The Great Debt Scare is back.
Odd that it would return right now, when the economy is still mired in the worst depression since the Great one. After all, consumers are still deep in debt and incapable of buying. Unemployment continues to soar. Businesses still are not purchasing or investing, for lack of customers. Exports are still dead, because much of the global economy continues to shrink. So the purchaser of last resort -- the government -- has to create larger deficits if the economy is to get anywhere near full capacity, and start to grow again.
Odder still that the Debt Scare returns at the precise moment that bills are emerging from Congress on universal health care, which, by almost everyone’s reckoning, will not increase the long-term debt one bit because universal health care has to be paid for in the budget. In fact, universal health care will reduce the deficit and cumulative debt -- especially if it includes a public option capable of negotiating lower costs from drug makers, doctors, and insurers, and thereby reducing the future costs of Medicare and Medicaid.
Even odder that the Debt Scare rears its frightening head just as the president’s stimulus is moving into high gear with more spending on infrastructure. Every expert who has looked closely at the nation’s crumbling infrastructure knows how badly it suffers from decades of deferred maintenance -- bridges collapsing, water pipes bursting, sewers backed up, highways impassable, public transit in disrepair. The stimulus, along with the president’s long-term budget, also focuses on the nation’s schools, as well as America’s capacity to reduce emissions of greenhouse gases. These public investments are as important to the nation’s future as are private investments.
He goes on to explain that the US has had much higher debt to GDP ratios in the past and that we have always grown our way out of these deficits, which are usually caused by war and economic stress. Therefore, when the nation has to go further into debt to stimulate the economy, one of the smart strategies is to spend the money on investments that will prepare the ground for recovery and future growth. "Pulling in your belt" or obsessing about deficits in the middle of recession is actually counterproductive to both the short term goal of getting the economy moving and the long term goal of reducing the debt.
He then asks a critical question:
Why are the ostensibly liberal Center for American Progress and New York Times participating in the Debt Scare right now? Is it possible that among the President’s top economic advisers and top ranking members the Fed are people who agree more with conservative Republicans and Wall Streeters on this issue than with the president? Is it conceivable that they are quietly encouraging the Debt Scare even in traditionally liberal precincts, in order to reduce support in the Democratic base for what Obama wants to accomplish? Hmmm.
This post reminds me of the panic that surrounded Obama's White House meeting on entitlements, which was initially met with dark warnings that the president was planning on attacking social security but everyone quickly realized that the effort was focused on health care reform. There are people out there who are saying nonsense about the federal debt, but they're not at the Center for American Progress or, so far as we know, in the current administration.
That's not exactly correct. The Peterson Foundation was scheduled to be involved with the summit and they are not about health care. What happened was that the White House realized that attacking social security was going to muddle their agenda on health care. But there's little doubt that it was, and is, on the agenda for deficit reduction.
Perhaps more to the point, is this twitter from Ana Marie Cox from an event last week:
Yep. Taking on social security will prove to all the villagers just how tough Democrats are. Nothing makes 'em happier than punching a hippie -- especially an old hippie.