It’s unsustainable, stupid.

By mw | Related entries in Debt, Deficit, Divided Government, europe, Fiscal Responsibility, Health Care, Obama, Romney

This graphic compares U.S. debt and deficit with the dysfunctional Eurozone economies.  Interesting to note that only Greece is worse than the USA and we tie with Ireland vis-a-vis the dual metrics on the chart. Other than that, we are worse than all of industrial Europe.

If politicians and policy makers across the political spectrum agree that our fiscal debt situation is unsustainable and potentially catastrophic (which they do) – should this not be the critical issue to debate in this presidential election?

In the 1992 presidential campaign, James Carville’s motivational meme “It’s the economy, stupid.” perfectly encapsulated the key issue of the election. The beauty of the exhortation was that it focused the Clinton campaign staff on the one issue that could and would make a difference in the electoral outcome. He correctly identified the single most important issue on the minds of the electorate and it also exposed the single greatest weakness of the George HW Bush administration. The Bush campaign seemingly never understood what the election was really about. They touted foreign policy triumphs and their consequent lack of focus on the domestic economy reinforced the perception that President Bush was out of touch with American voters.

In every election since, campaign strategists, analysts, pundits and bloggers have attempted to reprise Carville’s insight with a similar construct for the election at hand. Your loyal blogger is no exception.  In 2006 and 2008 I was convinced the election was about one thing:  “It’s the war, stupid.”   True enough in 2006. Not so much in 2008.  In 2008 “It’s George Bush, stupid.” was enough to win the election for Barack Obama. Even though GWB was not running, it was sufficient to tar McCain with that brush. The public sentiment was to punish GWB and the Party he rode in on.  2010 was a different story.  In 2010 – “It’s the spending, stupid.” carried the day.

Which brings us to 2012.  After winning a battle, generals are reluctant to abandon the very tactics that prevailed in a victorious campaign.  Despite the setback in 2010,  Axelrod and the Obama campaign strategists continue to fight that 2008 war in 2012. It’s a mistake. Things have changed. Today there is a far greater awareness and focus on our profligate and unsustainable deficit spending.

Submitted for your consideration, the 2012 Carville election snowclone:

Let’s review:

Our Total debt and Annual deficits are unsustainable:

Overall spending and borrowing are unsustainable:

Medicare and Medicaid spending are unsustainable:

US Defense spending is unsustainable

… and unconscionable:

These charts reveal nothing new. We’ve been on this path for decades. The GW Bush administration made it worse with a new trillion dollar war and a new trillion dollar prescription drug entitlement initiated during their four years of One Party Republican Rule.

The first two years of the Obama administration made it much worse with two new trillion dollar spending programs passed in just two years on on two purely partisan votes under One Party Democratic Rule.

“Unsustainable” is on the mind of the American electorate. Watching the fiscal meltdown in Greece and Italy and Spain and Portugal have put it on the front burner for this election.  This is not where we want to be, yet our leadership in Washington D.C. continue to walk us down that primrose path.

Time is up.  Time to move from  “unsustainable spending and debt” to “sustainable spending and debt”. This should have been crystal clear to the Obama administration after the midterms.

The Simpson-Bowles President’s Commission on Deficit Reduction was a perfect opportunity for President Obama to take the lead on this issue. He let it slip away. Now here we are, two years later, and the Obama campaign seems to think the most important items on the minds of Americans are Romney’s tax returns, Bain Capital, whether Romney is too rich to be president, and whether 1% of Americans don’t pay enough taxes. None of which does anything meaningful to address the fact that we are trapped on a hell bound train barreling at high speed toward a cliff of fiscal oblivion.

You may not like the Romney/Ryan plans for dealing with our unsustainable spending, debt and entitlements, but at least it is a substantive plan and they are willing to talk about it during this campaign. If the Democrats and the Obama administration have a sustainable fiscal plan for the United States government I don’t know what it is, and they sure seem reluctant to talk about putting anything meaningful on the table. The easiest thing for the President to do would be to embrace the Simpson-Bowles plan. It was his commission. It was his idea. If the 2012 presidential election comes down to a choice between a candidate with a serious plan to get us out of this morass vs. a candidate that appears to ignore it – I suspect that the man with the plan wins.

I would prefer not to see a restoration of One Party Republican Rule in 2013, but that is a real possibility. The House is a lock for the GOP. The Senate is a tossup and could easily go Republican (although Todd Akin is trying his best to ensure the Democrats keep control). The best chance for avoiding a Republican sweep is to reelect Barack Obama. But if the American electorate have the Eurozone failure and fiscal sustainability on their mind while David Axelrod and Team Obama are talking about Bain Capital and more spending programs, well – that makes him appear as out of touch as George Herbert Walker Bush in 1992.

And that is a real problem for the president’s reelection prospects.

X-posted from The Dividist Papers


This entry was posted on Wednesday, August 22nd, 2012 and is filed under Debt, Deficit, Divided Government, europe, Fiscal Responsibility, Health Care, Obama, Romney. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

8 Responses to “It’s unsustainable, stupid.”

  1. Tillyosu Says:

    Oh come on MW. Clearly you just want to starve poor people and keep children from going to college.

    Besides, everyone knows we can just pay off the debt by minting trillion dollar coins!

  2. mw Says:

    @Tilly
    Whoa. I just tried to read that link. I did try. I think that guy subscribes to the Hogwarts School of Economics. Of course there is a fourth solution to debt that is preferred by that school. Just get out the old wand and cast the “Exbernankium!!!” spell. Works every time. I would like someone to do the calculation about how small the platinum coins would have to be for it to be feasible for the feds to mint $1 trillion dollars worth and not make them more valuable melted down into metal bars.

    What I really want is for Team Obama to embrace Simpson-Bowles or come up with a real alternative plan at the same level of detail as Ryan’s that deals with debt, deficits, spending, entitlements and yes – taxes.

    What I really want is to have a real debate and adult conversation about this issue as the centerpiece of the election.

    What I really want is something serious out of this administration on this issue so that I won’t feel like a complete fracking idiot when I cast my vote for Obama in November to keep the government divided.

  3. Tully Says:

    An yes, the Magic Money Theory so beloved by spendthrifts. Just print more! No mention of the teensy little drawbacks of that approach, like hyperinflation ….

  4. cranky critter Says:

    MW, if you really want to have a serious adult conversation, one that spreads and has actual force outside a tiny circle, you should probably spend more time thinking about audience and presentation.

    I don’t challenge a single one of your claims. But I can’t fully understand the first graph because the x-axis units aren’t labeled, and the colors and sizes of the circles are not explained.

    Some of the other graphs are hard to read, and require drill downs for explanation.

    In short, is this lengthy piece loaded with a graphs an accessible conversation starter? Or is it a good executive summary for people who already understand all this, but that’s inaccessible to almost everyone else?

    Should this be a book with one chapter devoted to one of the ideas in each graph, or something? Just asking, and trying to help. A coherent story isn’t enough. Getting it across so it coheres to others is the difference between petering out and echoing.

  5. Tully Says:

    This is why I call them “infauxgraphics.”

    Not to dispute MW’s central point (because I completely agree with the obvious point that the imbalance in government spending IS unsustainable) but there’s more than one aspect of debt, and I am pretty darn sure that first chart is NOT making an appropriate apples-to-apples comparison for your purposes. There’s overall public debt (how much the government has issued in the way of bonds and such) and then there’s external debt (how much the nation as a whole owes to those outside its borders). And then there’s the components of public debt …

    From a double-take at the chart it seems they’re using public debt, which raises its own problems in comparisons. We’re somewhat unique in how we manage our public debt — 30% of ours is money the government owes itself, meaning the balances of those SS/MCR “trust funds” that consist of IOU’s issued by the gov’t TO the gov’t for monies collected and already spent.

    For most other nations that component of public debt is miniscule or non-existent. I know of no other nation which does this to anything remotely like the extent we have. The comparison problem is that if you exclude intragovernmental holdings to go apples-to-apples with other nations (“debt held by the public”) US public debt is 70% of GDP, not 100%. Which would drop us halfway to the baseline 40% of the graph. Different picture, no?

    In short, 30% of our “public debt” consists of promises by the government of future funding for entitlement programs, whereas the other nations graphed cover that out of current taxation/general revenues. Since money the gov’t owes itself has to be “paid” out of current taxation/general revenues, the apples-to-apples figure is 70% of GDP, not 100% as shown in the graph.

    Which neatly segues back into your central point, which is that without entitlement reform we’re gonna be in a world of hurt. Spending has to be brought back into line with revenues. And the big argument is over what balance of restraint versus taxation versus devaluation/inflation we use to accomplish that.

  6. Tully Says:

    To be clear (and my comment is currently in moderation and I am not at a computer where I can release it) I am referring to the first chart/graph.

  7. cranky critter Says:

    Wow, I never thought of that. Let me check to be sure I understand. Your point is that other countries aren’t counting “future debt” for entitlements, but we are to the extent of the SS “trust fund.” So it’s not QUITE as bad as the debt/GDP comparison by nation suggests?

    That’s worth understanding. But at the same time, it ends up being dumbed down into a simplistic argument AGAINST being concerned by the debt, because “it’s not as bad as it seems.”

  8. Tully Says:

    Your point is that other countries aren’t counting “future debt” for entitlements, but we are to the extent of the SS “trust fund.”

    Bingo. Only America has the unique accounting fiction of the government loaning itself surplus entitlement tax revenue and counting that as part of the “public debt.” Other nations are pay/go in that regard, even when they borrow from the public to do it. The overwhelming bulk of that 30% portion of the US “public debt” consists of those special T-bills issued to the SS/MCR “trust funds.” IOU’s from the gov’t TO the gov’t. “Intragovernmental holdings.”

    When those other nation’s entitlement bills come due in excess of their current entitlement tax revenues, they have to make up the difference from general revenue, which includes new borrowing. When our entitlement bills come due in excess of current entitlement tax revenues, we have to make up the difference out of (you guessed it!) general revenues …

    To reiterate, since the US government can only “pay” or “collect” its own IOU’s to itself through general revenue/current taxation, to compare our “public debt” to other nations we need to exclude that 30% portion (“intragovernmental holdings”) for an accurate “apples-to-apples” comparison. Or, in the alternative, add THEIR projected future entitlement deficit projections to THEIR “public debt” figures. THEN we’d have apples-to-apples.

    That it is not YET as bad as the chart suggests does not mean that the problem does not still exist, just that we’re not YET as screwed as those nations. It is still unsustainable*. There are other factors to consider as well. Those other nations in general have tax rates that make ours look benevolently anemic, which means they have less wiggle room to tax their way to balanced budgets when they hit that wall. (Arthur Laffer may be nearly as big a partisan whore as Paul Krugman, but he was not wrong about the Laffer Curve.) So their growth potential is more inherently bounded than ours, both in GDP and revenue growth.

    In addition, a nation’s total external debt (the total amount of its debt held by those outside the borders, how much the nation as a whole, not just the government, has borrowed from foreigners) is a major factor. Ours is right about 100% of GDP. Europe’s external debt averages run in the 150% and up range, and the UK weighs in at a whopping 360+%. Who’s in trouble is mostly a reflection of how their ability to repay over the long run is perceived by external creditors and potential creditors.

    [*-- Δdebt/ΔGDP ratio increasing is by definition unsustainable. As is an increasing Δspending/ΔGDP ratio.]

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