Business/Finance

Debt and delusions

by Miles Dean

There’s much self congratulation in Washington these days about the “Deal.”

This represents a false solution to a misidentified problem.

What the deal actually does is to limit debt in the next year and a half and constrain spending by limiting increases in borrowing in the next year and a half to program reductions over the next ten years. Got that? In other words, “I’ll only let you borrow today what you promise to save, later.”

The theatre of the past thirty days has been a wasteful exercise of trying to equate bill paying as the cause of problems brought about by the aftermath of the Bush tax cuts for the rich, fighting two wars while borrowing from the Chinese to pay for them, and prescription drug benefits given without anyone paying for them.

It’s the spending money we don’t have, not the bill paying that is the problem. I receive Social Security and benefit from Medicare. I like it that someone is paying for part of my prescriptions. But even at my age and stage in life, I know that there’s no one behind the curtain with cash in his fist to pay for these promises.

We all remember Dick Cheney and Donald Rumsfeld asserting that the Iraq war would be cost-free to the American taxpayers. Well, it wasn’t and isn’t. To suggest that Iraq and Afghanistan were not the cause of additional debt is silly. To propose that giving tax breaks to the rich stimulates jobs and ending them will crush employment by these “job creators” is silly. To propose cutting off the ability to pay our bills is silly.

At some point, we need to look at the real problems, not just “kick the can down the road,” in the infamous words of a former president. A few years ago Alan Greenspan asserted that there was no “housing bubble,” and then it popped. It wasn’t the sole cause of this dive into the financial cellar, it was just the trigger. The guys pounding nails were called off the roof, the guys in the banks were bailed out, everyone agreed to quit being reckless, and the housing market tanked. Now, few will lend and few will buy.

To suggest that the debt ceiling was a cause of excessive spending levels is ass backwards. To give what you don’t have (tax breaks, free drugs, credit without consequences, etc.), that’s the problem. Debt doesn’t cause spending. Spending without income causes debt.

That the current deal is no solution to our problems will be reflected over the coming weeks and months. Over this time the spending savings and program reductions promised on the “deal” will not cause our economy to recover, will increase unemployment, and will not bring spring to the countryside.

In fact, spending cuts will worsen the problem. We’ve already got 9.2% unemployed, almost half out over a year. Probably an equal number are working part time or no longer looking. The private sector is not generating jobs, the public sector is losing jobs, and this Congress is congratulating itself in following the Teabaggers in their misunderstanding of the problem and its solution.

Let’s say that we cut back spending. Let’s say we bring back our troops. (What do you call a mustered out soldier without a job?) Let’s say we cut back government programs. We could do with a little less meat inspection. (What do you call an Agriculture Inspector without a job?) And fewer guys out watching for weight violations on the roads. (What do you call an inspector without a job?)

After awhile, we will be back to asking the government to stimulate jobs with spending and tax policies to get us out of the hole we are digging with the Teabaggers. We will realize, again, that only a growing economy will provide the revenues to get us out of the hole, that the government has to provide the impetus to get it going.

Leadership from our politicians, information and analysis from news sources, and clear thinking by all of us has been dismal in the current situation. All are to blame.

Miles Dean, in addition to having been a senior finance officer in several Fortune 500 corporations, also served as West Virginia Commissioner of Finance and Administration and Director of Economic and Community Development. He is now retired in West Virginia.

8 replies »

  1. Thank you, Miles, This piece is clear, logical and correct. Where were the other scholars when the rogues stole our government?

  2. Miles Dean is correct when he claims that this recent budget deal will not cure our ills. However, he is off the mark when he says the “theater of the past thirty days” is a “wasteful exercise.”

    What we are going through is a very useful and soul-searching debate, between two fundamentally different views of the role of government. This conflict is fundamental, between those who believe in a paternalistic and expansive role for government and others who believe in limited government.

    The divisions among us today are as menacing as those of the mid-1800s. That conflict took a very bloody war to settle. Today, no one is taking up arms but the convictions are as deeply held.

    A sizable section of our population has elected representatives with the mandate to control and limit government. Palosi and Reid also have a mandate, to uphold their vision of government. The debate looks intractable because it is sincere and principled. This debate is not about debt or any single topic, such as social security, jobs, defense, health-care or taxes. It is about how all these inter-relate, about the nature of society and government. In most other countries, such debates turn into riots and bullets. Here, we hurl statistics and arguments. We should be proud, not disillusioned. Winston Churchill said, “You can always count on Americans to do the right thing – after they’ve tried everything else.”

    We must work through this with patience and determination, not petulance and delusion.

    John

  3. John,

    If in negotiations one side is willing to crash the plane if the destination is not the one they choose, is it a tactic or a discussion of alternata views?

    Miles

  4. Miles, the fear you cite, that one side is willing to crash the plane, haunts both sides. This fear is unwarranted, on many counts. First, both sides are in the same plane and both sides know that. Second, neither side is suicidal or stupid enough to crash the plane. Third, the two sides are not headed for different destinations. Fourth, fear is not a constructive emotion with which to solve any problem (FDR was right.) And, finally, our “plane” cannot be crashed all that easily. What we are referring to as “a plane,” is no ordinary object. It is the United States of America.

    The plane analogy is not the right one to use in this context. A plane usually has finite amount of fuel, fixed number of passengers and a defined destination. A nation such as ours has neither a fixed destination nor finite resources. This is no cliché. At her birth, the nation envisioned no international role and yet, from the Barbary wars to the World Wars to Iraq and Afghanistan, our role in the world has evolved for each generation, in unpredictable ways. By the end of the Civil War, we imagined that we had exhausted all our resources. A mere century later, we had landed on the Moon.

    All this has been possible because our foundations have uniquely strong pillars: an intricately structured government with checks and balances based on individual rights and freedom. The oxymoronic conflicts of a “community” comprised of fiercely individualistic citizens have raged throughout our history and yet never managed to crash the country. Tested and tried, we have survived longer than any other nation as a more perfect union.

    Belief in our strengths is a very important element of how we navigate through the changes happening around us. Conveying and instituting that belief is the responsibility of the president.

    If you must go back to the “plane” analogy, the pilot must have and must exude confidence, not vilify the passengers, the stewerdesses, the air controllers and the plane manufacturers.

    Legislators are elected with mandates from narrower constituencies. The president alone is elected by all of us. His job is to lead, to chart a plan, to implement a plan by finding common ground among all citizens. In Obama, we have a spectator instead of a leader, an eloquent spectator, but nevertheless just a spectator. This has been the singular problem for us in these troubled times.

    John Laxmi

    • …neither side is suicidal or stupid enough to crash the plane.

      John, I have to ask. Were you paying any attention at all to the last few weeks in DC?

  5. 8/9/2011
    Samuel Smith asks: “John, I have to ask. Were you paying any attention at all to the last few weeks in DC?”

    Yes, I have been paying attention to the goings on in DC during the last few weeks. Indeed, I have been paying close attention to DC politics since 1978 when I migrated to the United States.

    IN PRAISE OF PARTISANSHIP

    Mr. Smith’s question seems to suggest that the past few weeks were worse than any prior behavioral patterns in our capital. Is that really the case? I beg to differ.

    Somehow, the myth is being propagated that the U.S. Congress has degenerated to a lower nadir in the last few months than at any time during the prior 222 years of Congressional history. This is a canard.

    At almost every important turning point in the nation’s history, there has been bitter acrimony in the U.S. Congress. Most of our past political disputes have been contentious and debilitating, polarizing and atrophying and yet the nation has not only survived but generally emerged stronger. I’m not even referring to the very early days in the nation’s history when legislators settled personal scores by dramatic gun duels, for causes much less serious than the issues we face today. Our nation’s history is replete with partisan bullying, and demagogic filibusters. Indeed, one of the earliest and most gruesome political fights is reported to have surrounded the Kansas-Nebraska Act in 1854.

    According to historian Michael Morrison, the 1854 filibuster nearly provoked a riot in the House. “Antislavery northerners exchanged insults and invectives with southerners, neither side giving quarter. Weapons were brandished on the floor of the House. Finally, bumptiousness gave way to violence. Henry A. Edmundson, a Virginia Democrat, well oiled and well armed, had to be restrained from making a violent attack on Campbell. Only after the sergeant at arms arrested him, debate was cut off, and the House adjourned did the melee subside.” (Quote from Wikipedia.)

    Turning to more recent times, the U.S. Congress was dragged into nasty impeachment proceedings by a visionary president who turned unscrupulous and by the shameless sexual peccadillo of one of our most effective presidents. The world laughed at us as we investigated wiretaps and thongs but it is through such political partisan bickerings that the nation cleanses and regenerates itself.

    My central point is that Americans have been passionate and petty and whatever else it took to push their viewpoints throughout history. Boehner did not invent brinksmanship any more than Pelosi patent recalcitrance. These are inherited implements, well-tested tools in politics, which have at times turned into violent assassinations but sometimes delivered monumental accomplishments. We should focus on the messages and their merits, instead of decrying the messengers and their means. Both sides have credible arguments. It is the job of legislators to be partisan. It is the job of the president to listen to both sides and craft a constructive compromise that fits the context.

    • I’d never argue that what is going on now is worse than it has ever been in our history. But it’s worse than it has been in my lifetime. Your more recent examples illustrate moments of divisiveness, but nothing like the recent debt ceiling debacle, where one small contingent made clear they were willing to blow up the airplane. The combination of spite, ignorance and barely veiled racism is unprecedented in the last century.