Having watched the American political circus this summer, I am getting seriously angry. First and foremost I am angry at the "TEA party" Republicans who want President Obama to fail, even if it means taking down the country's economy and then pinning the blame on him. Secondly, I am angry with more moderate Republicans who let these rogues set the political agenda, even though I am sure they themselves know better. And finally, I am angry with the Democrats who seem to be completely unable to either stick to their beliefs and political traditions, and equally unable to expose the counterfactual claims of the right wing in what passes for political debate today.
When I was visiting with my family in Denmark this summer, my nephew - who works for a bank - asked me how our American politicians can be so crazy as to deliberately work towards a downgrading of the Treasury bonds. This will lead to an increase in interest rates and carrying costs on the national debt load. It is also likely to force many banks and trust funds to dump their holdings of T-bills because these institutions are subject to rules that require them to invest ONLY in AAA rated securities. (The only reason this has not happened yet, is that Moody's and Fitch have not yet revised their ratings, so the institutions can still bury their heads in the sand and say that 2 out of 3 agencies still rate the bonds as AAA.) For someone who claims to want to reduce the deficit to wreck the credit rating of their own government seemed unbelievably stupid to him. I could not disagree at all.
I happen to believe that deficit are bad in the long run, and we ought to work on paying down the national debt when we can. But in the middle of a recession is not the time to try. We should have taken advantage of the opportunity in 2001, when the massaging of the budget that the Clinton government had done seemed to be on the verge of producing a surplus ... in other words a reduction of the national debt load. But the Bush government insisted that we should do no such thing; we should cut taxes and reduce the government's income in order to ensure that the debt kept rising (albeit slowly). And shortly after passing the tax cut bill, they dramatically increased expenditures by the military ramp-up in response to 9/11.
The Bush tax cuts were always unsustainable, and even their proponents knew this perfectly well. The proof of that is in the way they were structured to be temporary. If the legislation had declared them to be permanent, the budget projections required under the congressional rules for budget legislation would have shown that they would lead to ever larger deficits, even under the optimistic budget projections that accompanied the draft legislation. By having a sunset clause, the deficit appeared to be rather large in the first year, but getting smaller and smaller each year, as the tail end (when the old tax rates would be reinstated) kept getting nearer; and in the long run it would be a wash (because in the long run, the cuts would have ended). This was all a giant fraud.
With the above in mind, I think these are some positions that I hold regarding the deficits as we see them today:
(1) Running a government budget deficit in good times as well as in bad times is irresponsible and essentially borrows from our children in order to live beyond our means today.
(2) Forcibly balancing the budget at a time of economic crisis by cutting government help to the poor and by cutting education funding is irresponsible, and takes money away from the weakest. A country (or a state) needs to save up during good times and disburse those savings (and may even borrow a bit further) to help the poorest when the economy is bad.
(3) To seriously reduce the national debt cannot be done by cutting expenses alone. We must increase tax revenues. Ideally, we should just let the Bush tax cuts on income and inheritance expire and reinstate the Clinton era tax rates. I am personally in an income bracket the would see a tax increase even under Obama's over-modest budget proposal, and I would welcome such an increased tax bill.
(4) Progressive taxation is a legitimate tool for reducing economic disparity by letting those with large incomes pay a larger portion of their income as taxes to support the common good. When an individual reports a personal income of 4 billion dollars in a single tax year, I see no problem with having him pay 50% income tax on the last 3 billion dollars earned (instead of 15% capital gains tax). Actually, I think the rate could be higher than that without seriously “damaging his will to work hard to create jobs”.
(5) We need to seriously reduce defense expenditures. I think we would be entirely secure in the world if we spent no more that what Russia, China, India, and the EU countries combined are spending on defense. That would amount to a 50% reduction in defense spending. We also need to bring home our “imperial” armies from Afghanistan and Iraq. We have not achieved much more in either of those two wars than we did in Vietnam. The impulse to “make the world better” by forcing better governments on those countries is a good and moral impulse, but by now we should have learned that this is an impossible goal.
(6) We need to reform health care and health insurance in the USA. We have a good model for how to do that: We should implement the Canadian model. “Medicare for all”. Like in Canada, we should decentralize the implementation to the states. Everybody knows that this is the only way we can cover everybody, save money and improve care. The only argument against it is that it would put the health insurance companies out of business, and their investors don't like that idea.
But as obviously necessary as these actions seem to me, I have little confidence that even the Democrats in congress will fight to see these things implemented. And as a (non-voting) resident alien, I have no direct influence on US politics.
