What in the world is Robert Reich talking about?
When I was a small boy at the start of the 1950s, my father gave me my first economics lesson. “Bobby,” he said with obvious concern, “you and your children and your children’s children will be repaying the national debt created by Franklin D. Roosevelt.”
I didn’t know what a national debt was, but I remember being scared out of my wits.
Dad was wrong, of course. Even though the national debt then was a much higher percentage of the national economy than it is today, it shrank as the economy boomed. My children have never mentioned FDR’s debt. My granddaughter (almost 2) will never pay a penny of it.
Courtesy of the very useful U. S. Government Spending blog I have posted a graph illustrating the federal deficit in real dollars from 1930 to the present. The area under the curve represents the cumulative deficit. Essentially, it’s the amount that’s been added to the debt.
Note carefully that the tiny dips below the baseline, times of surpluses, in the 1950s and the larger one in the 1990s have never equalled the areas above the baseline, times of deficits. The relative size of the economy is irrelevant to whether we’re continuing to pay interest on the debt of 70 years ago. Only the areas under the curve matter for that and, as you can see, the cumulative real surpluses since 1950 have never equalled the deficits
Now I suppose there’s an argument to be made somewhere about the role of intragovernmental loans in all of this or, said another way, the way in which surpluses in FICA have been used to offset the shortfalls in other revenues to boost spending. Unless you’re arguing that default on Social Security or reducing Social Security benefits to the level of FICA receipts is a viable alternative, it’s merely sophistry. Go ahead, make my day. I eagerly await
Dr. Mr. Reich’s arguing that we should limit Social Security spending to the level of FICA receipts. Now might be a good year for it since by all indications revenues will fall below outlays.
You could also argue that we’ll never pay down on the principal sum of the debt. I doubt that
Dr. Mr. Reich’s granddaughter will take much solace from that since she’ll be paying interest on that amount, in all likelihood at ever-increasing rates, for the rest of her life.
I don’t remember to whom I said this but just the other day I repeated something that I believe: governments are just like families. It’s okay to go into debt for large capital investment-type purchases that you’ll pay for over time, e.g. a car, a house, a college education. It’s not okay to go into debt to pay the electric bill or the rent. If you must do that, you need to economize.
I might add that education is only a capital investment if you choose a field of study that will make a return on the investment. I’m not denigrating learning for its own sake. If you elect a major in art history or French literature, it’s like going to the theater. It’s something worth doing but it’s an operating expense rather than a capital investment.
Of course, there are some big differences between families and the federal government, too. The federal government can print money. You could argue that we’re going to inflate our currency to the point where the debts we’re incurring now no longer matter. I don’t take much solace from that and I doubt that Dr. Reich’s granddaughter should, either. I note that China is talking about letting the yuan rise against the dollar.
Here’s something I will leave as an exercise for the interested student. What rate of growth would we need to sustain and how long would we need to sustain it in order to pay down the debt we’ve incurred over the last three years without cutting federal government expenses, the bulk of which are defense, Social Security, and healthcare, or reducing the growth in employment below the level we’ll need to put a good chunk of the people who’ve lost their jobs over the last couple of years to work? I’ll give you a hint: we’d need to grow faster over a longer period than is reasonable to expect of a country of our size, level of development, and in our niche of the world’s economic ecology.
Saying it doesn’t make it true,
Dr. Reich. We’re still paying FDR’s debts. I’ve been doing so all of my life and am content to do so for its remainder. Fighting World War II was something we genuinely needed to do and we couldn’t do it except by shifting its costs into the future.