You’re mad, Burke! Obama has completely misread the national situation. The United States is careening toward disaster. The deficit this year is the highest in history: $1.48 trillion. In a mere eight years, the national debt will hit 90 percent of G.D.P. Interest payments alone on the debt will be $1 trillion! And he goes before the country with nostalgic happy talk and decides to spend the next two years treading water?He pats himself on the back for a spending freeze projected to save $400 billion over 10 years. That’s an infinitesimal sliver of the $45 trillion the government will be spending over that time.
Is he aware of the national bankruptcy rushing ever closer? Doesn’t he see that the nation wants a fundamental change in Washington, not a few more tax credits for solar panels?
Obama is going to go down in history as the Nero who fiddled as Rome burned. He reformed health care without changing the ruinous incentives that were bankrupting the system. He submitted budgets that hastened the national collapse. The Republicans accuse him of being a socialist, but, the fact is, he’s Mr. Status Quo.
Brooks advises people to read Tyler Cowen's new book The Great Stagnation. Maybe Cowen explains there exactly what will happen when the national debt hits 90 percent of GDP. Brooks doesn't bother to do that here. The one concrete consequence that occurs to me is that eventually Social Security and Medicare will run out of money without substantial reforms in how they operate. This is related but not identical to the general concern about the size of the deficit and the debt. It will be interesting to see whether the U.S. political system manages to change the entitlement programs in some way before they go bankrupt. But that still doesn't answer the broader question why the deficit and the debt herald, in Brooks's phrase, "national collapse".
UPDATE: Brooks's colleague Mark Shields said on the NewsHour tonight that running a big deficit is bad public policy because it transfers money to bond-holders, who tend to be rich. Huh? Running a big deficit may be bad (in some circumstances), but I think this may be the first time I've heard someone say it's bad because it's upwardly redistributive. Shields also said that no dollar paid on interest on the deficit ever put food in the mouth of a hungry child or built a bridge or.... Of course, what he didn't say is that any given dollar of deficit spending may in fact be doing those things. Or it may not; it depends on which dollar of the budget, so to speak, one looks at. Shields's "reasoning" here would not get a passing grade in Econ 101.
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2 comments:
LFC
Whether it is 90% or not is irrelevant and probably varies on a number of circumstances, but there is limit..
Remember the definition of economics is something like “allocating limited resources against unlimited demands.”
Every economic transaction has two parties. If you borrow you need a lender. Too many of the comments from all sides seem treat the lender as a passive or semi-passive player in reality that is anything but the case.) The lender expects to get her principal back (in real terms not just the nominal value printed on the bill) with some sort to premium (again in real terms) for loaning something that he could have used for many other purposes. Paying principal and interest come before other expenses or you won’t find anyone else who will make a loan. More and more of what should go to sustaining the economy goes to servicing the debt until servicing the debt .prevents basic services.
I don’t see how the current deficit is sustainable. It can probably be sustained longer that the prophets of doom are predicting, and pushed off by “printing” money, with the impendent inflation, echoing the Weimar Republic, until the nominal value printed on the money owed is valueless. Ushering in the equivalent of the Weimar Republic’s successor does not strike me as a good idea.
We, and the Western world, have avoided the conclusion a lot longer than societies in the past because of increased productivity producing real value. There is an irony that an economy that could produce enough wealth (in real terms) to sustain the current deficit levels and to support the Presidents plans would in the long run require the productivity of an ecologically and socially irresponsible hyper-capitalism that almost no one would support and the President would detest and fight to the end.
Or to put it another way we are promising to allocate to demands more resources than we have.
PS
Shields has the advantage of Brooks, he can sing and play the piano.
Hank,
Obviously I'm not an economist, but I am familiar with the standard definition of economics. I suppose financing a huge deficit could trigger eventual inflation (from printing money to pay the interest). If by "national collapse" Brooks meant a Weimar-style hyperinflation, he probably should have mentioned that in the column. (I'm also aware that some economists have made arguments about the connections between budget deficits and trade deficits, but at the moment I forget the details. There is also the argument about govt borrowing "crowding out" private borrowing, but Brooks did not mention that explicitly either.) As to the connection between how much 'real wealth' an economy produces and its ability to run big deficits, that seems a bit less clear to me right now but that could be because it's late in the evening and I'm tired and it will all be clear in the morning.
I did not know Shields could play the piano.
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