October 7, 2012

Here's why the national debt is not panic-worthy

We are not mortgaging our future, and Uncle Sam is not going to dun your grandkids for their share.

By SUSAN FEINER Special to the Telegram

Media coverage of the season's political contests, many Very Serious People and indeed the candidates themselves are telling voters that the out of control federal debt will crush the economy, put our future in hock, turn us into Greece, and ignite hyperinflation.

Now chill out. It ain't happening.

Start with what "taming" the federal debt actually means. Politicians and policy wonks throw this term around, but it's not accurate. Regardless of who wins in November, the national debt will continue to rise because every annual deficit is added to the pre-existing national debt. The real disagreement is not who will reduce the debt, but who will reduce the rate at which the debt increases. This is accounting, not politics.

Even more clarity is called for. Take, for example the well-known but not terribly important deficit number, $16 trillion. That's gross national debt, and that number includes about $7 trillion owed from one government entity to another (for example, the trillions the Treasury owes Social Security). However, Social Security has assets (Treasury bonds) in an exactly equal and offsetting amount, so that nets to zero. The important debt number is $9 trillion. That's the number that matters because it's what's owed by the government to the non-government.

Slowing the rate of growth of the national debt means massive cuts in federal spending. Any cuts large enough to make a difference (10 percent is $900 billion, 1 percent is $90 billion) mean huge reductions in employment.

One billion dollars in federal spending supports anywhere from 11,200 defense and military jobs, to 16,800 jobs in clean energy, or 17,200 jobs in health care, or 26,700 jobs in education. (Political Economy Research Institute, November 2011). Scaling up to hit a 1 percent target means job losses ranging from a low of 1 million (if all the cuts are defense-related) to a high of 2.4 million (if all the cuts are in education).

True or false: Candidates in the current political races are serious about destroying between 1 million and 2.4 million jobs. With upwards of 20 million American currently unemployed, this would be insane and politically impossible. There's something about the impossible. It rarely happens.

And another thing. Wednesday night one of the presidential candidates reminded us that it's a horrible idea to raise taxes on anyone when 20-plus million Americans are unemployed. Why? Because tax increases slow growth. But if raising taxes in a recession is bad, then why would cutting government spending be good? Both reduce the level of spending in the economy, and that's exactly what we need to avoid.

To get around this, debt hysterics tell us we need to cut "entitlement" programs, Social Security and Medicare, in the future. Actually, program beneficiaries receive payments based on the payroll taxes they paid. Hardly an entitlement. Hairsplitting lexicographic issues aside, the Pete Petersons, Erskine Bowles, and Alan Simpsons of America want to gut these programs even though (or is it because?) they are the backbone of middle class economic security. We can't avoid the possibility that the sturm und drang about the national debt is political cover for a full frontal attack on the last vestiges of the New Deal.

So folks, if you wanna give up your retirement -- whoops, forgot, you can't retire, wages are too low, your mortgage is under water and you can't risk waiting for your partner to qualify for Medicare -- be sure to get really worked up over the run-away national debt.

Back to what matters. People have important questions about the national debt that deserve answers not included in the deficit hawk hellfire-and-brimstone, pulpit-pounding morality play.

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