Great. Another post about the American debt crisis. You folks have no idea how tired I'm getting of writing these. It's exhausting and it ultimately isn't going to make a difference.One of the things that I've constantly reiterated over the last year or so is that even the most stalwart Tea Party members aren't really serious about even reducing the deficit in a serious way, let alone eliminating it and addressing America's truly awesome debt. I know this by looking over their (albeit limited) policy proposals and listening to their rhetoric.
If you ever want to have fun, suggest cutting just the rate of growth of Social Security or Medicare to your average Tea Party supporter, who tends to be fairly old. You'll see heads explode rather quickly, more so if you throw cuts to the Pentagon and tax increases into the mix. No, those folks really believe that you can maintain or expand those programs while further cutting taxes and still shrink the deficit. They actually think that banning about $50 billion in earmark spending is going to somehow shrink a $1.5 trillion deceit.
In fairness, the Teapublicans aren't alone. Last week, a Wall Street Journal - NBC News poll found that 70% of Americans don't want entitlements cut, even though that's where the unfunded liabilities that will bleed America dry actually are. You could eliminate the Department of Defense completely and you still won't save enough to pay for the unchecked growth of Social Security, Medicare and Medicaid.
Having said that, defense - entirely dependent as it is on U.S foreign policy - is the very definition of discretionary spending and a good place to start looking for cuts. But you ultimately have no other choice but to reduce and reform the outlays that come with entitlement programs. More importantly, you have to do it in a way that doesn't create a moral hazard bailout trap, like President Bush's "private" Social Security account proposal would have.
The odds of that happening before the international bond market forces Congress to do it are somewhere between slim and none. It's just as likely that Sarah Palin would not only become president, but actually be a great president. It's so statistically unlikely that I can't believe that I'm wasting my time even mentioning it.
Instead of being serious about their national future, most American political types are busying themselves selling the fantasy that they can grow their way out of debt to a public that has no interest whatsoever in the truth. This is mostly a Republican delusion, but it is gaining some currency among the more cowardly elements of the Democratic Party.
Although it seems like it was just yesterday that I pointed out that Democratic pollster Doug Schoen was born wrong, it was actually last Wednesday. On the Daily Beast this morning, Schoen full-throatedly endorsed the "grow your way out of debt" plan. More importantly, he didn't appear to be drunk or kidding.
The theory works like this: If you have a Social Security payroll tax holiday, extend the Bush tax cuts for a few years, and expand a bunch of small business oriented tax credits, you grow the economy to a point where the deficit disappears.
The only problem with that theory is that it's wrong. Mr. Schoen doesn't propose spending cuts, or even a freeze at the current astronomical levels. He just expands tax cuts and credits that further deprive the government of revenue, which is ultimately the cause of deficits in the first place. Just like private individuals, the government goes into debt when it spends more money than it takes in. That debt can only be addressed in one of two ways; by cutting spending or increasing revenue.
Schoen doesn't propose either, at least not in the short or medium term. He seems to believe that the tax cuts and credits with spur the economy enough to increase revenue through a larger tax base. When John F. Kennedy, Ronald Reagan and George W. Bush tried that, it was called supply-side economics and it just created bigger deficits. As Alan Greenspan recently admitted, tax cuts never pay for themselves, let alone grow the economy enough to raise the revenue necessary to address existing deficits.
For Schoen's plan to even come close to being realistic, the American economy would have to grow at an annual rate that it hasn't seen since the mid-80s. And things have changed greatly since the Reagan administration. For example, the United States had a manufacturing base and trade surpluses then. It doesn't now. Since the Clinton administration, America has been a consumption economy. Unfortunately, the American consumer is even more underwater than his government is.
If history is any indication, American households are going to be conservative in ways that they haven't been since the Great Depression. Just as was the case seventy years ago, their main priority is likely to be discharging personal debt rather than buying new stuff. Given the collapse of the housing a credit markets over the last three years, they can't borrow more even if they wanted to. If the American people weren't mightily spooked by the Great Recession, they haven't been paying attention and there's probably no saving them.
It stands to reason that you're not going to have economic growth if consumers aren't consuming. You can have all of the business tax cuts you can imagine, but they'll be worse than worthless if those businesses don't have a customer base. That's why I'm beginning to think that this might be a structural recession, where unemployment doesn't come down significantly for several years, irrespective of what the federal government does.
Mr. Schoen, like virtually everyone else in America, thinks that the United States exists in a bubble. Every other country with a debt issue is engaging in austerity economics, regardless of their unemployment rates. Taxes are going up and spending is going down. They are doing this because they recognize the unavoidable laws of mathematics apply them.
That's not happening in the United States. From the right of the political spectrum to the left, they think that reality can be ignored and wishful thinking will fix what are now structural problems in the American economy.
And that's not going to end well.
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