Showing posts with label Balanced Budgets. Show all posts
Showing posts with label Balanced Budgets. Show all posts

Tuesday, March 26, 2013

Fantasy Feedback Loop

Michael Tomasky's recent piece is quite brilliant as it exposes the three big lies that we hear all the time from the Right. Before we get to the lies, though, he links a piece which torpedoes, once and for all, the notion that government budgets and family budgets are comparable.

But over a lifetime, the individual is supposed to be working to pay down debts and build wealth, so he or she can afford to stop working in old age. Thrift and saving (and a downward trajectory for debt balances) are virtuous traits in people, because of our life cycles. 

But the government does not have a life cycle; it plans to exist indefinitely. So it makes much more sense to compare the government to a corporation, which also plans for indefinite existence and therefore may have debt as a permanent part of its capital structure. There is not necessarily an expectation that a firm will decrease its debt load over time, and if a company keeps growing, its debt load may keep getting larger without being a sign of financial distress.

Right. I'd further add the point that the nature of each debt is different as well as I have said in the past. 

Now about those lies...they are: we have to balance the budget, public investment is bad, and jobs will result from accomplishing the first and adhering to the warning of the second. As Tomasky notes, each of these assertions is the dead opposite of reality.

Here is a report from the Congressional Research Service that details how short and middle term deficits are completely sustainable while also noting that our deficit has fallen from 10 percent of GDP to 7 percent of GDP since 2009. We are headed towards 4 percent of GDP. Truly, not a problem. There's also some great information in this report regarding the alarm bells on inflation.

The austerity programs we see in Europe aren't working so the idea that public investment is bad is simply wrong. If you want an idea of what steep reductions in government spending do, take a look at Great Britain.

These reductions in government spending are actually worse for jobs as well. I've shown what happens to the economy and how that actually decreases revenue and makes it harder to balance budgets. So, they really have it back asswards on this one.

So, now we are at the point when we have to ask why. Why do they think this way?

Different reasons. I think someone like Ryan must actually believe all this. He is such an ideologue that I assume he wakes up at night after having reread John Galt’s sermon in a cold sweat thinking about debt and inflation and interest rates (the CRS report also explains why these dystopian fears are canards, too). I think a lot of the Tea Party people just hate government and think poor people are irresponsible, and they came here to chop away and haven’t given it much more thought than that; it just seems intuitively right to them that when you’re in the hole, you cut spending. Then I think there are other Republicans who know better but play along anyway because it’s all the rage in their circles, and because if they don’t play along they’ll be primaried, and possibly beaten, by someone who does believe it.

So, it's largely about emotions. As Tomasky notes

Looking back over that last paragraph, I see that what I have described is a rather mad situation—kind of a fantasy feedback loop where the critical mass of people sustain a fiction and the few who know it to be fiction put their position at risk in saying so. And this is how our country is being governed.

Sad and pathetic.