Note: The Debt Man, a variation on the boogeyman which the Republicans are trotting out again. Yesterday I was listening to Dylan Ratigan who is really a conservative in disguise. I say this because he is terrified of the Fed printing money when it was the printing of money that may have saved us, and a little inflation right now might help us (makes debt smaller and makes our goods cheaper to the rest of the world). He has on his show his idol who he thinks is the one true light in the Senate, Senator Tom Coburn of Oklahoma who has a new book out about the debt. Oh, we must all be paralyzed into inaction because of the debt. Meanwhile in pundit land, David Brooks is trying to scare the weak minded with more be afraid of the debt (Note Dean Baker also take him to task, Can Somebody Buy the Man and Intro Textbook On Economics). He claims:
“Nations around the globe have debt-to-G.D.P. ratios at or approaching 90 percent — the point at which growth slows and prosperity stalls.”
The problem with this statement is that it is anecdotal. Some nations have high debt-to-GDP ratios because they have other problems and their economies are stalling. But if you looked at our debt-to-GDP ratio in WWII, it would not have been a pretty picture and our economy thrived. We built the engine that made our economy robust after the war and helped us pay down our debt. What is going on here is another wave of an austerity push to take your mind off of the real problem, jobs. Here is the fact: When governments spend, employment surges. See Ronald Reagan’s amassing of debt while the unemployment dropped in his first term.
The problem for the Republicans is that they have no answer for creating jobs except what we have already seen fail. Lower taxes, less regulation, and flow down will make all wealthy. Except it hasn’t. We have the lowest taxes as a percent of GDP in 60 years and there have been no jobs. Lower regulation brought us the Love Canal (for you older readers), the BP oil spill, and the crash of the financial sector, and we want to do it again? The wealthy have gotten wealthier, and contrary to the conventional wisdom that a high tide lifts all boats, the rest of us are slowly sinking.
So in order to continue these policies, they have to make everyone afraid of debt so we won’t take their precious tax cuts and invest them in jobs and infrastructure improvements. In other words they are going to preach austerity like they have in Europe, but tell us that is our salvation, and please, ignore Europe and the results there. As Dean Baker, Economist and co-director of the Center for Economic and Policy Research, puts it:
“Sorry, this is fairy tale stuff. Yes, some respectable economists say it, but it’s still silly. Countries that have had high debt to GDP ratios are largely in this category because of a weak economy. Think of Japan with a debt to GDP ratio that is now well over 200 percent. This was not due to fiscal excesses. This was the result of the collapse of its massive stock and housing bubbles in 1990.
A similar story can be told for most of the highly indebted countries. The causation went from slow growth to high debt. Brooks is just repeating a story from the one percent to rationalize the refusal by the government to take action to create jobs.”
Think about this: If we would have taken the same money we bailed out banks with and bailed out the states, we would be seeing a growing economy and teachers, policemen, and firemen back on the job. The states were not profligate spenders, they suffered from the contracting economy caused by the financial sectors criminal activity and the collapse of the housing bubble. So we bailed out the banks and yet we are still listening to them to push further austerity on our citizens, transfer more wealth to the wealthy, for by all means, reduce regulation. And under these policies our economy is constricting making our debt worse. Irving Fisher, are you rolling over in your grave? Are we a great country or what? We are making stupid look respectable.