Debt myths

Today, the Oklahoman ran a letter that echoes a talking point that-- sadly-- is not just a right-wing meme, but one that is common throughout the the mainstream media. (That said, the Oklahoman makes a point to bring it up quite a bit.) In it, Bruce Smallwood of Edmond writes,

Reports say the national debt can't be sustained, yet there's no action. Comparisons with personal debt are made, but when personal debt reaches limits, painful things happen — canceled credit, bill collector calls, lawsuits. Bankruptcy can be demeaning. Conversely, no one suffers or feels the pain of national debt, so why complain or force a stop? Does anyone think they'll face a bill? Is there a Chinese bill collector at your door? Children will have to pay? Ha! That was said when the current spenders were children. Unless the pain of cuts is felt, there'll be no fix.

The potential of the country going into chaos a la Greece, riots, shutdowns and fear in the streets isn't unthinkable. On the debt limit debate, now's the time for some pain. At the very least, let's stop the real growth in the debt. A line drawn today, while difficult, is preferable to the potential of a national calamity.

There is quite a bit wrong with this-- both in the factual accuracy of what he says, but also because of the apparent cognitive dissonance Mr. Smallwood displays in his letter. Let's begin with some basics:

1) Federal debt is not the same thing as personal debt.
L. Randall Wray makes a number of astute observations on this topic:

The US federal government is 221 years old ... I don’t know any head of household with such an apparently indefinitely long lifespan. This might appear irrelevant, but it is not. When you die, your debts and assets need to be assumed and resolved. There is no “day of reckoning”, no final piper-paying date for the sovereign government. Nor do I know any household with the power to levy taxes, to give a name to — and issue — the currency we use, and to demand that those taxes are paid in the currency it issues.

Moreover, as Paul Krugman notes, federal debt is money that we largely owe to ourselves. The end result is that our federal debt doesn't make the country poorer as a whole. From Prof. Krugman:

Well, let’s do a thought experiment that doesn’t, at least initially, seem to have anything to do with debt. Suppose that instead of gifting seniors with debt, President Santorum passes a constitutional amendment requiring that from now on, each American whose name begins with the letters A through K will receive $5,000 a year from the federal government, with the money to be raised through extra taxes. Does this make America as a whole poorer? 

The obvious answer is not, at least not in any direct sense. We’re just making a transfer from one group (the L through Zs) to another; total income isn’t changed.

Put slightly differently, the US isn't giving money to some other nation so that IT can build new roads, educate its children, and care for its elderly. It is doing that for its own citizens by borrowing from its own citizens.

2) China doesn't own the US
A big meme-- echoed here-- is that the United States is in massive debt to China, and one day they're going to come knocking to collect. This is just wrong. As I noted above, most of our debt is to ourselves. China only has about 8% of that.

3) We aren't Greece
You hear this quite a bit nowadays-- that our debt is going to make us like Greece. The only problem with that notion is that it isn't true. Put simply, A) the Fed can do things that the European Central Bank can't (like purchase government debt), and B) the US can devalue its currency to increase exports, while Greece cannot. So, in fact, a Greece-like situation is quite unthinkable.

So there you have it. All of the boogeymen Mr. Smallwood invokes-- boogeymen touted even in the mainstream media-- are just that: scary "facts" used to frighten people into complicit behavior.

Amazingly, Mr. Smallwood makes an observation about these myths:

Does anyone think they'll face a bill? Is there a Chinese bill collector at your door? Children will have to pay? Ha! That was said when the current spenders were children. 

Holy crap! Mr. Smallwood is actually acknowledging reality. No, Fox News, a Chinese bill collector isn't going to be knocking at your door. No, Mr. Presidential Candidate, we aren't saddling our children with debt.

Indeed, going back to the Krugman piece:

The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation. ... Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than debt today; but that debt was also owned by taxpayers, such as all the people who bought savings bonds. So the debt didn’t make postwar America poorer. In particular, the debt didn’t prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation’s history.

Unfortunately, while the reality of these debt boogeymen stare Mr. Smallwood in the face, he cannot accept that they aren't real. After all, as he says, "Reports say the national debt can't be sustained." But despite the fact that the phantom menaces of our debt-- our children having to pay, or China coming to collect-- haven't materialized, he is convinced that something must be done and, to that end, he advocates "pain" for America.

And that, of course, is the point of the right-wing propaganda machine. After all, the lamentations over our debt are a fabrication of the plutocracy. Their goal is to convince America that our debt is unsustainable and that spending-- particularly in things like Medicare, Medicaid, Social Security (even though by law Social Security doesn't contribute to our debt), and programs to the poor-- gets cut. Lower spending means lower taxes (mostly for the rich). But while they fly around on chartered flights to second homes in the Hamptons, the rest of us drive on shitty roads to jobs that don't pay benefits trying to support children who won't be able to afford a college education.

All of this, because media outlets like the Oklahoman-- but sadly, mainstream "liberal" outlets, too-- peddle these sorts of fears.