Monday, December 03, 2012
National Debt vs. The Deficit:
A Distinction with a Difference.
[NSFW] Aside to Joseph: Yes, I was optimistic, but I happen to agree with
the other RL. "I'm not saying we can't survive a second Obama term. I'm
saying we can't survive voters who would reelect Obama." Ergo sorrow.
Particularly when all the cool cats run off in so many different directions.
Like the rhythm or not, I AM still dancing. Not spry enough? Do me better.
WE STILL RESPOND TO COMMENTERS (OBSOLETE POLITESSE DIES HARD). Helk inadvertently did everyone here a service with his latest odd critique:
"While I can hardly disagree that the country faces unprecedented problems, I find it interesting to see that you have taken the position that our national debt is a problem. I recall posting here a long time ago that the debt was going to be the primary factor in determining the quality (or lack thereof) of our future. People yelled me down for being retarded. Well, I see that you have finally embraced that line. Not the retarded line (though I suspect you embrace that also) but the debt line."
I was nonplussed. We've all yelled at Helk about a bunch of things, but strictly because he worried about the debt? I doubt that. Obama's spending, and Bush's before him, has been a continually recurring topic at this site. Then I recognized a fundamental area of misunderstanding that afflicts more people than I'd realized. Way more important than I'd realized. So thanks to Helk for surfacing the disconnect.
If you search the site, it's true I don't talk much about national debt. What I talk about all the time is the annual budget deficit, the rate at which it has grown, and the federal policies that will cause the deficit to increase in future beyond our power to control -- e.g., unexamined entitlement spending, which by definition is not subject to budget discipline.
Obviously, these subjects are closely linked, but they are not identical. Deficits do not equal national debt; deficits increase national debt, meaning they're a cause not the dread face of disaster itself depicted in the giant LED running tote boards at tea parties and Ron Paul gatherings. Nightmare on Elm Street territory. The day is imminent when a Dickensian usurer, a Sopranos legbreaker, or Freddie himself will show up demanding payment in full. (Maybe December 12, 2012, on Mayan Apocalypse Day?) So if you're fixated on national debt, talking about deficits is somehow not quite on point. By inference, the source of Helk's dismay. I'm grousing about a measly one or two trillion a year and they, like Atlas, are manfully bearing the full weight of the 20 to 60 trillion total. They're serious and I'm a dilettante, negligently ignorant about the enormity of the real calamity.
Which is not only complete and utter bullshit, it's evidence of an extreme economic naïveté used to justify much of the liberal scorn toward tea partiers.
Worse, the exclusive focus on national debt as opposed to deficits represents the same kind of zero sum logic that makes a laughingstock of most leftist, anti-capitalist economics. The lefties act as if every dollar earned by millionaires is a dollar stolen from "working people." They refuse to understand the basic principle that capitalism creates wealth for everyone in the workforce. In the same way, people who insist on comparing government economics to the household economics of individuals earning wages or salaries are missing the crucial fact that the better and more illustrative analogy is to business.
The error here is not so much structural as psychological. It's easy to make mistakes and fall behind in matters of personal debt. When the debt total reaches the point that discretionary income is reduced, it's human nature to rue the credit transactions spent on too many toys, too many meals out, impulse purchases of fancy cars, and other unnecessary luxuries. Things which did not contribute to the possibility of higher wages or salaries. These aren't investments. They're just deficit spending. That's when the interest payments and the ever-increasing TOTAL really start to bite.
Business debt is a different animal altogether. Almost all growing, thriving businesses, especially big businesses, carry substantial debt. That's why there's a bond market. Businesses borrow money to make more money. They borrow to build new plants, expand into new markets and geographical regions, and to finance lags in short-term cash flow associated with rapid healthy growth.
What was that last term? Cash Flow. What makes debt affordable is long-term healthy cash flow. Tell me you make $25K a year and owe $50K on credit cards. Should I be concerned about the total? Maybe. Especially if you're only going to earn $20K next year and will be borrowing more to maintain the same standard of living. But if you show me you're on track to earn $50k next year and $100K the year after that, my interest in your debt total will decline as long as you also show me you won't increase personal consumption at the same rate.
Just as all publicly traded corporations have some level of debt, so do most governments of even the richest nations. It's not the debt total that matters; it's the cash flow. If you are growing your GDP faster than you're growing your national debt, you are still a good investment to your creditors. If your income is rising faster than your debt, foreclosure day never comes.
And it's never the case that NO national debt is ideal or even desirable. That would be akin to a business that has no ambitions to grow. "We'll just sit here quietly, thank you, and twiddle our thumbs while all those idiot risk takers pass us by in revenues, profits, locations, and employees." Stasis ain't paradise if the population is still growing. Bitter as it might be to contemplate, there are government investments that involve productive debt: a state-of-the-art military, the interstate highway system, the Panama Canal, the Marshall Plan, etc. If they're the right investments, we all benefit. If they're wrong, we all pay the cost and elections are the constitutional cure.
Why so many reputable economists argue quite sincerely that levels of national debt don't matter. If they can defend their assumptions about levels of economic growth, they are right.
Why the national debt obsessives aren't even participating in the right argument, the necessary argument. Which -- heresy of all heresies -- isn't even about achieving an annual surplus, not even a single dollar surplus, at any cost.
Shiver.... Writhe in torment... Scream in outrage.... Get it out of your system. The necessary objective is to reduce the rate of growth in deficits below the rate of increase in the GDP and establish a trend of doing that consistently, controllably, and by a significant margin.
That's how you grow your way out of a fiscal crisis, even a deep one like we're in now. Why the Reagan economy grew in spite of large deficits (regardless of whose fault they were). The booom outgrew the rate of increase in the national debt. Hate it? Sorry.
The difference between the fiscally responsible and the fiscally irresponsible boils down to whose assumptions about what contributes to economic growth are right and whose are wrong.
The national debt and its always staggering total becomes fatal when the rate of its increase becomes unstoppably greater than any possible growth rate in the private economy. Why I have railed continually -- rather than shriek about the national debt -- on here and now topics like the depressive effects of higher tax rates, Obamacare's explicit and unintended costs to businesses and individuals, exponentially increasing regulations on business, malicious disincentives by the EPA and other federal agencies to exploit abundant American energy resources, and a prevailing leftist mentality which somehow still believes that essentially Marxist delusions about the viability of centrally managed economies are true and socially desirable despite an entire century of bloody proof positive to the contrary. Not to mention the general and almost murderously effective impacts of the propaganda effort to substitute sexual and chemical license for freedom of speech, religion, and independent thought as signposts of human liberty.
Meanwhile, we read and cluck about the dire, perhaps culturally fatal, effects of drastically declining birth rates in Europe and Japan. While our progressive leaders take constantly to the airwaves encouraging us to support abortion and quit defending our own cultural traditions in favor of immigrants who don't even ask permission before demanding their share of our lives and livelihoods, including legal immunities we don't have. Does it occur to any of you to utter the words "national debt" in THIS context? It occurs to me.
Yeah. I haven't been talking about the real issues. Because I'm an unabashed apologist for traditional "authoritarian" republicanism. Meaning that I recognize the federal government exists, has power, and needs to exert whatever slender moral authority it has left to forestall permanent fiscal calamity. Peculiarly eccentric me.
Once again, thank you, Helk. Is light a particle or a wave? I know it's both. At the same time. If you don't, your chicken tending has caused you to fall behind.