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IS DEBT A FOUR-LETTER WORD?

August 24, 2015

IS DEBT A FOUR-LETTER WORD?

It depends upon who is answering the question and the purpose (either real or pretended) of his/her manipulative reply and issue framing. Thus Republicans, for instance, those holy warriors of the budget (see Ryan, the crusader in chief) who cry out in anguish at the size of our current “national debt” (along with the now-retired libertarian-Republican – take your pick – father of Senator Paul and his grim exhortations on TV and the internet) and who are predicting the coming disaster give a uniform answer: Debt is bad and its present levels portend the end of America. It’s all over but the shouting. The Democrats have spent America into penury Greek-style and our only faint hope for recovery and budget equilibrium are austerity programs (stop the spending!), especially for social programs. We can’t afford it, they insist, their blood pressure rising. The Democrats have done us in; social spending must be reduced if we are ever to see a balanced budget, a goal more important than food for the poor, jobs for the unemployed etc. (but not more important than continuing public spending via tax cuts for the rich). It’s time for some Social Darwinism and more tax cuts for the rich so that the benefits of such largesse will trickle down to ordinary Americans and if someone has to suffer by implementation of such policies, well, nasty break. It’s the only way we can ever hope to recover. We must pay for our out of balance budget sins committed by those socialist Democrats.

These Republicans have a problem in telling the truth and reframing issues and it is this: that such arguments are totally refuted by history. Clinton left Bush a budget surplus. Bush gave us two wars on the credit card and a huge and unprecedented tax cut to the rich and corporate class in war time, adding up to trillions and trillions of dollars, none of which we could pay for from current revenues, and which consequently showed up in our long term deficit, along with increased billions in interest on such vastly expanded long term deficit.

At bottom, such unnecessary and unaffordable tax cuts (especially during wartime) were nothing more than giveaways of public monies in keeping with “trickle down” Friedman economics and, to no one’s surprise, didn’t work (see Bush’s Great Recession). Republicans who now loudly complain of our long term deficits and how we must now sacrifice are clearly the ones who gave us such deficits, and their attempts to paint the Democrats as the ones responsible for such deficits are transparently pathetic. Parenthetically, Truman (unlike the irresponsible Bush and today’s whining Republicans about current budgets and long term deficits) arranged a ten percent surtax on income to pay for the Korean War. Result? We paid as we went along during that conflict and owed nothing when it was over, upon which the war-time tax was repealed. Unlike Bush, Truman acted responsibly.

The truth is that the Republicans are the “socialists” in this comparative game of economic “whodunit,” and that they came up with such slogans as “the war on terror” and other such fear-phrases to cover the giant liabilities Bush pinned on both current budgeting and long term deficits. It worked. Attempts since this reckless spending binge of Republicans to reduce Bush’s giant tax giveaway to those who didn’t need it at the expense of those who did are now and incredibly “framed” as “tax increases.” Suddenly and somehow, an attempt to (in part) recover funds that never should have been spent in the first place is a bad thing. Bad for whom? The rich, or those of us who are saddled with the deficit Bush’s pandering to the rich created? Bush’s wartime tax break to the rich and corporate class (in my opinion) is a prime example of irresponsible Republican spending which we could not afford then or now and the law authorizing this travesty should be repealed in its entirety. Better late than never. . . . .

Let’s distinguish between public debt and private debt and talk about the advisability of “debt” in the real economy. Is it good or bad? Again, that depends. If you are a CFO of, for instance, a transport company and your trucks and trailers are getting old and repair costs are going up and have been fully depreciated by your accountants in fiscal years gone past, you may go to the board and tell them it’s time to buy, say, 50 new trucks and trailers. You may have a lot of money you have put aside for such a contingency but find that costs of new equipment are beyond your ability to pay, or as in a General Motors report I read years ago, may even have the money but have other plans or its use and besides, the interest paid on borrowed funds is deductible from income and when speeded-up depreciation schedules are added to such deductibility you can more than cover the interest costs while holding on to your own money. You can thus save money by “going into debt.”

This doesn’t tell the whole story of the advisability of “going into debt,” of course. General business conditions or business conditions specific to one’s industry are factors as well, among other considerations. One may want to nurse old equipment along until business signals better (or even worse) days in the business.

Private debt and public debt are, of course, two different animals. There are prominent economists who argue that the size of the debt per se is not the problem but rather its ratio to GNP or GDP, that debt management rather than debt’s size sets our spending limits etc. I find that interesting but am uneasy with its application. I am old-fashioned enough to worry about the extent as well as the manageability of the debt pursuant to some formula, and one way to reduce the gross debt number foisted off on us by Republicans is to repeal all of the recent tax cuts and redefinitions of income our pandering politicians have handed over to the rich and corporate class via the internal revenue code at our great and continuing expense.

Such topics are what the public discussion should be about, not who did what to whom, or what brand of austerity we should adopt to keep the noses of the poor to the grindstone and yachts in the hands of Hamptons’ dwellers. Let’s reframe the issues to cover the real America we live in and ignore the diversionary tactics of Republicans with their blame games, partisan games that divert our political attention from finding solutions to the real day-to-day problems that America and its people face in coming to grips with the global economy and how we are to best provide for fairness and equality in distribution of our economy’s income and new wealth. To plagiarize Donald Trump’s campaign slogan, that is what “will make America great again.”

So is debt a four-letter word? Sometimes, and sometimes not. It depends.    GERALD     E

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