The biggest myth of all, however, is in first place by a wide, wide margin. It was repeated last night by the President of the United States, George W. Bush, in his 2008 State of the Union Address:
American families have to balance their budgets. So should the government.
Bipartisan applause broke out. Even Vice President Cheney—Mr. Deficits Don’t Matter—was applauding along with Speaker Pelosi.
It’s a powerful idea, but it’s a myth. One to which both parties feign allegiance.
The false idea that federal deficits are bad (and surpluses are good) seems to be an immovable object. I’ve been trying to chip away at that dangerous myth for three years here, but the dogma is so engrained, and so easy to exploit for applause at political events (either side’s), I’m starting to wonder if anything can ever dislodge the falsehood. Maybe not.
The federal government will run out of excuses for not balancing its budget—as soon as General Electric and Wal-Mart stop using a mixture of growing debt and growing equity to fund their growth—and as soon as the Smith, Jones, and Rodriquez families (all generations, moving through time) stop accumulating growing debt for houses, car loans, and family businesses even as their total family incomes continue to grow. When everybody else stops borrowing, the federal government will be out of “excuses.” [Don't hold your breath waiting for that day to arrive, however.]
Never mind that I could support a budget goal of holding the debt/GDP ratio steady—which means the debt can grow up to the same rate the economy grows, without violating the goal. Never mind that the goal of steady debt/GDP would itself become a big challenge soon, due to demographic shifts. Never mind that it would be far more realistic and achievable than the sophomoric sophistry of insisting on a balanced dollar budget. A growing economy is what we need, far more urgently than a balanced dollar budget. It’s not the money, it’s what we get for the money, and it’s the real wealth we create that backs up the money we print.
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And here’s a generic letter to the editor you’re welcome to use [I like the long form]:
[Name of whiner goes here]‘s sob story about our $9 trillion national debt leaves out some very important information: Our national economy is $14 trillion, and it has been growing faster than the debt. Guess what: That means our ability to service the debt has been improving.
Think the interest on the debt is a problem? Well, in the mid-1990s, it took around 15% of federal tax receipts to pay the net interest on the debt; but now, it only takes 9%. That’s a 40% reduction in the debt “burden” in a dozen years. Again, our ability to service the debt has been improving.
Think it would be a problem for future generations if, instead of paying down the debt, we allowed it to keep growing at a rate of, say, 2% every year, year in and year out? Well, if our economy and our federal tax receipts grew at a rate of, say, 3% every year, our debt “burden” would decrease, year in and year out. Future generations would be better off than we are, in spite of the debt growth.
So instead of stirring up fear about the negative side (the debt), why don’t we start giving at least equal time to the positive side: a growing economy? That’s the best antidote to a growing debt level.
I, for one, have heard enough whining about the debt and the interest payments. Does anyone have any ideas about how to enhance economic growth? If so, let’s hear them. Steve Forbes said it succinctly:
You can’t cut your way to prosperity; you’ve got to grow the economy.
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