Let’s Talk About Debt, Baby
Jul 11, 2011 @ 11:59 PM
Like any normal (?) 27 year old, I’ve spent a fair amount of time worrying about the looming debt ceiling, so it’s nice to finally see the headlines paying more attention to what will surely remain a hot topic in the coming weeks. For those of you in the throes of blissful ignorance — a group that does not include Paul Krugman, by the way — allow me to shed some light on this issue in my own particular fashion. Keep in mind that, thankfully, I am neither an economist nor a politician, but just one of many concerned citizens whose life stands to be impacted by Washington’s latest display of childish political theatre.
First, the setting: On one side of the stage we have a party that has consistently failed to respond to national problems with the severity that they require; on the other is a collection of obstinate anti-progressives who prefer to fiddle the discordant melody of partisan politics while a nation burns. And presiding over all of these players is an increasingly disappointing leader who, in a statement made earlier today, declared that the time has come for Americans to “eat our peas.” With very few exceptions, what do all of these individuals have in common? Well, in addition to acting like a bunch of petulant toddlers in custom-tailored suits, they are failing to lead at a time when their leadership is most sorely needed.
House Majority Leader Eric Cantor (R-VA) reacts with surprise following the breakdown of yesterday's deficit negotiations. / Image courtesy of Pro Snacking
All of the recent banter about debt, deficits and the like has started to get a little confusing, so before moving on I think it’s worthwhile to introduce a brief example that highlights a few basic concepts. This will seem rudimentary to some, but in the interest of keeping us all on the same page please consider the following scenario:
Captain Boehner earns $100 per month but feels compelled to support a crippling legume addiction by spending $200 on designer wasabi peas from Japan. Consequently he ends up spending 100 more dollars each month than he actually has, which represents his monthly deficit, or the amount by which his total expenditures exceed his total earnings. As the days drag on, this figure aggregates to become debt, eventually reaching $1200 after an entire year of irresponsible pea consumption. So despite following those very helpful instructions from his commander-in-chief and increasing his fiber intake, the Captain now finds himself in a precarious fiscal situation. The circumstances are the same for the United States, except in this case the wasabi peas are a decade of costly warfare, tax cuts for people who don’t need tax cuts, one global financial meltdown and a questionably effective stimulus program, among other things.
At the time of this writing, our debt is hovering around 14.5 trillion dollars, which is the same as 6.44 trillion New York City subway rides or the amount of times Lindsay Lohan has face-planted in West Hollywood. Since our spending continues to spiral out of control, Congress will need to vote by August 2 to raise our borrowing capacity, which is something they have been required to do since passing the Second Liberty Bond Act in 1917. Why August 2? Because this is the date, according to Treasury Secretary Geithner, on which the United States will no longer be able to pay its bills with our current capital reserves. So to sum up, “the greatest country on Earth” has maxed out its national credit card, and it’s finally time to pay the piper. I almost said “pea-per,” by the way. Who can resist a good pun?!
Image courtesy of Serious Eats
Anyway, this is a predicament that looks bad from pretty much every angle. Borrowing even more money that we don’t have is probably not a wise decision at this point, and yet if we don’t raise the debt limit a lot of really terrible things stand to occur, such as the suspension or termination of important social programs and an increase in the likelihood that foreign investors will begin to doubt America’s creditworthiness. Of course only time will reveal the outcome, but since we will ultimately have to take the reins of this rapidly disintegrating nation, I thought this issue was one that should at least appear on our collective radar. As we struggle to establish ourselves in one of the most challenging financial climates in recent history, our so-called leaders are engaged in a dangerous game of political chicken that just happens to hold our futures in the balance. Will you trust them to do the right thing?
rfd
i can’t figure out what is more terrifying: the ceiling issue or bachmann leading? i am thinking self-induced coma until 2020.
NH
Damon, Krugman always spoken out against the scare tactics used by Republicans re. the debt ceiling. The dollar number of the debt is not the only statistic that matters -http://krugman.blogs.nytimes.com/2009/08/28/the-burden-of-debt/. What matters is what the amount of the debt MEANS in relation to growth, inflation, etc., in real dollars.
NH
here’s my missing “has”
Damon
@rfd: Yeah, probably a good idea.
@NH: Right – I think perhaps my wording in the beginning was confusing, but I was saying that Krugman was/is very much a part of the group sounding the alarm over debt. One of the only journalists I’ve noticed who has covered this issue for a substantial amount of time.
NH
Damon, I’ve always read him as saying that the dogma of austerity is a failed one, and as in the link I gave, that the size of the debt is not as bad (paraphrasing) as it looks, when taking inflation and other things into account, such as the cycles of expansion and contraction of the economy. He is always sounding the alarm against the Republicans’ mantra of cost-cutting in a recession, saying this is not the time for that, and that the problem with the stimulus was not that it spent money we don’t have, but that it should have been approximately (at least) double the size it was to make any difference. I hear you on your fears of the national debt, but Krugman is a stoic liberal, who always counteracts Republican fearmongering with economic facts. Anyway. Hard to argue FOR a giant debt. Fareed Zakaria in both Time and Newsweek has some real suggestions for reducing it in short order, e.g. a value-added tax.
NH
if you have superpowers and can edit comments, please do. Of course, I meant “staunch” liberal, not “stoic” liberal. Which he might also be. It’s just not what I meant to type.
Damon
@NH: All good, true stuff. I was taking a very watered down approach to Krugman since I realized while writing that perhaps not as many people will have read him as often as I do. That said, I’m sure I’ve got a lot to learn about his philosophies. The basic thing that I like about him, without getting into the nuances of his theories just yet (give me time), is that at least the issue of the debt ceiling has been ON his radar. So many other journalists and even politicians are just now beginning to speak publicly about the debt, whereas PK has used it as a litmus tests for America’s various economic weaknesses over a much longer period of time. I think his is one of the few sensible voices out there right now, and I like his beard, too. Just saying.
NH
To just regurgitate ONE of his positions: he says that tax increases are far less “contractionary” than “austerity” http://krugman.blogs.nytimes.com/2011/07/07/contraction-still-contractionary/?scp=9&sq=krugman&st=cse, saying if it weren’t for politics, everyone would have ceded this by now, it is so well-established by evidence, basically turning on its head the Republican idea that you have to stop spending to improve the economy. He’s saying stopping spending (i.e. “austerity”) has a shrinking effect on the economy, compared with increasing taxation. He’s a classic liberal. Point being that if you want the economy to grow, so we can dig out of the hole we are in, cutting back spending is not the way to do it. It is not that he isn’t concerned about the debt ceiling, he is just not saying the same thing that everyone is currently, which is equating spending too much with our downfall.
Maggie t.
The Captain not only owes the pea-per but probably found himself in a precarious fecal situation as well after all those peas. Sheesh.
Jake
It’s all a show created for public consumption. Create a crises and then create a solution to the crises that is only palatable to the population by way of the created crises. The “solution” will make fortunes for the few standing on the right side of the line and impoverish the masses on the other side.