If you listen to Republicans—and you are almost forced to do so—you’ll hear a lot of true garbage about the U.S. economy. According to almost any Republican, the nation faces a real and immediate deficit crisis. If something isn’t done to reign in runaway Obama/Democrat spending on give-away entitlement programs, then the U.S. is going to become another Greece. Well, it is a lot of Republican hooey.
Are we facing an immediate debt/deficit crisis that requires severe cuts in budgets? NO. Alan Blinder of Princeton and former Vice-Chairman of the U.S. Federal Reserve pointed out at a recent American Economic Association annual meeting in Chicago that the U.S. Government “can borrow short term at negative real interest rates, and long-term at about zero. The world is paying us to hold their money.” Binder says, “That is anything but a debt crisis.” Binder adds that the Congressional Budget Office’s (CBO’s) budget deficit projections over the next decade are about 3.6 percent of GDP, which is not much to get agitated about. In fact, the CBO wrote:
Under current law, CBO projects, budget deficits will drop markedly over the next few years—to $1.1 trillion in 2012, $704 billion in 2013, and $533 billion in 2014. Relative to the size of the economy, those deficits represent 7.0 percent of GDP in 2012, 4.3 percent in 2013, and 3.1 percent in 2014. From 2015 through 2021, the deficits in the baseline projections range from 2.9 percent to 3.4 percent of GDP. http://www.cbo.gov/doc.cfm?index=12039
In respect to the U.S. ending up like Greece, Mark Weisbrot, co-director of the Center for Economic and Policy Research, in Washington, D.C., says, “to say that the U.S. is ‘going to end up like Greece’ is one of the dumbest things that anyone…can say.“ He asks, “Have you ever heard of the U.S. dollar, the world’s key reserve currency? The United States is not going to end up like Greece any sooner than it will end up like Haiti or Burkina Faso. A country that can pay its foreign public debt in its own currency and runs its own central bank does not end up like Greece. In fact, even Japan is not going to end up like Greece, and Japan has a gross public debt of about 220 percent of its GDP, more than twice the size of ours and vastly larger – again relative to its economy -- than that of Greece. And the yen is nowhere near the dollar in its importance as an international reserve currency. But the Japanese government is still borrowing at just 1 percent interest rates for its 10-year bonds.”
Let me add this. The amount of debt a country has is normally expressed as a % of Gross Domestic Product (GDP). During WWII the U.S. ran up a deficit of 120% of GDP and suffered no serious consequences, in fact the depression ended and the post-war economy boomed. Most economists say a country can run long term deficits of around 60% of GDP with no problem but there is no firm rule. In 2011, Gross Federal Debt reached 102.6% of GDP. That sounds huge and it is what Republicans yell about. But, there are two kinds of federal debt: (1) Debt held by the public--what the federal government owes Americans and foreigners who have purchased federal bonds, and (2) Debt held by government accounts--that's debt one part of government owes another part of government, for example what the treasury owes Social Security for SS trust funds invested in government bonds. Debt held by the public is the debt we really need to worry about. It reached 72% of GDP in 2011 and is projected to go to 75% of so in the next few years. The rest of the debt 30% of GDP is debt held by government accounts, in other words debt the federal government owes itself. 72% public debt is high but not the highest it has been. Public debt reached 108.7% of GDP in 1946. It then dropped dramatically, reaching 51% in 10 years and just 18% in 1974. See http://national priorities.org/resources/federal-budget-101/peoples-guide/
Binder and Weisbrot both note that the real long-term problem for the U.S. isn’t runaway spending, but health care costs. Binder notes that he doesn’t mean increased health care cost due to the aging population but increased health care costs due to the rising costs of health care. Weisbot says “you could take any country with a life expectancy greater than ours – including the other high-income countries – and put their per capita health care costs into our budget, and the long-term budget deficit would turn into a surplus… The United States pays about twice as much per person for health care as other high-income countries – and still leaves 50 million people uninsured. This is a result of a dysfunctional health care system that has had health care prices rising much faster than those of other high-income countries for decades. What the budget hawks are basically telling us is that we must assume that insurance and pharmaceutical companies will have a veto over the provisions of health care reform for decades to come. And that therefore we must find other ways to make up for these excessive costs, including cutting Social Security and other government spending, and pushing us into higher rates of poverty and inequality than we already have. “
Weisbrot concludes with the observation that all of this “crap about deficits and the debt” is just something Republicans use to block stimulus measures that could help speed the recovery. So, why would Republicans do that?
I’ve said it before. The Republican strategy to win Congress and the White House in 2012 is based ENTIRELY on blaming Obama and the Democrats for high unemployment and a crippled economy. Republicans will do anything, no matter how much hurt it causes middle-class Americans and working people, to keep unemployment high and the economic recovery anemic. It is politics, pure, cynical, heartless politics. And, we shouldn’t let them get away with it.
Read more on the Binder and Weisbrot comments here: http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/economists-may-contribute-to-a-lost-decade-for-america