Debt and Deficit Delusions

One cannot open a newspaper or turn on a TV without being told that reducing the U.S. federal debt should be the country’s number one economic priority. A committee of CEOs warns that “our growing debt is a serious threat to the economic well-being and security of the United States.” Erskine Bowles, former chief of staff to Bill Clinton and co-chair of Obama’s deficit commission, ominously declares that the “debt we are accumulating will be like a cancer. It will definitely destroy this country from within.”

This is nonsense. The United States is confronted with numerous threats to its economic well-being and security. The national debt is not one of them. The real challenges of our time are massive joblessness—23 million Americans cannot find full-time work—and the decrepit state of American infrastructure, most recently illustrated by the devastation wrought by Hurricane Sandy.

A multi-year investment program could address both of these problems and should be at the top of our national agenda. Yet it is not. Why?

The reason is our myopia about debt and deficits.

Confused National Debate

Starting January 1, 2013, $700 billion of spending cuts and tax increases are scheduled to take effect. These include the expiration, among other items, of all the Bush era tax cuts, a payroll tax cut, and unemployment benefits—at the same time that across the board military and domestic spending cuts kick in. This massive dose of austerity would clearly cause a recession if implemented.

Yet, strangely, the debate in Washington is not about alternatives to austerity, such as public investment to create jobs and grow the economy. The debate is about what form austerity should take. While Republicans are calling for massive spending cuts, Obama wants to increase taxes on those who make more than $250,000 a year. Increasing taxes on the wealthy is long overdue and would have a negligible effect on economic growth. But Obama also wants a ten-year, $4 trillion (that is trillion with a “t”) deficit reduction package. If the fiscal cliff is a disaster because it is unacceptable to introduce austerity in the face of a weak economy, isn’t a slightly less austere program also unacceptable, just slightly less so?

It gets worse. The usual voices—Robert Rubin, ex-Treasury Secretary and Citibank official, and Lloyd Blankfein, CEO of Goldman Sachs—and some who should know better—like Christy Romer, former chairwoman of President Obama’s Council of Economic Advisers—call for a budget deal that includes cuts in Medicare, Medicaid, and Social Security. There is no reason to cut these successful and popular programs. In last year’s budget negotiations, Obama was prepared to cut Social Security and increase the Medicare eligibility age. It was only Republican intransigence (they would not agree to any revenue increase) that saved us from those cuts.

The budget deficit scare stories leave out important facts. First, our budget deficit is almost solely due to the economic recession. It has nothing to do with excessive spending. Prior to the economic collapse the budget deficit was slightly over 1 percent of GDP. Also rarely mentioned is that the U.S. debt burden—that is, the interest that we pay on the debt—is near a postwar low. With interest rates very low, the market is telling America to borrow more, not less.

To the extent there is a longer-term deficit problem, it is completely driven by projections of rising health-care costs. As Dean Baker has pointed out, if U.S. health-care costs were in line with other wealthy countries, our long-term deficit problems would disappear. This means we must fix our health-care system, not slash spending in other programs.

We have been in this situation before. After the Second World War our debt-to-GDP ratio was about 120 percent, a greater burden than now. But Congress paved the way for sustained economic growth by passing the GI bill, beginning the federal highway program, and introducing low-cost mortgages—and in so doing it reduced the debt. During the postwar boom we ran annual deficits around 2 percent of GDP, but the economy grew at a faster rate. By the 1970s the debt-to-GDP ratio was below 30 percent. The lesson is that we can’t reduce the debt or the deficit if our economy isn’t growing. And the economy isn’t going to grow in the face of austerity.

The Global Context

The pursuit of austerity in the United States is especially striking considering its failure in Europe. The International Monetary Fund, a voice for budgetary conservatism, cautions against “excessive fiscal contraction in the short term” and warns “that governments around the world had systematically underestimated the damage done to growth by austerity.”

The poster child for this policy is Britain. In 2010 the government cut spending with the aim of reducing debt and increasing growth. It failed spectacularly. The economy has shrunk and the deficit has gotten worse. It goes beyond the UK, however: the Eurozone as a whole has been implementing drastic fiscal austerity policies. And last week the European Commission issued a report that, according to the Wall Street Journal, “depicts an economy with few bright spots. High and rising unemployment will drag on consumer purchasing power, as will government budget cuts…worse-than-expected growth means existing budget targets will be difficult to hit.” This will lead to more budget cuts and slower economic growth. The downward cycle continues.

Obama made a disastrous turn from measures to create jobs and bolster economic growth toward deficit reduction in 2009, and ever since the political agenda has focused on big spending cuts. If Obama is to recapture the hope that fueled his electoral victories he needs to show that government can make a difference in rebuilding the middle class. Today that means making job creation the first priority.

Mark Levinson is Dissent’s book review editor.

The Last Great Strike - UC Press [Advertisement]

Want to read our Spring issue for free? Sign up for our newsletter by March 31 to receive a full PDF when the issue launches.


The Kurds

[W]hen we refer to all Kurdish fighters synonymously, we simply blur the fact that they have very different politics. . . right now, yes, the people are facing the Islamic State threat, so it’s very important to have a unified focus. But the truth is, ideologically and politically these are very, very different systems. Actually almost opposite to each other. —Dilar Dirik, “Rojava vs. the World,” February 2015

The Kurds, who share ethnic and cultural similarities with Iranians and are mostly Muslim by religion (largely Sunni but with many minorities), have long struggled for self-determination. After World War I, their lands were divided up between Iraq, Iran, Syria, and Turkey. In Iran, though there have been small separatist movements, Kurds are mostly subjected to the same repressive treatment as everyone else (though they also face Persian and Shi’ite chauvinism, and a number of Kurdish political prisoners were recently executed). The situation is worse in Iraq, Syria, and Turkey, where the Kurds are a minority people subjected to ethnically targeted violations of human rights.  

Iraq: In 1986–89, Saddam Hussein conducted a genocidal campaign in which tens of thousands were murdered and thousands of Kurdish villages destroyed, including by bombing and chemical warfare. After the first Gulf War, the UN sought to establish a safe haven in parts of Kurdistan, and the United States and UK set up a no-fly zone. In 2003, the Kurdish peshmerga sided with the U.S.-led coalition against Saddam Hussein. In 2005, after a long struggle with Baghdad, the Iraqi Kurds won constitutional recognition of their autonomous region, and the Kurdistan Regional Government has since signed oil contracts with a number of Western oil companies as well as with Turkey. Iraqi Kurdistan has two main political parties, the Kurdistan Democratic Party (KDP) and the Patriotic Union of Kurdistan (PUK), both clan-based and patriarchal.

Turkey: For much of its modern history, Turkey has pursued a policy of forced assimilation towards its minority peoples; this policy is particularly stringent in the case of the Kurds—until recently referred to as the “mountain Turks”—who make up 20 percent of the total population. The policy has included forced population transfers; a ban on use of the Kurdish language, costume, music, festivals, and names; and extreme repression of any attempt at resistance. Large revolts were suppressed in 1925, 1930, and 1938, and the repression escalated with the formation of the PKK as a national liberation party, resulting in civil war in the Kurdish region from 1984 to 1999.

Syria: Kurds make up perhaps 15 percent of the population and live mostly in the northeastern part of Syria. In 1962, after Syria was declared an Arab republic, a large number of Kurds were stripped of their citizenship and declared aliens, which made it impossible for them to get an education, jobs, or any public benefits. Their land was given to Arabs. The PYD was founded in 2003 and immediately banned; its members were jailed and murdered, and a Kurdish uprising in Qamishli was met with severe military violence by the regime. When the uprising against Bashar al Assad began as part of the Arab Spring, Kurds participated, but after 2012, when they captured Kobani from the Syrian army, they withdrew most of their energy from the war against Assad in order to set up a liberated area. For this reason, some other parts of the Syrian resistance consider them Assad’s allies. The Kurds in turn cite examples of discrimination against them within the opposition.