increases in every one of these programs. According to the White House, interest on the national debt alone will soar by 66 percent over the next five years, thanks to the red ink oozing from President Bush’s budget ….
Over the next five years, President Bush figures the “big 7” programs will cost, on average, about $1.8 trillion a year.
Over the same period, he says, the revenue the government will collect, not counting Social Security taxes (which both parties say shouldn’t be used for current spending, though it is), will average $1.35 trillion a year — $450 billion a year less than just the “big 7” on which Republicans want to spend more…
This, then, is today’s spectacle: “Family values” Republicans are sticking the kids with the bill for current spending while railing fraudulently against the “big government” they support.
Then they attack Democrats for offering the radical idea that we ought to pay for the spending we all agree we want (before we even begin fighting about other things — like covering uninsured, or helping poor children get better teachers).
This BusinessWeek article isn’t bad, either:
Only three solutions are possible. Washington can cut retirement and health benefits for seniors. Want to take odds on that one? Or Congress and the President can raise taxes — a lot — on those Americans still working 20 years from now. Or the Treasury can borrow the money.
The last two are easier, of course, if the economy is growing fast enough. But the more debt the government sucks up — money that will be unavailable for business to invest — the harder that will be.
Neither is this one:
The parallels (between Vietnam and Iraq) on the economic front are more instructive. As with Iraq, the Administration and the Pentagon played down the initial cost of war in Vietnam, underestimating by some 90% the eventual $500 billion price tag. In the 1960s and 1970s, Democrat and Republican Administrations pursued a policy of guns-and-social-spending to minimize the economic pain of waging an unpopular war, and the budget deficit started its long climb higher to the politically toxic levels of the 1980s and early 1990s. This time around, the Administration’s policy is guns-and-tax cuts. And, once again, the red ink in mounting.
The critical economic difference between then and now is that inflation won’t take off in the 2000s the way it did in the 1960s and 1970s. The Federal Reserve won’t make the mistake of monetizing the federal budget deficit by tolerating high inflation rates. The global bond market vigilantes will make sure the Fed holds to an anti-inflation course. But the result, as measured in jobs and wealth will be the same: The underlying rate of economic growth will slow down, making everything from paying for retirement to funding research and development more costly.
“Starve-the-beast” tacticians are sure that the pain for permanent structural deficits will come at the expense of social programs they don’t like, usually Social Security and Medicare. I wish I knew where their faith came from. It’s long seemed obvious to me that the oversized baby boomer generation, like every generation before it, will use their abundant economic power and time to continue to make retirement benefits untouchable.
The AARP is the largest, most powerful interest group in the nation. They (almost) make the NRA look like a bunch of bloggers. Why would anyone think that they would lose influence as the pig-in-the-python Baby Boomers start retiring? It boggles my mind.
It takes real effort to avoid shrieking in the face of this looming, entirely avoidable catastrophe. If Paul Krugman seems a little shrill every once in a while, I’m happy to give him a little slack.
{ 9 comments }
Keith M Ellis 09.14.03 at 1:55 am
I don’t think the “starve the beast” folks want to end social security (although, yeah, they’d like to end medicare if they could). They want to kill *everything else* — social security’s untouchability just plays into their hands.
Of course, the problem here is that in order to actually bring the accounts into balance, they actually would have to pretty eliminate all these government agencies — from the EPA to NASA to food stamps. And that’s not going to happen. Maybe they’re aiming high just so as to ensure that some of the cuts they wish for will be enacted. But, damn, is that incredibly cynical and irresponsible.
I’d like to believe that future generations will see this administration’s fiscal malfeasance for what it is. But that didn’t happen with Reagan, so I’m not too hopeful.
Ken 09.14.03 at 3:09 am
During the last deficit crisis, I recall that one argument : that since the government borrowed most of the money against itself, it should simply refuse to pay.
I was much too young at the time to understand this argument with any depth. (Now, I’m just far too stupid to comprehend it.) I’m scanning Google, searching for work on the subject (and finding points both pro- and con-). I assume that this topic will re-enter the national consciousness during the 2004 elections, and at that point the ‘blogosphere will be aflutter about it… so in the meantime, anyone care to stake out territory one this subject early?
arthur 09.14.03 at 4:08 am
Ken, welching on the national debt raises a serious Constitutional problem. In fact, you violated the Constitution just by raising the question. See the fourteenth Amemdment, section 4: “The validity of the public debt of the United States, authorized by law, . . . shall not be questioned.”
nick sweeney 09.14.03 at 4:22 am
In response to ken, Thomas Frank, citing Krugman:
‘When the Trust Fund accumulates bonds, they are said to be worthless since they are just IOUs given by one government agency to another, all of them working under one big budget. “But when it runs deficits,” after 2016, Krugman continues, “Social Security is on its own,” a logic that effectively steals the Trust Fund from the public. And when the Treasury Secretary himself makes the claim that the Trust Fund holds “no assets,” something even more unsettling is going on: the highest financial official in the land is talking about defaulting on U.S. government bonds, something that has never happened before. Were the global financial industry to take O’Neill or the commission at their word-to believe that the Bush Administration actually puts zero value on the “good faith and credit” of the issues of the Treasury Department-the world would be thrown into a financial crisis that would make 1933 look like a mildly stormy meeting of the Junior Savers’ Club.’
JLowe 09.14.03 at 3:10 pm
This discussion about the state of our finances brings to mind a conversation my spouse and I had over coffee this Sunday morning. The topic was how the United States in its current empire-building mode is beginning to resemble the former Soviet Union. Economic stagnation was one parallel with that failed empire. The others were: the paranoia and turn to ideological rigidity; lack of accountability; restrictions on flow of information and civil liberties; preoccupation with the use of military force as a policy option; and the increasing reliance on propaganda.
mindanao 09.14.03 at 10:13 pm
The USSR reduced inequalities to a minimum, at the price of losing civil liberties and any expectation of a better future.
Nowadays the USA maintains increasing inequalities, while civil liberties and expectations of improvement are also being eliminated.
It’s up to the people to realize that what they see on TV is not what they experience in real life, but it doesn’t look like that’s going to happen soon.
dsquared 09.15.03 at 8:39 am
I hereby float Davies’ Two Corollaries [sp?] to Stein’s Law.
1) Unsustainable processes always carry on for longer than you think they will.
2) 1) above holds, even after allowing for 1) above
Barry 09.15.03 at 5:04 pm
Ken, the probable results of the US defaulting on
the debt would be: (1) the largest, liquid pool
of low-risk securities in the world dies, destroying
several billion dollars of wealth; (2) the world’s
default international currency becomes worthless,
taking some more wealth to dust, and hammering global commerce; (3) the US economy is knocked down to the barter level for a while, destroying businesses, impoverishing individuals, and making it rather hard to procure food, shelter and clothing, let alone anything beyond that; (4) anybody with a contractual obligation to accept dollars is immediately bankrupt; (5) the world get the living sh*t hammered out of it by actions which are clearly the direct result of US government policy – at this point, the present international situation would look like a Golden Age of Harmony.
And even after some partial recovery had happened (decades?), nobody would trust US currency, debt or other government obligations for the rest of the century.
Ken 09.15.03 at 10:40 pm
Will it really be impossible to trim Social Security if the only alternatives are jacking up taxes or running up crushing deficits?
If so, we’re screwed.
But IIRC, the 18-40 demographic will outnumber the 60+ demographic in 2004. Can they be motivated to outvote them as well, to start down the road of ratcheting up retirement ages and so forth?
Comments on this entry are closed.