Posted by: sweeneyblog | July 5, 2011

The Debt isn’t the issue . . . your approach is.

Every time I see the news, I hear people talking about reducing the deficit and the dangers of the growing debt. Clearly, our debt is an issue and the president, congress and all the numbers people agree that the country is on an unsustainable fiscal path.

Many House Republicans have acted as if there is a public mandate to reduce spending and consequently the debt.  Their approach:  Cut taxes and cut spending on everything else but on the military.

Wrongheaded, but predictable. But, then I found this statement from Republican Speaker of the House John Boehner:

“His administration has been burying our kids and grandkids in new debt and offered no plan to rein in spending,” Mr. Boehner said in a statement.

The speaker reiterated his opposition to tax increases and said Mr. Obama was “sorely mistaken” if he believed that tax increase would  pass in the House. He vowed that House Republicans would block anything that includes increased taxes.

Since the younger generation is being used as the poster child for debt reduction, I would like to use the occasion of my fast approaching 25th birthday to respond.“No  @#$%-ing  thank you!”  Why the hell now, when we are in the worse economic recession since the Great Depression, would we want to cut off the federal dollar spigot? Now that my father’s generation has gotten its cheap education, good paying jobs, social security and medicare and its good environment, you want to eliminate all that so that you can what?  Fix the debt.  Excuse me while I laugh and choke at the same time.

Here let me count the ways why this approach is ridiculous.

1.  Where are our jobs?  While private sector jobs have been growing a bit, public sector jobs have been shrinking, often at a rate that erases the private sector job gains.  The Wall Street fiasco (not of my generation’s making) has ruined retirement funds, causing people who should be retiring to work longer which means those in my age cohort lucky enough to have a job are not moving up. If you don’t believe Washington’s own unemployment numbers of 22 percent unemployment for 18 to 25 year olds compared to 10 percent for the rest of the working age population, use the tried and true anecdotal approach. How many people do you know between 18 and 25 who are gainfully, full-time employed and how many do you know that are not? How many of them have college degrees and are not working in their field? Don’t forget me! With my Western Washington bachelor’s degree,  I consider myself lucky to have a half time professional job and I work a variety of contract jobs on top of that to make ends meet. I apply for the few jobs that are open in my field and so far, I’ve lost out to older and more experienced people who have struggled themselves to stay employed.

2. Work Experience. So in the absence of real jobs out there, how about work opportunities, on-the-job training, internships. . .anything that would allow young people to experience work, learn a few skills and build their resume. Well, the private sector hasn’t increased paid internship opportunities and our friends in Washington D.C. believe cutting federal spending is more important. The summer jobs programs that the President’s stimulus act funded in 2009 and which provided 5,600 young people in our state work experience ran for one summer and then was not refunded by Congress. Other youth employment programs such have either been cut or flat lined.

3. Tax policies. Interestingly, House Republicans who believe its so damn important to reduce our deficit, have rejected any attempt to increase revenues (some arguing for an even lower taxes) despite tax bills being the lowest since around the time my grandfather was my age. Well guess what? If you’re in my age cohort, taxes are not an issue. If the economy is holding you down and you’re not working full time, you earn just enough to get by and income taxes (not to mention capital gains taxes) are not an issue. The biggest tax we confront is our state’s incredibly high sales tax. A tax that is high because we have no income tax in this state.  If you really want to help our generation, PAY YOUR BILLS NOW! Raise taxes on your income while you’re still working the jobs that we can’t have because you’re not retiring.

4. Education.  This one kills me. If you really want to reduce the debt for my generation, then why are you cutting funding to education, raising tuition and making it hard to find genuine scholarships? You are taking the large public debt, and handing it just to the poorest and most vulnerable through college loans. Even assuming debt reduction happens (a huge ‘if”), we all will be saddled with so much college debt, it won’t freaking matter.

Let’s face it. The Republicans are using the U.S. debt (a problem that they were neck deep in making–admittedly with Democrats helping) as an excuse to tear down the government institutions that have made this country great. It’s been government institutions that have made it possible to get an education, government infrastructure or subsidized infrastructure that has fueled our industry and its been government research and services that has taken care of us when we’ve been hurt or sick.  It’s 10 years of war, a nasty recession and some of the lowest income and corporate taxes in the industrialized world that is creating this debt. (Don’t give me that low tax rate good economy crap. Germany with its 45 percent marginal tax rate has a rocking economy right now.)

Rather than using the deficit and debt as an excuse to demagogue against government spending, let’s talk about the issues that will build a strong economy: good education system, clean environment, a healthy population, and progressive tax rate structure.

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Responses

  1. At 72 years old. I telling you to send this to every Senator and Congressman you can think of and send it to the President.

  2. As a recent college graduate who cannot find a job in his field let alone get an interview anywhere as of the last 8 months, I agree completely. The idea of creating jobs by cutting spending is ridiculous and counter-intuitive.
    On this note, it seems that the private sector is more likely to hire you if you already have a job. If you don’t have one, you must have something wrong with you, right?

  3. It’s a nice rant. I find it helps to suggest action or solutions. Calling Congress comes to mind. The reason why the Republicans aren’t budging on their debt negotiations is because they’re getting exactly zero push-back. Get your young friends to call Speaker Boehner’s office and Mitch McConnell. Use your social networking to encourage people to call Reps from other States who are only hearing from the Libertarians and Tea Party egging them on. Let them know that their bad behavior is effecting your future. PUSH BACK.

  4. You are so right on that even an old foggy like me,at 75 years of age, is ready to mann the picket lines that should be surrounding congress. I believe Van Jones has some answers in his “rebuilding the American Dream”.
    Sincerely
    David Polen

  5. The only time deficits matter in this country is when you have a Democratic President and a Republican house of representatives. That was the case when Clinton was president and that is the case now. When the R’s are in power the vice president tells us “deficits don’t matter.” The real drive is to destroy the economy of the country so the R’s can step in and save us from ourselves. The nerve !! The only hope for the country is to elect a new progressive majority to the house and clean up the whole process with campaign finance reform. Until we can accomplish this we are lost. Call, write, fax, telegram and demand they protect our interests.We are about to take a huge drubbing on Social Security. DEMAND THAT THEY KEEP THEIR HANDS OFF OF IT. AN ANGRY POPULACE IS THE ONLY THING THEY UNDERSTAND. SOCIAL SECURITY IS OUR MONEY.THE IDEA OF A DEFICIT REDUCTION PLAN WITH A 15%tax INCREASE COMPONENT 85%SPENDING CUT COMPONENT IS OBSCENE AND SHOULD BE FLIP-FLOPPED.WE NEED HELP NOT PUNISHMENT. We have to remember that anything worth fighting for is going to be a struggle, but in some struggles we eventually will prevail. John Munson

  6. No doubt the R approach is a divide and conquer strategy to pit the old against the young. The issue is never debt in itself, which can be used for consumption or investment. If used for current consumption, the future is certainly at risk – are our endless wars an investment or consumption? But if taxes pay for investment – education, medical research, clean energy alternatives, infrastructure, safety net — the young (= everyone at some point in their lives) will benefit as these investments mature.

    One difficult problem is that only the Rs but not the Ds can talk about class warfare in this country. Class warfare has been ferocious since the late 70s in this country, and the rich have won, hands down, everything they’ve wanted. All of the productivity gains of the past 30 years have gone to the top 10% of households, while the wages of the 85% of workers with no supervisory responsibilities have remained unchanged in real dollars, no real pay raises for workers for 30 years. Unions have taken it in the chops.

    So, are you or anyone you know living in W’s “Ownership Society?” Apart from houses, the wealthy 1% own about 35% of everything else, the next 19% own about 50%, and the bottom 80% of the population owns just 15%. Yet absolutely no Americans know this. Why not? This difference in wealth ownership results from the differences in income sources. The very wealthy live on profits paid by the businesses they own; their managers make high salaries and have opportunities for extensive capital gains on their much smaller investments; and the remaining 80-85% of the population are paid a wage, subject to various withholding taxes, for the work they do.

    The class divide is clear: for people who work for a living as employees, a job is a job is a job. Whether this job is with a government, or a private business, they get paid for the work they do. The real question is for the wealthy, people who live from the returns on their investments, either as profits or capital gains. For them, the question is “How are jobs paid for?” If they are paid from their taxes, that is money the rich no longer have for investment, so it is a loss on two fronts: they can’t consume money they lose in taxes, and they get no income from money taxed away either. But if jobs are paid from a business’s earnings, they make money for the business’s owners as well.

    You might say, “But the government borrows from the rich when it goes into debt, so they get the interest on the most secure bonds in the world, and that is surely something. Aren’t they happier to be able to buy bonds than to pay taxes?” The interest on government bonds comes from future taxes, some of which might be their money, afterall. But more importantly, an economy that prospers for the 80 – 85% who work for wages, where a large share of national income is paid in taxes and funds jobs thru the government, is socialism. If any part of government works better than private investment – for example, public vs for-profit education, or Medicare vs private health insurance – it casts into doubt the entire proposition that government is the problem and there is no alternative to capitalism. From this perspective, which only 15% of the country can reasonably hold, it is better for the government to fail at all it tries than to succeed at anything, possibly excluding the military, which has been largely privatized now, and has always relied on private suppliers.

    The R strategy, then, is to only show taxes as a cost, never point to what people get for their taxes, and always urge voters to think they will be better off with lower taxes. Ds are faced with a more serious problem, to demonstrate the good taxes do for the nation as a whole. But since they refuse to focus on the great differences in wealth and income in the US – that would be class warfare, and most D politicians are ardent believers in capitalism anyway, and do take campaign contributions from such capitalists as will give them – they are fighting with at least two hands tied behind their backs. Still, they occasionally win a round on points….

  7. I would suggest talking to a small businessman about why there are so few new jobs. The reasons are not complicated. Investors will only invest their capital in small businesses, or anywhere else, when they can pretty well predict the level of risk of losing that capital, instead of making a profit.

    Given Executive Branch policy trashing investors, they cannot predict which way the wind will be blowing 3 years from now. So, a wise investor sits on his money, and few/no new jobs are being created by small businesses, who create most new jobs, when they can get the investments and loans to do so. As long as investors must face a politician who tells them “I’m the only thing standing between you and the people with pitchforks and torches”, …and they all know he’s the one who roused those torch-holders, they will have no reason to invest in anything but the shortest-term secure bonds they can find.

    As to college graduates looking for jobs and finding none. It was inevitable. Academia bloated to the point that the clerk-type positions that grads often filled could no longer keep up with the supply of grads. College was *way* oversold, using stats that masked inherent properties in individuals. Until recently, most people graduating from college were people who would have done better than average whether they graduated or not. So, they had higher incomes. But since they had graduated, colleges could say, “Look, they are earning more because they graduated from college”. Say it again and again,…”correlation is *not* causation”. That is why college loan programs helped college balance sheets a *lot* more than they helped students, who keep getting, “another day older and deeper in debt,…”. New app for old song.

    A final quiz, grads. 45 percent of US private sector jobs last year were generated in a single state, that now has a net 500,000 people per year moving there, and *still* has a low unemployment rate. Its Governor will have been re-elected for 12 years in 2012, and people keep trying to get him to run for President.

    What State is this?

    • This notion of risk-averse small business investors does not sound accurate to me, Tom. The slightest hint of demand invariable draws in too much investment. Look at what auto is doing in today’s Herald. Most small business start-ups promptly go out of business, and even successful ones often take years and dollars never reckoned at the start to get onto a sound footing.

      Risk averse investors go for blue chip stocks, then bonds, and finally gold. The incredible stock market run-up of the last two years, regaining 90% of the losses from the crash, was the result of attraction to equally incredible corporate profits. The bond vigilantes never materialized.

      It is the dollar signs sparkling in people’s eyes, the long strings of zeros after the crooked number, that blow up bubbles, not fear of loss. The reason banking demanded deregulation was so they could increase their profits with increased risk. A large part of why the mortgage market crashed was because investors could not understand the levels of risk they were taking on with the new weapons of mass destruction in financial markets. Banking had grown too dull for the big boys to bear. Where was the scope for their amazing talent?

      What causes crashes is fear that the money you have loaned to speculators will be lost in the crash; a self-fulfilling prophecy, as all that margin gets called in as the bears emerge from their dens and and those who are exposed liquidate. The guys who know no fear blow up the bubbles and everyone else jumps in from the fear of being left behind. As Alfred E Newman used to say, “What, me worry?”

      Where’s your nest egg?

  8. When times are tough, it is logical to want to keep the safety net of government spending going until things improve. If you are concerned about the future, it is logical to be concerned about government support of education and protection of the environment.

    But what if government spending is a big part of the problem?

    We can complain all we want about the job market, but if the government is taking too much of the economy, that puts a damper on private businesses, which is where jobs and wealth are created. You are right — government supports the private sector — but the government extracts that support from the private sector in the first place. When it takes too much, it starts to kill the goose that lays the golden eggs.

    We can argue about the proper level of taxation. But taxation is not the only problem with government spending; just as important is the level of government borrowing and the level of government debt. Anyone who cares about the economy, anyone who cares about government itself, needs to help fix the problems of government spending and government debt.

    Not to address the debt is the equivalent of a junkie demanding another hit without addressing the problem of his addiction. Is the timing bad? Yes! We’re in a terrible recession, we should have taken care of spending and borrowing a long time ago, when the business cycle was favorable.

    But if we don’t take the opportunity to change right now, the timing, bad as it is, will actually be much, much worse.

    August 2nd is the debt ceiling deadline. If we don’t cut spending in a big way by then, our credit ratings could very well deteriorate, which means our interest rates would go up. This could, and probably would, set off a vicious cycle: unsustainable interest costs on the debt would make our credit ratings worse; worse credit ratings would cause our interest rates to climb even higher, and so on.

    By the way, this vicious cycle would not only devastate the budget of the federal government, it would raise interest rates for everyone in the country and make the current economic crisis seem like a very happy time. It would truly be uncharted territory, and could lead to severe consequences for us, the global economy, and world peace as well.

    Thank you for addressing the political debate raging between the Republicans and the tea partiers, and the Democrats and folks who rely on government support. It may be the most important debate of our time, and the more we focus on it the better.

  9. […] a swath of young people, struggling to get by in difficult times. I’ve touched on this before, and so have many others (one recent example). We have a generation, living on the edge, unable to […]

  10. […] have written before about “The Forgotten Generation” and how financial austerity is gutting the next wave of workers, but this is finally people taking to the streets and putting voice to their […]

  11. […] Big Picture stuff: What is the difference between a Hack and a Wonk? Where do politicians come from and why is that important? Why does the younger generation have such a different perspective on the national debt? […]


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