Bernie Sanders Reminds Me of My Nono Ugo

I like Bernie Sanders. He reminds me of my grandfather — my Nono Ugo — may he rest in piece. Nono used to carry candy in his pockets to give to my brother and I when Mom wasn’t looking.

We liked candy. Who doesn’t? Free college, free health care, medical and family paid leave, more robust social security, upgrading our crumbling infrastructure. Sweet!

But America is burdened with over $19 trillion dollars in debt. “Trillion.” 12 zeros. That’s about $160K per U.S. taxpayer.

Interest payments on the debt are the fastest growing area of federal spending. And interest rates are at historic lows. When they go up again, look out!

We’re looking at the possibility of $500 billion in annual interest payments by 2020, with a debt close to 80% of our gross domestic product (GDP). After that, without fundamental structural changes, we enter an Aegean Sea of debt that could sink the ship of state.

I have good teeth. I can thank my mom for that. My dad, a florist, who I loved dearly, was overly generous. He would’ve literally “given away the store,” if it weren’t for my mom, who had a good business sense, was pragmatic, and tough — she spoke her mind. Thanks to her, there was money “in the till” to pay for the dental care my brother and I needed. All that candy can rot your teeth.

My Republican Friend Worries About the Federal Debt

My friend wrote:

"I heard on the radio that the Congressional Budget Office has issued a dire warning about the USA's debt problem.  Check it out (I don't have the web address). Of course, NO democrats ever mention our fiscal situation."

Dear Republican Friend;

"Dire" is in the eye of the beholder, e.g., I think climate change is a dire situation. You don't. Nor do your Republican Presidential candidates, who feel so strongly about it NOT being "dire" that they've criticized the Pope for addressing climate change in his encyclical. Yet unchecked, global warming will kill us. What the CBO report says, on the other hand, is that ALL THING BEING EQUAL, a growing debt will make us very uncomfortable. Here's the bottom line of the CBO summary:

If current law remained generally unchanged in the future, federal debt held by the public would decline slightly relative to GDP over the next few years, CBO projects. After that, however, growing budget deficits—caused mainly by the aging of the population and rising health care costs—would push debt back to, and then above, its current high level. The deficit would grow from less than 3 percent of GDP this year to more than 6 percent in 2040. At that point, 25 years from now, federal debt held by the public would exceed 100 percent of GDP.

The consequences of this growth in debt are addressed by the CBO as follows:

How long the nation could sustain such growth in federal debt is impossible to predict with any confidence. At some point, investors would begin to doubt the government’s willingness or ability to meet its debt obligations, requiring it to pay much higher interest costs in order to continue borrowing money. Such a fiscal crisis would present policymakers with extremely difficult choices and would probably have a substantial negative impact on the country. Unfortunately, there is no way to predict confidently whether or when such a fiscal crisis might occur in the United States. In particular, as the debt-to-GDP ratio rises, there is no identifiable point indicating that a crisis is likely or imminent. But all else being equal, the larger a government’s debt, the greater the risk of a fiscal crisis.

Now the reason Democrats don't pay more attention to the debt problem is that the problem is easily fixed. Let's start by eliminating the estate tax and reducing corporate taxes, two of the Republicans favorite "fixes." Did you know that the House just voted (along party lines) to repeal the estate tax? Congress’s Joint Committee on Taxation estimated that repealing the estate tax would cost the Treasury $14.6 billion in the 2016 fiscal year and $269 billion over 10 years. John Boehner said $269 billion “is nothing more than a drop in the bucket to the federal government.”

Of course the only reason you'd be interested in the facts about estate taxes is to avoid them, but if you are interested in the larger picture and why the Republican crusade to repeal estate taxes is such a farce, you could read this economic intelligence report, which would tell you that you have nothing to worry about, because the federal tax currently applies to estates worth more than $5.43 million for an individual or $10.86 million for a couple. Only Republican donors of the Sheldon Adelson variety worry about this, and even they aren't too worried, because they can afford good tax lawyers.

But I digress. You will note that at the beginning of this email I capitalized "ALL THINGS BEING EQUAL." There are quite straight-forward things our "leaders" in Congress could do to remedy the fiscal situation (e.g., raise the amount well-off people like you and I have to pay into Medicare). Then again, Congress could simply implement the Simpson-Bowles plan. That would result in the savings shown below. But as you've pointed out, every item has a "constituency." That makes it hard for politicians to tackle, especially those with no integrity.

So that leaves us with the prospect of waiting until the POTENTIAL crisis that CBO forecasts occurs in 2040 and then watching as our "leaders" take stop gap measures to stem the tide. And speaking of stemming the tide, do you know what sea level rise is predicted to be by 2040?

Seeing is Believing

My good friend, a died-in-the-wool conservative, contested an earlier post, The Absurdity of Conservative Economics, arguing that stimulus spending doesn't work because we never reduce spending after increasing it to stimulate the economy. Really?!

There is a legitimate debate about so-called deficit spending and Keynesian Economics, and whether in the long term it helps or hurts economic growth, but there is no debate about whether federal spending is ever reduced after increases -- maybe I misunderstood him. He's old and I'm older. But here's the picture that's worth a thousand words.

Outlays, Receipts & Deficits as % of GDP

The data were downloaded from the Office of Management and Budget and then opened using an Apple Works spreadsheet program. Clearly, the outlays as a percent of GDP during WWII greatly exceeded receipts and deficits grew larger. After the war, federal spending dropped dramatically and deficits shrunk. You can see the same pattern throughout the chart, although far less dramatically.

It's also interesting to note that our current deficit problems started in George W. Bush's first term in 2001 and grew worse until he left office. Under the Obama Administration, outlays and receipts are converging and deficits are shrinking -- another fact that my friend and his conservative golf buddies at the country club are loath to recognize (there were three Democrats at the country club, but two of them died and the other one disappeared mysteriously after birdieing the 8th hole and causing a 'redistribution of wealth' among the foursome (JK)).

The contraction during the Great Recession precipitated by Bush's economic policies and an under-regulated financial industry is the largest decline since quarterly data became available in 1947. Cumulatively, real GDP fell by 4.3% during the recession. The steep drop in economic activity caused by the recession makes it imperative that more work is done to raise economic growth and speed job creation.

Republicans say they're focused on creating jobs, but actions speak louder than words. They manufactured two debt crises in the last two and a half years. In the first one they managed to get an across-the-board cut -- the sequester -- causing all kinds of chaos (which they then tried to reverse with selective appropriations). In the second they got basically nothing (except some $3b for a dam project in Mitch McConnell's state of Kentucky).

But they'll be back for more cuts, both in spending and taxes, as well as "fixes" to the Affordable Care Act. Everything they do will hurt the economy -- count on it!

Here's the Thing

According to the New York Times, Republicans planned to shutdown the government months ago in something called a "blueprint to defund Obamacare." Surprised? You shouldn't be. Republicans have done everything they could short of throwing tea into the Potomac to sabotage President Obama's terms in office. Never mind that their obstructionism has hurt the economy and job growth, or that their objections have been at times at odds with things they've recommended in the past, or that their own 2012 candidate for president, Mitt Romney, had implemented an Obamacare-like health program in Massachusetts, or that the 2013 Congress has been the least productive in U.S. history -- they don't care. The health of the Republic, the state of our democracy, the plight of every-day working Americans -- none of that matters to a Republican Party gone mad from losing two presidential elections to a man who is not only not white, not a member of the good ole [rich] boys club, and not someone they'd want to have a beer with, but is also -- horrors! -- an intellectual.

Don't be surprised if these Republicans cause the United States of America to default on its debt [on purpose] for the first time in its storied history. These crazies just might do it, because they're mad. They're mad because:

• they think government is overreaching (such as when it prevents air and water pollution),
• they believe in free markets (such as those that practically bankrupted the nation in 2008)
• they believe we are moving towards a socialism (because the 1% only own 42% of the nation's wealth, while the bottom 80% own a big 7%)
• they lost the 2008 presidential election and worked real hard to obstruct everything Obama tried to do only to lose again in 2012 (Fucking hell! What've gotta do to get back in power, burn the White House to the ground?!)

Don't be surprised if they do.

Path to Fiscal Sustainability Requires Taking the Long View

I’d like to suggest that solving our fiscal problem requires more than just sacrifice, which most assuredly will be necessary. It requires smart people with the ability to take the long view. We need to think strategically when we envision the fiscal future we desire, and implement structural reforms that put us on a long-term path to fiscal sustainability.

Let’s take defense spending as an example. During the presidential campaign, Mitt Romney promised to increase defense spending by $2 trillion over the next decade. President Obama argued that the United States already spends more on defense than the next 10 countries with the largest defense budgets combined. He actually understated the disparity. We spend more than the next 13 countries combined, and this includes China and Russia. This year American tax payers shelled out $718 billion for troops, and tanks, and airplanes, and ships, and etcetera. That accounted for 20% of the $3.6 trillion  federal budget.

Failing to reach agreement on reducing the United States’ federal deficit by the end of this year will result in automatic spending cuts as mandated by the Budget Control Act (BCA) of 2011. Among other things, this would slash an estimated $55 billion from defense spending in 2013. Making such cuts willy-nilly will degrade our national security in ways we can’t fully appreciate, and damage the US economy in ways we can -- America’s humongous military-industrial complex accounts for an estimated 10 million jobs. Cut defense by the 10% sequestration in the BCA and you’re looking at upwards of 1 million jobs lost.

Now that doesn’t mean we should buy tanks the army doesn’t want just because the manufacturing plant is in some congressman’s district. Nor should we keep plants open in order to manufacture advanced weapons systems to sell to our new friends in the Middle East. Friendships there change more often than Mitt Romney’s policy positions. What’s needed is a reduced defense budget based on an overarching defense strategy that reflects national security realities now and in the future and the military force structure needed to effectively deal with them.

We must move to this new force structure incrementally, and the spending cuts we realize must be allocated not just to deficit reduction, but to new programs aimed at helping veterans adjust to civilian life, and elements of the military-industrial complex convert to commercial endeavors.

If we were to take Mr Romney at his word, his presidency would have moved us toward war with Iran; an indefinite presence of thousands of US troops in Iraq; a more militant posture towards Russia; a trade war with “currency manipulator” China; a troop presence in Afghanistan until at least 2014; and a Reagan-like military buildup at home. If Mr Romney’s positions still reflect Republican foreign policy objectives, we are in for a knock-down, drag-out battle right here at home on the defense budget alone.

Then we have Medicare and Social Security to address. And once again, America is at war on multiple fronts.