Dancing on the Breadline

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Take a deep breath, calm down and print more money

Is the US broke?  Do we have to "tighten our belts" because we don't have enough money to pay our bills?  If you listen to the rhetoric coming out of the deficit hawk community, you'd certainly think so.  And let's be perfectly honest about this - using the budget deficit is the perfect stalking horse for the American Political Right to implement their top two agenda items - the upward redistribution of wealth and the destruction of the welfare state.  These policies are so brutally unpopular that they need an excuse to explain why they are 'necessary', so they tell the American people that if the budget deficit is not brought under control immediately it will destroy America, and the American people, watching Football and American Idol, worshiping celebrity and watching Transformers II can't be bothered to learn enough about basic economics to understand how blatantly they're being lied to.

But the plain fact is, this entire construct is not even wrong, it's a category error.  The US cannot "go broke".  It can never "run out of money".  Its economic and budgetary policies can be optimal or less so, and at some point deficit spending can cause actual problems, but as long as a sovereign nation has its own currency and the printing presses to produce it, it isn't possible for that nation to "run out of money".  What's wrong with the US economy is simple, and obvious at the most intuitive level.  There is a lack of what economists call "aggregate demand".  More people are unemployed, and the ones that aren't are spending less money.  So businesses don't sell as much stuff.  There's your economic crisis.  The deficit, in fact, has nothing to do with the economy at all, except to the small extent that the larger numbers of poor and unemployed people require higher levels of social and safety-net spending.  In that way, a small portion of the budget deficit is CAUSED by the poor economy, but none of it is responsible for the poor economy.

So why do we have a budget deficit?  The short, simple and honest answer is that our government, particularly Congress, chooses to have one.  Congress makes laws that collect government revenues and they pass other laws that spend federal funds on programs they believe are important or necessary.  So here's two numbers.  In 2011 the federal government generated direcct revenue that amounted to about 15% of GDP, while in the same year they authorized the various government agencies to spend funds totaling about 25% of GDP.  There's your deficit.  Nothing snuck up on anybody, nobody said they had to pass all that spending legislation while passing other leglislation that actually reduced revenues.  Anytime they wanted, they could close that gap.  But they don't.

And the reason for that is also simple.  The US is in a historically ideal position to raise revenues by issuing bonds.  We have our own currency, and the means to produce as much as we need.  We have the worlds largest economy, and people all over the world see the US Treasury as the safest bank in the world, so that's where they want to keep their money, even if the return on that investment is miniscule or even zero.  Despite the rhetoric, there is no better way for the US government to raise funds than to borrow them at historically low rates.  We COULD, of course, borrow more and run a smaller deficit, but to a significant portion of our elected leadership, that deficit is a political necessity.  If they couldn't hide their plutocratic and draconian economic agenda behind a budgetary emergency, they'd be faced with telling their voters exactly what they really DO want, and even their true believers know that would never fly.

It's important to keep all this in mind during the campaign season.  A great deal of the rhetoric you hear on the economy is simply lies and disingenuous constructs - all the more appalling and offensive because they can freely assume the American people are too dumb to know any better.  The US has myriad ways to pay for whatever programs we collectively, as a people, decide we want our government to provide.  Agree on a laundry list of services and it's just a matter of setting revenues at the appropriate level to pay for them.  Of course, when one of our two political parties is strictly committed to protecting the wealthy and corporations from contributing even a small portion of their wealth to support their own nation, an agreement of that nature is impossible.  But this is an obviously destructive and unsustainable path.  How long can a nation go with such a large gap between spending and revenues, and how can a society survive with so little investment in its own future?  At some point, we're going to find out.
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