The Debt Misdirection Scheme By Bruce T. Boccardy, Nov. 14, 2011
There was is no debt crisis, but a “super committee” was appointed to fix it. If the clique of 12 Congressional appointees had its way, Medicare, Social Security insurance, and Medicaid would be decimated to placate the infamous 1 percent. Unsurprisingly, it disbanded not long after it was created. It was a formation doomed to fail.
Working from misinformation churned out by the corporate media about the debt/deficit “crisis,” the committee sought to reduce federal deficits by up to $1.5 trillion over the next 10 years.
We knew the agenda of these committees. We remember the National Commission on Fiscal Responsibility and Reform, created by President Obama in 2010. Glutted with connections to Wall Street financial institutions, the committee produced a report recommending tax cuts for corporations and the wealthy. It also recommended severe cuts to Social Security insurance, Medicare, veterans’ benefits, and other social programs benefitting middle and low income people.
Reports circulated that Democrats on the “super committee” offered to cut Medicare and Medicaid by up to $3 trillion. Social Security insurance was also lined up to be eviscerated. Republicans transparently rejected their proposal because it offset some of those cuts with tax increases for the wealthy. There was no moral justification for these cuts.
As the corporate media spins the debt issue, thankfully the Occupy social movement is challenging conventional myths about who is responsible for the country’s economic woes.
Family Budget Flaws
The alarmists assert that we must balance the budget just as most families must do. The president admonished us in July: “Every day, families are figuring out how to stretch their paychecks a little further, sacrifice what they can't afford, and budget only for what's truly important,” he said. “It's time for Washington to do the same.”
President Obama should know better.
Many families take out car loans and student loans, not to mention mortgages. They might borrow from a commercial bank in order to add a garage or a child's room to their house. Credit card debt is also a form of deficit spending. Most families do live by a form of deficit spending.
Moreover, the federal government can implement policies that families cannot. Most importantly it can issue currency; also it can levy taxes, and stretch due dates over many decades. With one exception, in 1835, the federal government has been in debt since 1776. It cannot “go broke,” despite protestations from debt panicked pundits.
Spending Myths
The national debt has indeed risen substantially, however consider the sources. They were avoidable and they are fixable if politicians shed their craven allegiances to the corporate agenda.
In 2009, the Congressional Budget Office attributed 37 percent of the increased debt to the recession and 33 percent to Bush’s tax cuts for the wealthy and his Medicare drug benefit, a disgraceful contribution to the treasure chests of the pharmaceutical industry.
Lastly, the Obama administration contributed 20 percent to the debt with extension of the Bush tax cuts for the wealthy, the occupation of Iraq, the corporate bailout, and his own tax cuts for those earning less than $250,000.
Consider where the debt is not coming from: this spring, Republicans tried to slash billions from non-defense programs (though they are only about 12 percent of the federal budget) that pay for social services and other programs benefitting middle and low income folks.
Moreover, after adjusting for inflation and population growth, we are spending exactly the same amount on these programs that we were a decade ago, according to the Senate Appropriations Committee this year.
Debt Ruse
Is the national debt a threat to the national or state economy? Economists not tethered to the corporate agenda have shown repeatedly that it is not a threat at this time.
In theory, government debt could drive up interest rates and ignite inflation. However, that is not occurring. The government finances its debt by selling treasury bonds. Investors, both domestic and notably foreign are not remotely concerned about buying them. Even though the bonds have very low interest rates, investors are rapaciously purchasing them. Apparently, they have no doubts about our country’s ability to pay its debt.
The most important metric to consider is not the size of the debt but the ratio of how much the country owes relative to how much it produces. While the national debt appears huge, the U.S. economy is immense. The gross domestic product (GDP) is approximately $14.7 trillion. The U.S. debt to GDP ratio is currently 100 percent.
Yet Great Britain's debt to GDP ratio was well over 100 percent for most of the 19th century, and today Japan has a debt ratio of more than 220 percent of GDP. Japan can still borrow for the long term in financial markets at interest rates of less than 1.5 percent.
Moreover, the United States deficit is denominated in its own currency just as Japan’s deficit. That means that it can create money to protect its solvency.
Adam Smith commented in The Wealth of Nations that no government has ever repaid its debt to itself. This stands today. The primary purpose of the Federal Reserve is to create money to finance its dept. However, the foreign debt, conversely, is real and rarely in the conversation of economists or politicians.
Could the size of the national debt ever be problematic manifested in inflation? Yes, if the government's expenditures actually exceeded the total production of the economy. In other words, as long as people are working and producing goods and services that are taxed, there is no real debt problem.
Applying the debt issue to the state level is also revealing. The National Association of State Budget Offices released a report this June. Based on data collected from December 2007 through the end of 2010, 24 states, with one exception (Alabama had incomplete data) that increased spending and taxes for the wealthy saw their GDP increase. Conversely, 25 states that decreased their spending and tax cuts for the wealthy saw their GDP decline.
Clearly, cutting social programs that assist working people, the sick, and the elderly will only exacerbate the crushing economic burdens that they face and destroy any opportunity to increase the states’ GDP’s.
Real Agenda
Those advocating harsh debt reductions subscribe to the petrified textbook of neo-classical economics which advocates for an unfettered “free” market to determine the rational allocation of resources. Ultimately, this delusional ideology justifies the inevitable unfair and grotesquely skewed distribution of incomes and wealth. To these conservatives “big government” laws, regulations and social programs are mere interlopers in that process. Their ultimate goal is to privatize all social programs that will result in more hefty fees for Wall Street.
More cynically, this debt “crisis” is designed to frighten Americans into cutting Social Security insurance, Medicare, and Medicaid. The latter two public health programs keep tens of millions of elderly in their homes and the poor from dying. Nearly two out of three seniors depend on Social Security insurance for more than half their income.
Their strategy persists like a fungus despite the fact that Social Security insurance has absolutely nothing to do with the national debt.
Medicare is often singled out, but its rising costs are largely a result of bloated profits of the insurance and pharmaceutical industries. The same predatory industries bilk Medicaid.
Their budget problems could be remedied by a national single-payer health care system that takes private profit out of health care, as in other industrial nations.
In other words, the debt is not a crisis and there are ways of reducing it that would benefit the vast majority of Americans. Keynesian policies in the form of federal stimulations for the economy do have their structural limitations. However, those limitations have not even been marginally approached.
The super committee worked feverishly to placate the 1 percent by maintaining their lavish tax cuts. The Occupy social movement has pegged this economic and political corruption as the cancer of our times. The movement is a welcome manifestation of the festering discontent of tens of millions of Americans. It is an audacious and exhilarating democratic contrast to Wall Street and its “super committee which has proven to be anything but “super.”
[Bruce T. Boccardy, is president of Service Employees Local 888 in Massachusetts representing approximately 9,000 public service members}.