Yves Smith over at Naked Capitalism has an insightful re-post today on the way the right in particular--and most in the media and public--talk about deficits and misunderstand the relative importance of failures to invest in physical and capital infrastructure (roads, education...) versus the relative unimportance of the US government deficit and national debt. See Attention: Deficit Disorder and the Real Crisis Ahead, Naked Capitalism (Oct. 29, 2013), reposting article with the same title by Fadhel Kaboub, New Economic Perspectives.
Economic failure exists when (1) young people can't get jobs, (2) old people can't get health care and sufficient income to manage after retirement, and (3) everybody else can't manage well using potholed roads, unreliable energy distribution systems, casino-capitalism banks, and holding jobs in industries that treat CEOs (even those who stumble) like Gods and workers like peons. We already face situations (1) and (3) in most aspects of our lives. If the flat-world GOP politicians have their way in cutting benefits of Social Security and Medicare rather than increasing the payments expected from those who have made off like bandits under the reaganomics winner-take-all system that has exacerbated inequality and moved us into a have/have-not economy, we will soon face (2). When economic failure of that dimension exists, it is the ultimate burden to thrust upon the backs of our children and grandchildren. In our case, it would represent the result of our short-sighted instant gratification desire to harvest carbon-based energy come what may; "develop" coastlines (more and more for second or sixth homes for the ultra-rich) and wilderness and wildlife refuges for the wealthy few at the expense of most other people and the rest of the world's living beings; while "protecting" gigantic, too-big-to-fail multinational enterprises like the big banks, Big Pharma, Big OIL and Big IP from having their workers unionize and demand a fair share of the revenues that those very workers generate and "simplifying" the tax code so that it collects less revenue, particularly from the ultra well off.
As Smith and the reposted article by Fadhel Kaboub make clear, most of the ballyhooing about deficits and debt represents a "deficit disorder" that pervades conventional narratives about government, private enterprise and the economy and displays a lack of understanding of modern monetary theory (link is to the "MMT Primer" at the New Economic Perspectives website) as applied to a sovereign state with its own currency, like the USA. Many Americans, ill-educated about finance or monetary systems, hold onto antiquated myths about government budgets, deficits, and debt, including:
- governments should balance its budget the same way individuals and businesses must;
- government spending crowds out private investment;
- government deficits inevitably lead to high inflation;
- government deficits just encourage more government waste and inefficiency
- government debts burden future generations.
These myths "blind[] us from seeing the real infrastructure and education deficits that are slowly destroying quality of life for generations to come." Id. And push ideological US policymakers into "a spending cuts frenzy aimed at balancing budgets and paying down the debt [in what may be] the biggest mistake of our generation." Id.
Deficit hawks have been arguing for increasing the retirement age and reducing retirement benefits in order to solve the financing problem, while the deficit doves argue for increasing the social security taxable income to close the financing gap. Regardless of one’s political inclination and tax-burden tolerance level, solving the financing problem will only put vulnerable people at a greater disadvantage in the future and will not make the provisioning challenge go away. Ignoring the provisioning problem creates a shortage of goods and services which will lead to inflation when the more affluent members of society outbid the poor in a fierce competition for scarce medical services, prescription drugs, retirement homes, and elderly care services.
The only way for society to offer a comfortable retirement to the elderly is by making sure that the workforce of 2032 is as skilled and productive as possible, and has access to the most up-to-date technological and logistical infrastructure, especially when it comes to medical services. The problem, however, is that such a sophisticated workforce can only be created if we invest in education, research and development, and public infrastructure today! This is exactly what we are not doing right now. Instead, we are slashing budgets for education and scientific research in the name of sound finance and fiscal responsibility. We can have all the money in the world in 2032, but it will not create a well-trained medical staff overnight, unless we recruit skilled workers away from other nations, which will shift the burden on the poorest countries that most desperately need their teachers, doctors, nurses, engineers, etc. Deficit Disorder and the Real Crisis Ahead
The US will face continuing decline of the economic standard of living for ordinary Americns unless politicians on both sides of the aisle recognize the high cost of failed public investment and the relatively low risk of the government debt and deficits that can accelerate that investment. There's no indication that the anarcho-libertarians like Rand Paul or the Koch-funded Tea Partyites are even trying to understand this problem. It will be up to the more reasonable amongst the politicians to ensure that those extremist figures are pushed to the sidelines so that real public investment can proceed.
That public investment should be accompanied by a more justice-oriented mode of federal taxation. Priority should be on increasing revenues and decreasing the staggering inequality that is quickly reducing the American middle class to a past dream by increasing the number of income tax brackets and the rates, eliminating the capital gains preference, and reinstating an estate tax with substantial bite.
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