Conservatives’ “Misconceptions” About the Deficit and Debt

One huge misconception among low-information (read:red-state) citizens is the argument that the government’s debt (public debt) is similar to a business loan, private loan or credit card (private debt).

The standard argument is something like, “If we keep running up debt, we’ll eventually be overcome with interest costs, suffer a reduced standard of living, hyper-inflation! cats and dogs living together! be placing the debt burden on our children and grandchildren, and, pretty soon, go bankrupt!!!”.

As I had the pleasurable opportunity to tell one of my brother’s teabagger friends recently, “That’s bullshit economics”.

Naturally the reaction was a litany of reasons why public and private debt  :

  1. Are the same
  2. Should be the same, or
  3. If I say it enough times they will become the same

Sorry teabaggers, wrong on all fronts, and none of your bankster (banker + gangster=bankster) machinations to defend your stance will make it true..

Part of the reason so many of the brain-washed red staters spend so much time on social media sites is that they find it easy to ignore the facts and talk past them with their beloved talking points. Some are so convoluted that I end up not knowing where to start first. Kinda like when a tsunami hits…do ya save grandma and grandpa’s only pictures or look for the flood insurance policy?

Even the Credit Rating Agencies of FitchStandard & Poor’s, and  Moody’s all agree that the size of the U.S. debt is not what causes them to consider downgrading America’s stellar credit rating. It’s that Republicans are so intent on political wins that they are willing to default on our payments just to get their way, make a point, or whatever you might want to call it.

As David Walker, a conspicuous budget hawk and the former head of the billion-dollar Peter G. Peterson Foundation, has contended, “Both Republicans and Democrats in Washington have charged everything to the nation’s credit card, including tax cuts and spending increases, without paying for them.”

So you see, even former Comptroller General’s (especially one’s who worked for Morgan Stanley or any other bank) can be paid to say what they’re told to say when it comes to the difference between macro-economics (public) and micro-economics(private/business). So listen up teabaggers and try to keep an open mind when real facts, not just opinions, comprise the basis for an economics debate.

David Walker’s medium of choice, The Peterson Foundation, much like it’s peer group The Heritage Foundation, (boy those Republicans have a lot of “Foundations”…try and guess who funds those “Foundations”…could it be, banksters?)  is the leading sponsor of this brand of sham economics. It is an imitation; a false metaphor on so many levels that it sometimes dumbfounds me as to know where to begin (which is why I tend to avoid such streams of propaganda in the social media like Facebook…you can spend all your time just trying to correct what They said You said). Facebook is rife with bankers, businessmen, and various other professional snake oil salesmen who get their jollies by practicing the art of deflection.

Political Economics vs Actual Economics

Most importantly, this “personal debt/business debt is the same as  government debt” metaphor is a totally false analogy because, unlike a consumer on a spending spree who later has to pay lenders, government’s borrowing strategy (macro-economics) directly affects economic growth. When deficit spending helps increase growth, it actually makes the debt less oppressive not more oppressive. The Federal Reserve also has the power to buy public debt ‑ a privilege not accessible to private borrowers. Again, no, government cannot and should not be run like a business. They are not remotely the same. Man and whales are both mammals, but lets see how long you can last in the ocean or vice versa.

The U.S. economy, as with most economies whose basis is in capitalism, has vast productive potential that stays dormant during a deep recession. This is a well-known fact to anyone who has studied the Great Depression and its causes (Alan Greenspan apparently did not, Ben Bernanke apparently did). When everyone who wants a job has one, and people use their combined purchasing power to buy goods and services, the economy gins along at its maximum potential.

When the economy is in a protracted slump, however, there are factually trillions of dollars’ worth of idle people, factories, buildings and sources of services income. In today’s dollars, that figure is approximately $5 trillion U.S. dollars worth of nonfinancial companies liquidity, as of July 2012.

The worst slumps stereotypically occur after a financial collapse – true for both 1929 and 2008 – because so much asset value is wiped out, thereby creating a self-reinforcing tailspin. This happened the last time a republican administration attempted to enforce austerity and pay down debt under Calvin Coolidge. The result was the Great Depression. More importantly, it was the timing of the attempt to pay down the deficit, not the act itself. The same is being attempted  as I write this in the UK and the Euro zone, with Spain, Italy, Portugal, Ireland, and Greece approaching Great Depression unemployment (25+ %), and Germany, France, and the Netherlands formerly healthy economies, retracting dramatically under the stubborn onslaught of self-imposed, conservative austerity at exactly the wrong time.

NOTE: As in all mathematical and scientific equations, both sides must eventually balance, however stated, or the equation fails. So timing and consistency is imperative. Austerity is a fine concept if practiced beyond political cycles that, in this country, change much too often for economic cycles to take hold. For an in-depth analysis of how economic cycles and political cycles do not coincide, see:  Proof That Austerity Does Not Work in a Recovering Economy and Keynesian, Austrian, and Neoclassical Economics (unless that’s just too much book-learnin’ for ya).

Employers  are rightfully  risk-averse, so hiring declines in downturns due to more unemployed workers, consumers are too traumatized to buy even when they can afford it for fear of being unemployed,  banksters  are awash in money but won’t lend to any but the most blue-chip borrowers, and the entire economy grinds to a low gear / steep climb.

Where the Rubber Meets the Road

That’s where government borrowing comes in. Unlike private debt, public borrowing can, and usually does, improve a depressed economy’s performance. It always has, but Americans and their short attention spans and lazy foundations in history, geography, mathematics, etc., have more important considerations to consume their attention…like teevee!

When government borrows, and it invests in projects that cycle right back into the private economy it spurs confidence. These are stimulative to the economy by creating demand for private contractors, stabilizing the labor force by the private sector that needs more labor to meet demand for necessary services curtailed by the recession, like schools and road repair, and thus providing more revenue to the government through taxes, while  outlays from the government decline because of the funding that’s no longer needed for unemployment and other safety nets for the unemployed.

But doesn’t increased borrowing add to the government’s long-term debt load, the adorable lil  teabaggers ask? Not in a severely depressed economy, no. Economies are cyclical, not static. Politicians have become rigid, hyper-partisanship is stultifying, which is why our economy is not recovering faster. Rather than listen to economists and do what’s right for the country, the GOP insists on doing what’s only in their interest of being re-elected. After all, they get lifetime healthcare and pensions anyway, what do they care what happens to the rest of us?

Today, the long-term deficit is going up because the economy is under-performing and unemployment, though decreasing, would exponentially speed up recovery if Congress, the only funding authority (not the President) would stop trying to follow in the failed footsteps of the UK and Euro zone.

Once unemployment rates go down to normal levels, confidence heats up, demand increases and reverses the downward spiral of recession/depression, and more consumers and business pay more taxes. The ratio of the public debt to overall economic output (gross domestic product) starts coming down in a healthier economy as well. 

In World War Two the government borrowed massive sums to win the war. By the end of the war the debt ratio was about 120 percent of gross domestic product, compared with 60 percent as of mid-2012. Even Fox “News” acknowledges the fact that, in reality, there is no actual debt crisis but for the misconceptions that most Americans have been bombarded with by so-called “pundits”, not actual economists.  Per Fox’s own website,

High unemployment is a crisis. The increase in poverty is a crisis. The foreclosure rate is a crisis. The deficit is not a crisis”.

One Boogeyman Down, One to Go 

But what about interest costs teabaggers plead ? Doesn’t the public debt “alarm” money markets and cause interest rates to rise?

No, not in a depressed economy. The private sector now sees so few profitable places to invest that the government can sell its bonds at record-low rates. Investors are willing to lend Washington money for 10 years at less than 2 percent, and for 30 years at less than 3 percent. If investors were worried about the debt driving rates, they would demand higher returns now. But for the GOP and its continuing Domestic Terrorism with the debt ceiling fiasco, they will stay low.

So the analogy between the government and the “credit card” fails on all levels. If our government listens to the austerity-mongers, it will constrict  the “spender-of-last-resort” national belt and make a bad situation much, much worse.

While conservatives would hail this as a victory, low-information voters will have no one but themselves to blame for supporting the yahoos who are merely looking to do what it takes to be re-elected rather than doing what it takes to get the entire country out of this hole that eight years of George W. Bush’s public give-aways and unfunded wars dug us into, instead of paying down the debt when he had the money to do so.

No, this is not Obama’s baby. Not as long as the GOP seeks to block every attempt to rectify the reckless and downright dishonesty of the George W. Bush debacle. The notion that the debt inflicts a burden on our grandchildren and depresses their standard of living in this instance is factually backward.

What is destroying the prospects of future generations is the obvious failure to dispel the misinformation that is ginned up by conservatives who cater to a faction of low-information voters, rather than doing what they must know in their hearts is the right thing to do for the whole country…generate a recovery with decent jobs.

I don’t expect banksters and politicians to do the right thing, but it would be nice if they gave it a try just this once.

Harvey A. Gold

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