Deficit Denialism
Yglesias writes:
Matthew Yglesias ยป Shrugging at the Long-Term Deficit
Instead of worrying about CBO projections, people should worry about financial markets. If market concern about the deficit is pushing up interest rates or leading to problematic inflation, then you should worry.
Except that by the time the markets begins sending strong signals, the interest payments on the debt — now highly in short-term bonds which must be rolled-over quickly — begin to balloon leading to a death spiral.
By the time the crisis is upon us it will not be too late, but it will be exponentially more difficult to deal with.
Look, the reality is that we’re looking at a decade of economic stagnation as debt-income ratios drop to something normal and sustainable. Loading on public sector debt might ease the process of deleveraging for individuals and corporations, but it does not solve the fundamental problem which is that as a society we are consuming more than we are producing and earning.
I think the smarter approach is deficit reduction combined with greater progressivity in the tax code. You need some redistribution of wealth to ease the burdens of economic stagnation and also to allow consumer spending to remain at a reasonable level.
Believe me, this is not a philosophical “soak the rich” position. It is purely pragmatic. We need to reduce our deficits and national debt, and the least painful way to do it is by adding to the already considerable tax burden of the wealthy because I believe that will have the least impact on aggregate demand. And frankly, this is also in the best interests of the wealthy because massive inequalities of wealth combined with economic stagnation has, historically, been a recipe for pitchforks.
Sadly, I think it is far more complicated than that. The solution requires more art than science. Our welfare state is expanding at a pace, and in a manner, such that it is training people to be unproductive and to accept their place in the lower quintile of wage earners. I’m not some rich guy griping about lazy poor people. I live and work amongst them. It’s not pretty. It’s sad.
I see a swelling population of people who idolize alcohol, drugs, sexual perversion, gluttony, and sloth. It’s all that they watch on TV, hear on the radio, discuss at the bar, and in line at the soup kitchen and other charities that care for them. They are socialized into lifestyles that breed poverty, ill health, and facilitate self-destructive decisions. To make matters worse, we aid and abet their lifestyle. We exploit them with lottery sales. We warehouse them in cheap housing where they only have contact with other people who make poor decisions. When they enter our correctional system we apply legalistic remedies to their moral and spiritual problems.
Our lower class is not in need of a redistribution of wealth. They are in need of actual assistance that recognizes them as human beings rather than potential voters. They are in need of assistance from people who will establish relationships with them, rather than bureaucrats tasked with “servicing” them in order to mitigate an annoying problem that is dragging the rest of us down.
This is not a numbers issue.
A lot of these are real problems, though I disagree that the “welfare state” is to blame. Indeed, the “welfare state” is largely unrecognizable from what it was in the 1970s. TANF is a far cry from AFDC, and there has been no new “welfare” program in 40 years. But regardless, the federal government can’t do anything about much of that. You’re talking about issues that require strong families, churches, schools, and communities not the federal government. But the federal government can help by not spending like a drunken sailor on shore leave.
As a practical matter what is killing us in terms of spending is money transferred to the elderly, who are, on the whole, richer than the rest of the population and military spending. Spending on the poor is simply put, and as a matter of empirics, not driving the deficits. Indeed, “social spending” as a percentage of GDP has declined for 30 years now if you exclude health care-related expenses. And again, our health care costs are not being driven by the poor, but by the elderly with something like a third of all health care expenditures occurring the last year of life.
I was focused more on your statement about wealth redistribution.
“You need some redistribution of wealth to ease the burdens of economic stagnation and also to allow consumer spending to remain at a reasonable level.”
You can redistribute all of the money, but the burdens of economic stagnation for the lower half of wage earners won’t be significantly impacted beyond the immediate short term because many, if not most, of the financial problems faced among lower wage earners are behavioral. There are so many people who will spend their money first on lottery tickets, alcohol, drugs, non-essential electronics, and then perhaps think about paying off debts, paying the rent, and buying groceries – and still not getting insurance.
I do agree that government needs to drastically cut spending and also agree that spending on the poor does not drive deficits. I simply disagree that redistributing wealth will have any medium- or long-term impact.
I guess I should clarify my use of “welfare state” – not sure if I used that correctly. I realize that welfare, food stamps, and related programs may not have seen any significant expansion. But the number of programs for the lower class that derive some or all of their funding from the state is enormous and growing. This includes charities that derive significant portions of their budget from the state or federal government. A homeless, unemployed man in my city can get free legal services, free housing at several shelters, free food at the soup kitchen, a food stamp charge card, free clothing from several locations, free internet access (supposed to be for job-searching), and on and on. I’m not saying it’s a great life, but all of that is provided in whole or in part by government funding. And that same guy can still find a way to buy cigarettes for about $5 per pack, per day, to get drunk every night, score a bag of weed once a week, and pay for an occasional romp with some nasty street whore. What is his incentive to save money and spend more wisely? His needs, wants, and perversions are provided for him.
I’d love to give that guy a bunch of money so he can get an apartment and live a normal life. But I don’t because I know he won’t until he gets himself cleaned up mentally. It would only speed up his self-destruction. Redistributing wealth likewise seems a horrible idea to me if it is not preceded by the necessary steps that address the underlying human issues.
Long post short, I guess my take is: first things first. Then focus on the economic angle.
But if you want to be a cynical investor like me, invest in cigarette and beer manufacturers if it looks like we’re going to try the wealth redistribution approach.
“And that same guy can still find a way to buy cigarettes for about $5 per pack, per day, to get drunk every night, score a bag of weed once a week, and pay for an occasional romp with some nasty street whore. What is his incentive to save money and spend more wisely? His needs, wants, and perversions are provided for him.”
Well, sure, but there are also tens of millions of “working poor.” People with 2-3 jobs, no health insurance, etc, who are working like dogs and barely getting by. Divorce, lack of education, illness, general bad luck are the main problems for these folks rather than a cigarette, booze, and hooker habit. You’re throwing out the baby with the bathwater.
“I simply disagree that redistributing wealth will have any medium- or long-term impact.”
I never actually claimed it would. What I did say was that we — as a people — need to pay more to close the deficit, and that the least painful way societally to do that by increasing taxes on the wealthy. Without giving away too much information, I’ll note that while I do not live a particularly extravagant lifestyle, people like me and my wife — both with advanced degrees and good jobs — are precisely the people I realize need to pay more. Yeah, the Warren Buffets also need to pay more, but closing the gap gets us down into the successful professional class as well.
I am addressing a much more narrow issue than you. I ultimately just don’t want to pass along crushing debt to my children. I don’t want to fix all societal ills, but I do think we need to do what we can to avoid self-inflicted wounds.
That reminds of a related issue that has driven me nuts forever. Those working poor that you mention – I agree. This is just my experience – no longer an Army of One, I am now a data point of one – but those working poor don’t get much from the welfare state. The people who benefit are the people who choose not to work. The people who have nothing else to do all day but beg for money, stand in line at the local unemployment, welfare, SSI, etc branch and slog through the bureaucracy of getting free money from the gubmint – they are the ones who get the payday. For the working poor, there is no time to stand in line, figure out where to go, have things explained, hurry-up-and-wait, and so on. Our processes are excessively bureaucratic in order to mitigate fraud. The net effect is that the only people who partake ARE the frauds and the people with more genuine needs (working poor) are deterred. That’s why I stopped doing pro bono legal work. The people who really need help don’t have time. The people I was required to assist were guys who just needed an ass-whooping. Unfortunately, I was not permitted to dispense it. Hopefully some day a cop will.