I’m sure this will come as a surprise to some of you, but sometimes I get cranky. Life is short and there’s little room for cranky old men, so I have to get things off my chest in order to be acceptable to those around me. One of the primary reasons I get cranky is that there is so much bullpucky being flung around right now that I spend more time ducking than drinking, and that will make any old man cranky.
So, allow me to get a few things off my chest.
Number one: Balancing the federal budget is not like balancing the family checkbook unless you happen to have a family with 315,473,431 family members.
Number two: Balancing the federal budget is not like balancing the family checkbook unless you have 535 members of your family involved in the process, half of whom use an abacus and the other half use a calculator with a sticky 0 key.
Number three: A deficit is not the end of the world as we know it. Like judicious use of a credit card or a mortgage loan, it’s a way to pay for what you have to have now with the expectation that you can manage the interest until you can pay it off.
Number four: When will people stop trying to scare me by shouting big numbers at me?
I’m still cranky.
Let me see if I can break this down another way. The average mortgage in the US currently is $172,000. (Yeah, I cringed at that too.) The population of this country owes and is paying interest on $9.4 TRILLION dollars in mortgage debt. You don’t see this figure very much, do you? By comparison, the federal deficit for 2013 is estimated at $901billion – oooh big scary number! Of course, it’s not as big as the $1.1 TRILLION for 2012. But even that is nearly ten times less than what we all owe on our houses
In addition to the mortgage debt, Americans are paying outrageous interest on $36.2 billion in credit card debt. Outrageous, but not as high as it used to be. More troubling is that student debt in this country has now hit $1 TRILLION! !
Let’s get that federal checkbook in order because we’re doing a bang-up job balancing our own!
Big numbers are fun to toss about, aren’t they, so here are a few more to contemplate:
Unpaid taxes amount to over $360 billion A YEAR. That would mean that over the past ten years we have lost $3.6 TRILLION in federal income. The projected federal deficit for 2014 is $668 billion – Danger, Will Robinson! Alert! Alert!
The net worth of the top 1% (income earners) of this country’s population is $23 TRILLION. (1.3 million people with a mean net worth of $16,439,400) Now, actually, that is scary!
And here’s the one that has everyone screaming the loudest: The national debt, the sum of all our previous deficits and a few paltry surpluses, is now standing at just under $17 TRILLION dollars.
Net worth of the top 1% – $23 TRILLION. Debt – $17 TRILLION. Hmmm. Daily rise in the national debt – $1 billion a day or $365 billion per year. Uncollected taxes – $360 billion per year.
Numbers, numbers, numbers! Big numbers. Important numbers. Meaningless numbers. WTF are you supposed to do with all these numbers? Check two sources and you get different numbers. And he arranged these numbers on the page. What is he implying with the way he arranged them? Is he implying that if we only took the net worth of the rich away from them we could pay off the debt? (I am not.) Or that if we just collected the taxes owed to us under the laws we already have we would go a long way toward eliminating our deficits? (I am.)
What he is really implying is that numbers are just that, numbers. And BIG numbers are just that, BIG numbers. The days of “Say the secret woid and win $100” are long gone. Today’s game show contestants expect at least $1,000,000,000 prizes.
What’s important is what these numbers actually mean, and that’s a very complicated proposition to figure out. People who have spent their entire lives studying economics can’t agree on just what they mean.
Unfortunately, many of our elected officials, who don’t really know what they mean either, like to throw them at us with dire warnings meant to scare us into thinking that they do. And they ignore the complications and the nuances in their effort to make a point. They ignore (or sometimes count on) the fact that the average person doesn’t really understand the situation, but what that person does know, because some politicians have been screaming about it for so long is: debt BAD. BIG dept, VERY BAD.
But the fact is, that’s not always true. There is such a thing as sustainable debt. You mortgage your house and, assuming you can make the mortgage payments, that’s a sustainable debt and one you are willing to carry. If you can’t meet those payments, or if they go up to the point where you can’t meet them, that’s when you are in trouble.
The national debt is the same way. This country has been carrying a debt since it was founded. We’re still carrying debt from the Revolutionary War, the Civil War, two World Wars, and all those wars after that.
When you have a yearly shortfall – you spent more than you earned – you have several choices. You can dig into your savings, sell great grandma’s wedding ring, take out a loan, or use your credit card which is just a very expensive loan. The federal government has fewer. When it runs a deficit there are no savings to dig into and selling the Grand Canyon would be really tricky, so it sells bonds and treasury notes to cover the amount of the shortfall.
You can actually buy these bonds and notes and profit from the deficit. Your pension funds and other investments probably have some of these tucked away in your portfolio. Given the inflated state of the stock market right now, they are not the best money-making investment in the world, but they are safe.
The treasury has to pay back the purchase price plus interest, of course, but usually not until the bonds mature – which can be decades down the road. I have EE bonds purchased in 1987 that are making 4% interest. Try getting that at your bank. I also have EE bonds purchased in 1999 that are making .81% interest. I could do better with the money in my checking account. What the government has to pay out at any particular point down the road is determined by interest rates when the bonds were purchased. Right now interest rates are low. When interest rates are low, you can afford to take out larger loans.
All of this complicates the debt picture. The treasury is actually paying out money today for bonds it sold 5, 10, 20, 30, or even 40 years ago to cover those deficits, not today’s deficits.
To complicate matters further, the treasury isn’t too particular about who it sells its bonds and notes to. You can buy them, but so can everyone else, like China (Danger, Will Robinson!). Right now 52% of the bonds and notes financing the national debt are owned by American citizens and other American organizations. The rest, 48%, is owned by foreign countries like (oh my god!), China. You hear some politician yelling about how China owns our debt all the time. Like at any moment they could foreclose on it and then where would we be? A treasury note isn’t a mortgage! The reality is somewhat more complicated.
All of that actually has no bearing whatsoever on the numbers, but it stirs the American psyche into a seething pot of bubbling oatmeal.
So here we are in the throes of the Great Sequester of 2013 because some politicians have decided that we can no longer “kick the can down the road” (like still paying off the Revolutionary War isn’t a rather blatant example of kicking the can down the road), and we need to get our shit together (so to speak) by engaging in an austerity program the likes of which have been a failure in every country that has ever tried one! Just ask Greece. And it’s all because we have to ”balance our checkbook” and because we are selling our soul to China. And because they really, really want to dismantle programs like Medicare and food stamps and Social Security, and this is one way to do that.
And the question I have to ask is why? Why now? Why, when we are trying to recover from a terrible recession and our jobless rate is struggling to recover, do we have to initiate a course of action that is guaranteed to take jobs out of the economy and to lower our GDP? And I have to ask that question because I read Paul Krugman and he asks that question.
I am not an economist. I string words together in a blog that few people read. Mr. Krugman, on the other hand, is an economist. Not just any economist, mind you, but a lord high mucky-muck economist who has won a Nobel Prize for his economizing. And he asks, “Why now?”
A fair number of people consider Mr. Krugman a maverick. That’s because you aren’t allowed to call a Nobel Prize winner a nut case without having a visit from the Swedish Guard. But Mr. Krugman, who has been right about a lot of things over the past few years, stands in rather stark contrast to many mainstream economists who have been wrong about nearly everything.
Krugman maintains that there is no deficit crisis except in the minds of people who would like to use the idea as a boogey man to scare little kids like us. He admits that down the road as health care costs continue to rise there will be a crisis point if we allow it to come to that, but not now. In fact, he advocates spending more money to get the economy out of danger and back to a healthy, normal level of growth. In other words, the deficit is still sustainable and getting more so for the near future.
Where Krugman and other economists do agree is that the two main areas of rising costs that have to be addressed are defense spending and health care. This is where we have to focus the national conversation in the short run.
As opposed to this across-the-board sequester bullpucky which almost everyone agrees is one of the worst ideas to come down the pike since Paul Revere rode to warn the British that they “weren’t gonna be takin’ away our arms.”
So scream at me again with the big, scary numbers about why we have to furlough air traffic controllers, teachers, firemen, and policemen and then cut programs to protect the sick and elderly because we have a deficit!
Explain to me how the current GOP budget plan that would raise defense spending over the next ten years by $500 billon and repeal the Affordable Care Act is a good idea while the Congressional Progressive Caucus budget plan, the Back to Work plan that Krugman says might actually work doesn’t stand a chance. Well, for that matter, neither does the GOP plan.
Want more numbers?
Here’s a couple for you: GE profits: $19.6 billion. Effective Tax rate? -18.9%. We, The American Taxpayers, gave them, the guys who made $19.6 billion, $3.7 billion.
OK. I feel better now. Someone pass the scotch.
Your Humble Servant,
The Willowbrook Curmudgeon