I went to have my routine eye exam today, and the ophthalmologist, an educated man and small-business owner (he runs his practice with his son), was — as he often does — channeling the Wall Street Journal editorial page’s view of the world. Today the heartfelt worry was that the Deficit Will Devour Us All, especially if we fall off the Dreadful Fiscal Cliff.
I attempted to point out that he could relax because on day one the so-called Fiscal Cliff (1) doesn’t do dramatic changes [although I should have added it stops extended unemployment payments, which is a bit drastic], and (2) fully implemented it lowers the deficit, which should have made him happy about his deficit worries. But, no, he said, then people won’t have any money. My attempts to suggest this argued for stimulus spending (and bigger deficits in the short run) failed to crack through what he knew was true: deficits are bad because they cause inflation, and the Fiscal Cliff is bad because it reduces spending money in the economy, and these ideas are not in tension. (Note please that I wrote “not in tension” rather than “utterly incompatible” as there might be some way to reconcile them, but that’s not what he was trying to do.)
As we parted, my ophthalmologist asked for some things to read “to hear the other side”. So I’m putting together a list for him, version 0.1 of which appears below. Please help me improve this list — keeping in mind he primarily wants economics-oriented readings for a non-economist.
- Basic facts about the causes of deficit: wars and tax cuts (CBPP)
- The real nature of that “crushing” debt burden (CEPR)
- Why it might be that you are hearing about hysteria over the deficit (CEPR)
- The Atlantic magazine has a comprehensive set of economic charts. Note that while the the first set of charts are about Europe, most of the others are about the US economy.
- More generally, the Center on Budget and Policy Priorities offers a very balanced assessment of relevant data. Some staring points:Three Charts on the Coming Budget Debate and some basic tax info and some more.
Other good general sources for economic information
- Paul Krugman, his columns and his blogs
- Dean Baker’s blog, Beat the Press
- Mark Thoma, Economist’s View (more technical than the above)
- Brad DeLong has a list of 50 valuable economics blogs if you are a glutton for economics.
For general political comment, including but not limited to the politics of the budget, I recommend
A good use of an hour would be listening to the discussion – link below – between Paul Krugman and Joseph Stiglitz, both Nobel Prize winners in Economics. (As the linked posting indicates, he’ll need to scroll ahead – the embedded video has about 14 minutes of audience settling in and irrelevant housekeeping announcements before Krugman and Stiglitz come on stage.)
Arguments about the deficit and whether it is good and bad are just smoke and mirrors. In the end, whether good or bad, it’s not the real issue.
We have a $16 billion debt that’s been increasing at about a $1 trillion/year rate lately.
Interest that must be paid on the $16 Trillion is well over $1 trillion/year. Projected spending for 2013 is about $3.3 trillion on about $3.2 trillion on projected revenue (the deficit we’re all arguing about like it’s the important part).
We also have a huge unfunded liability that depending on how you count it (as it is projected over future years), is $40-$220+ trillion. That’s money that will have to be paid, but is outside of the tax structure. SS, medicare, etc. You CANNOT just ignore it, though the argument is often made that we shouldn’t count it because it’s not CURRENTLY on an invoice (what does THAT attitude remind you of?).
Now consider that if you took every cent of adjusted gross income from EVERY taxpayer earning more than $66,000 a year, you’d get about 5.2 trillion. If you also threw in every cent of corporate earned income, you’d bring that total to about $7 trillion. And you’d only be able to do that once, since we’d all starve to death, or at least refuse to work for free after that.
And you STILL would not make a meaningful dent in what we owe just in funded liabilities. You’d knock a bit less than $6 trillion off the debt, it’d continue rising, and we’d all die.
The purpose of the raise in tax rates that everyone’s arguing about is to get that revenue number slightly higher than the spending number so that the $16 billion number is eaten away over time. Do you see any reasonable tax rate increase doing much there? Do you think that another $800 billion projected out over 10 years (the plan), far less than even one year of interest, is a viable answer? Keeping in mind that it’s getting higher by the second…
Obviously, the core of any plan MUST include huge spending cuts and things that improve the economy (which will cause revenue increases). A viable plan cannot be centered on tax cuts, but may include them, and cannot have its entire focus on the argument about how bad a deficit can be before it matters. Such arguments ignore the giant boulder hanging by a thread over all our heads and says, “let our children worry about that problem.”
So your doctor has every right to be concerned. He should be even MORE concerned that apparently smart people are willing to laugh the whole thing off as just “the GOP playing politics” and pretend like nothing is actually wrong. As for Krugman, he lost all credibility when he pointed out how natural disasters are good for the economy, disregarding the broken window fallacy.
“Interest that must be paid on the $16 Trillion is well over $1 trillion/year.”
Huh? I thought it wasn’t even $500 billion. If you only count interest on external debt then it’s more like $250 billion. I’m fine with counting it either way. http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm
Also, those unfunded liabilities will become due at various points over the course of the next century, not all at once. Isn’t it a little convoluted to be worried that we couldn’t pay all of those liabilities in one given year? That’s like saying I can’t afford to pay $1000 a month in rent because I don’t have $12,000 dollars in my pocket to pay for the year-long lease today.
I’m not going to argue about HOW the numbers are counted because it’s not at all the point. I don’t disagree on your last point and said so.
The points are: There is simply too much debt to be overcome by anything but draconian tax hikes (assuming they are followed by expected raises in revenue). No plan put forth by ANYBODY yet has any real hope of eating away at the $16 trillion debt in any meaningful way.
Therefore the solution MUST be wholistic and be focused on increasing economic activity across the board, rather than making anybody pay “their fair share” (since there IS no “fair share” that can help).
The sign of serious negotiations to fix the problem will be people putting everything on the table. This has not happened and will not, because all of this is about politics, not the economy.
“Draconian tax hikes” = “Clinton era tax rates” (eventually for the middle class too). Somehow I don’t see this as the eventual end of the world. As for a “plan put forth by anybody”, the “current law” works, according to the CBO, with barely a hitch if it is delayed until the current slump ends. And we can make it work:
Clinton tax hikes aren’t going to do it. That’s the point. Raising revenue collection by even a few hundred billion isn’t going to make enough of a dent to stay ahead of the rising debt. Clinton didn’t have anywhere near this level of debt to overcome.
My fear is with all of the big talk about smaller details of the county’s finances is causing people to forget the big picture. We are under an amount of debt that simply may be insurmountable without REAL change (i.e. not just hiking up taxes).
Look clearly at what the CBO says. It is in the video. Total debt can be paid off with a combination of slowly increasing tax revenue (after we get out of this slump) + working to reduce long-term healthcare costs (because Medicare costs follow the private costs). We don’t need to hurt any more people. If we stop gov’t spending now we are going to throw lots more people into a skills-crisis that is going to hurt the U.S. far worse than anything you think the debt can do. In fact, if we don’t work on the healthcare system, nothing else matters. Even in the shorter term, if we went over the “fiscal cliff”, the budgets start showing surpluses in another 5 or so years: we would be right on time with “current law” scenario, which is completely do-able. So please stop the debt-fear.
Seems like the counting part is pretty important, since we are talking about numbers here instead of, say, feelings. If you are wrong about our interest obligations by over 100%, it kind of changes the whole argument.
An overly high interest-to-GDP ratio seems like the only reason one should be concerned about the overall level of debt, whether they are high because the outstanding debt is increasing or because interest rates are rising, no? That is what would, in principle, require draconian tax hikes. If our interest burden just stays the same (as they are projected to), the total level of debt need not be diminished. It’s not like a credit card, where the debtor will eventually die and everything must be paid back before then. With governments, like with companies, debt can and is rolled over indefinitely. Usually not considered a problem unless the interest burden is increasing relative to revenue. That’s when things get unsustainable.
You should try to be more precise about what you’re talking about.
I’m not sure what you are arguing about. I have simply said that the unfunded liabilities are counted in different ways by different economists, hence the huge range. But that’s not really important because even at the small end, it’s more debt than we can ever afford to pay – whenever it might be.
You are apparently one of those people who doesn’t think massive amounts of debt – debt far exceeding the total wealth production of the U.S. – is not inherently a bad thing. That’s fine, that’s your view. If we were talking about small debt as it used to be, then I’d likely agree, but I think we are in another place entirely now. But whatever the actual truth of that, I don’t think we can pretend like we have any idea what will happen to interest rates in a few year’s time (nobody knows that). And with the economy as a whole in the tank…
This isn’t the Clinton era, and this isn’t a minimal problem that’s necessarily solvable by just asking the rich to pony up a little more.
Bruce Barlett is a good source. He can’t be dismissed as a liberal.
What I hear you saying is that your doc is an ideologue. Ideologues are, by definition, intellectually dishonest, and therefore it is hard to impossible to convince of alternate views of the world.
I have a psychiatrist friend who also reads the WSJ nearly exclusively. On those occasions when I am informed and can present him with firm evidence on a topic on which he has strong views, he just changes the topic and does not engage. All ideologues do this. They will not think through the issue but prefer the precooked view. Try it on a conservative friend.
Perhaps the only way to get through to them is, rather that provide information, instead just ask questions. In particular, ask what is the mechanism that leads to their preferred position or their asserted conclusion. Psychological research suggests that this forces them to think (prefrontal cortex) and they usually will modify their views toward a more moderate position. I started doing this with my friend. Too soon to know if it is working.
In these conversations with conservatives, the charge is made that politician so-and-so, these days Obama, is a socialist. I ask where the person went to school. Usually there is a public school or university in the mix. Then I point out that the school is socialist, since it is publicly owned – as are the roads he drives on, the company that brings his water, takes away his sewage, runs the traffic system – this list of course is very long. Then ask about the mechanism that led us to choose that these be publicly provided, and for an economist such as myself, an opportunity to discuss the reasons for a division between public and private provision of goods and services. This is a work in progress with my conservative neighbor, an engineer by training at a public university.
An informative read is Chris Mooney’s “The Republican Brain: The Science of Why They Deny Science”. Despite its aggressive title, it is a dispassionate review of recent findings in cognitive neuroscience. Among the traits of conservatives he mentions, which I find true in my conservative friends, is a low level of empathy.
Shhhhh, you’re not supposed to tell anyone that eugenics is still alive and well among some “progressives.” You don’t want to let Michael know you’re coming after his kind next, do you?
I took him to be very sincere and deeply misled by what he’d been told. The extent to which he seemed to think disaster would hit soon, and the extent to which he maintained two contradictory ideas — that (1) inflation would zoom any minute now, and (2) the ‘Fiscal Cliff’ is terrible because people won’t have money to spend — might be seen as ideological, but I took it as accurately reflecting what he hears without having gone below its surface. Thus my list
I do not doubt that he is sincere, meaning that he is earnest and not trying to deceive you. Most if not all ideologue beliefs are sincerely held. Very fervent religious beliefs are sincerely held, but cannot be said to be rational beliefs. Ideological beliefs are a manifestation of the limbic system, and the believer tends not to examine them until challenged to do so. Thus the recommendation to ask questions to force the examination. So it will be interesting to hear about your next conversation with him after he reads what you gave him. I have advised my psychiatrist friend to read Krugman’s blog, and in the case of the neighbor, I even have given him a gift subscription to the NYT, which you can do for 12 weeks at the academic rate. But ideologues suffer from confirmation and motivated reasoning biases, and tend to reject information and sources that do not support their beliefs. Read Bruce Bartlett’s piece on this in the American Conservative this month: http://www.theamericanconservative.com/articles/revenge-of-the-reality-based-community/
I gave my psychiatrist friend a copy of Mooney’s book, which he read, but really did not change any views, and in fact ignored the endnotes and the bibliography – all peer reviewed literature. Which reinforces my point – good information will be rationalized away. One needs to ask them to describe the causal mechanism underlying their conclusions, very much as you would do with a student.
I have had success with Republicans who watch the following video. I animated the CBO’s long-term budget outlook, and one conservative said it gives a good perspective on the whole issue of the debt and its causes. It doesn’t deal specifically with the fiscal cliff, but it helps as a backgrounder:
This is a really great video. Thank you.
I’ve had a lot of success with Mark Zandi’s chart in this EPI post:
Comparing scary “future unfunded liabilites” to today’s economy is totally misleading. The more apt comparison is to estimated total GNP over that same time horizon. Best guesses are somewhere in the neighborhood of $800 trillion. “Entitlement” shortfalls are thus about 6% of future economic output. Assuming homo sapiens are not wiped out by climate change, this is entirely manageable. If we are wiped out, this whole discussion has been an exercise in futility.
Dean Baker is especially good at refuting Peterson Foundation propaganda.