US Debt – The Difference Between Manure and Filet Mignon
Yesterday morning on CBS, James Baker was interviewed about a number of issues including the escalation of war threats between the idiot in the White House and the idiot running North Korea. The issue he focused on, though? The “ticking debt bomb”. He warned of the unsustainable level of debt that is almost 100% of GDP (a measure used by economists), asserting that we must cut “entitlements” to get it under control. I asked myself, “Is that really true?” I’ve taken a simpleton’s approach to this question, just using math, not political spin. For the purpose of this discussion, I’m going to ignore defense and other discretionary spending – that’s a whole other kettle of fish and a subject for a future post, probably after I’ve been drinking.
So I looked at a couple of things: First, I assume entitlements to Baker mean Social Security and Medicare. Are they actually part of the federal budget? The answer is yes, but have a separate source of funding through social insurance taxes. Here’s the CBO chart for 2016 (click on the little one to get the big one):
Some interesting things here. First, personal income taxes make up almost half of revenues, about 8.4% of GDP. Amazingly, corporate taxes are on 1.6% of GDP, near all time lows. In the 40s and 50s, that number was 4 to 5%. On the social insurance tax revenue side, those total $1.1 trillion, about 6.4% of GDP. Part of that $1.1 trillion is supposed to go into the Social Security trust fund and benefits paid from that. The other part, about $400 billion goes to Medicare. Pretty straightforward, right? We’ll see.
Where it gets messy is on the spending side. Social Security and Medicare make up $956 billion in federal spending. Medicaid, on the other hand, is funded partly by the states and partly by the federal government. The federal funds for Medicaid come from general revenues.
Now look at the left hand circle on the CBO chart. Of discretionary spending, defense is HALF. If you throw in veterans benefits that are part of non-discretionary spending blows it up even more. (We’ll talk more about that later). The proposed budget increases that spending even more while slashing funding for Meals on Wheels, after school programs, and Medicaid.
Now, let’s talk about who actually owns US debt. China, right? Well, yes, but not the amount you always hear about from Fox Noise and the idiots in the Congress. The largest holders of US debt? Us. Americans. Some of us buy US bonds. Corporations own US bonds. But the largest holder of US bonds? Government trust funds including the Social Security trust fund. Over $5 trillion. That’s right, over the last 30 years, instead of raising taxes to cover spending, politicians that we elected have been stealing money from the trust funds, replacing that cash with…wait for it…US debt. Here’s the most recent breakdown of US debt holders.
Now, back to the so-called “debt bomb”. Baker rang the alarm bells that our debt is going to consume us and push us into bankruptcy. He claims that cutting “entitlements”, even the ones WE’VE ALREADY PAID FOR, is the only way to reduce our debt level. That is simply a lie. Here’s an interesting chart from Advisors Perspectives by Doug Short. It plots debt to GDP by year which Baker is so worried about, but also charts this data against historic tax brackets. Have a look:
Now ain’t this interesting? Debt to GDP exploded while our parents funded WWII. In response, the government, then apparently run by adults, raised taxes to pay down the debt and grow the economy. During those years of high tax rates, do you remember all that poverty, bankruptcy, and insolvency? Me neither. The higher tax brackets ushered in one of the most dynamic periods of our history, creating the middle class and prosperity that reached deep down into our society. What happened after Reagan started slashing tax rates in the 80s? That’s right, debt to GDP started to skyrocket again. The only problem we have today is that “experts”, like Baker, Reagan, GWB, and the current occupant of the White House didn’t and don’t understand math. They believe as an article of faith that cutting taxes raises revenue, and that slashing spending increases prosperity.
The opposite is true. It’s always been true, but since everyday Americans have been dumbed down to the point that they believe horse manure is filet mignon, hacks like Baker get away with serving it up unchallenged on national television. We don’t need draconian cuts that throw Momma off the train, all we need is for the clowns in DC to study this:
So there.
If you ask any Trump voter I am willing to bet money that 10 out 10 of them will opine that China “owns” all the U.S. debt and can call it at any time.
About the same number will say that Social Security is “bankrupt” and if they are under 50 they will be confident that “they will never see a dime out of it.”
These shibboleths and many others at about the same level of substance keep right-wingers in power. No wonder they constantly want to defund education.
1Thanks! You are rapidly becoming (already arrived?), like Juanita Jean Herownself, a national treasure. Isn’t it interesting, and telling, that these dire predictions and proposals are always set forth by individuals who have never had a financial worry and live a life of privilege and wealth? Somehow, this message you espouse has to get into the minds of ordinary folks. Gonna be tough to break that Fox bubble, as well as combating wedge issues (abortion! ISIS has training camps in Mexico! Transgender pedophiles are gonna assault my little girl in the restroom! etc.) that are the mainstay of Republican politics. I’m not too encouraged by the critical thinking skills of the average US citizen. Thanks for your insight and leadership.
2El Jefe, may I suggest that you send this to cbs and to baker, et al, who may still be at Rice U.? Do you think throwing down the gauntlet, to speak, challenging him on cbs, eg, to defend his position? Is there a danger to you or anyone who would publicly challenge him of being ganged up on by his buddies as a intimidation tactic? Of course, the big impediment – who are you compared to the “great” baker, the guy who sold his soul for bush?
3Would Krugman or equivalent be open to being the lead man?
What other thoughts to address this type of propaganda are there from this audience?
The only way Republicans can win arguments is to change what words mean. They have equated “entitlement” with “welfare;” they don’t mean the same thing. (Not that welfare is evil, but it does have a different meaning.)
en·ti·tle·ment (noun)
1. the fact of having a right to something.
2. the amount to which a person has a right.
3. the belief that one is inherently deserving of privileges or special treatment.
The first two definitions refer to something that is earned, like Social Security. We pay into Social Security for many years and it belongs to us. It’s not a gift from rich guys.
The third definition does not apply to SS because it is a feeling, not something we have bought and paid for. It more accurately describes the feelings too many rich people have. Trump could be the poster boy (for one damn ugly poster).
The quickest fix for SS, which is far from bankrupt, is to get rid of the cap so people pay on all their earned income, with no cutoff at $118,500. Note that investment income would still be exempt, so the investor class gets off easy.
Another fix is to encourage young immigrants to come here and work. Our demographic is aging and we need young workers to keep the balance between people paying in and people collecting SS.
For this to happen we need to elect Dems.
4OH! They’re worried about the debt again?
Y’know all I heard from Republicans from the moment Obama was elected was “The debt! The debt!” Yeah, right. You mean the debt you and the Bush administration took from $6 trillion to $12 trillion in 8 years. You mean that debt? Rigggghhhht.
But y’know? A funny thing happened. Around June or July of 2015. All that concern for the debt evaporated. Woosh! Gone! Didn’t hear a peep out of you guys. Hmmm… wonder why. Maybe because your candidates were beginning to announce their run for President? Hmm? Maybe? And maybe because ALL of their spending plans put forward were shown to be budget busters adding huge ammounts to the debt? Maybe that?
And of course, 2016 being an election year, your lips were glued shut when it came to “the debt”. Gosh, it was like it just didn’t exist anymore. Interesting, huh?
But… now you’re at it again. “The debt! The debt!” So why now? Ummm… maybe because #45’s budget eviscerates help for low income people and betrays his big promise to help “the little guy”? Maybe? And this is the only excuse his numb-nuts base will buy once they realize how badly they’re being screwed?
You’ve played this script one too many times. People are catching on.
5Baker? Really? He has limited or no expertise in what is spouting. Rant cancelled. As for the rest of America, arithmetic of any sort scares the pants off them. Thats because a helluva lot of scam depend on moving numbers around. Consequently, you just can’t trust numbers let alone the people who juggle them. Definitely remove that damnable cutoff! Frankly, it simply aids the imperialism of the 1% like CJ.
6El Jefe, unfortunately, like most of the “left” you are mistaken about so many things.
Is U.S. national “debt” a problem? Not really. The U.S. is a sovereign, fiat currency *creator*–meaning it can literally never run out of dollars. The idea of involuntary insolvency is simply absurd. Money is not a commodity; it’s a social construct like the points on the scoreboard. You never hear anyone yelling at the scorekeeper “Hey! You’re running out of points!”
Second, the “debt” *is* our currency. If you have a bank account, that’s your asset. It is, however, the bank’s liability, or debt. When you write a check, you’re assigning a portion of the bank’s debt to the payee.
Currency is simply checks made out to cash in fixed amounts. The U.S.’ central bank (the Federal Reserve, or “the Fed” for short) carries currency on its books as a liablity. The “debt” *is* our currency!
What does the federal government owe holders of those “checks” (i.e. currency)? A dollar’s worth of relief from an inevitable liability: taxes. That’s right: taxes make the money valuable. They do not (and obviously cannot) provision the federal government. Where would people get the dollars with which to pay taxes if the government didn’t spend them out into the economy first? Take a moment to think about that question–it’s so obvious, but difficult for most people to accept, we’re so well trained to think that currency creators are just like households (i.e. currency users).
So what happens when the federal government runs a surplus? It sucks money out of the economy (i.e. initiates deflation). This hurts debtors, primarily because the creditors aren’t saying something like “There’s less money out there, so we’ll reduce your mortgage payment.” No, that’s not what they say. They say “No matter whether the money is scarce or not, you must pay your mortgage or we’ll take your house.”
And sure enough, in the wake of those federal surpluses comes a wave of asset forfeitures and foreclosures. There have been seven such major “debt” reductions since 1776. The last one was the Clinton surplus (he still brags about it!)….followed by the Great Recession (a wave of asset forefeitures and foreclosures). The major reduction that preceded the Clinton surplus occurred in 1929. Andy Jackson even paid off the entire national debt (and we had private currency) in 1835…followed by the worst of the Great Depression-sized holes in the economy: the Panic of 1837. (See http://www.huffingtonpost.com/l-randall-wray/the-federal-budget-is-not_b_457404.html)
One hundred percent of the major “debt” reductions are followed by Great Depression-sized holes in the economy. Correlation isn’t causation, but it’s awfully suggestive.
Incidentally, the above is Modern Money Theory, not the product of my fevered imagination. The MMT economists are actively suppressed by the popular media, but, in contrast to the neoclassical economists from Mankiw to Krugman, correctly predicted the Great Recession.
What I’ve written here is pretty subversive. I recommend you check it out. As long as Democrats adopt Clintonism as their model, they’ll continue to lose elections to the likes of Trump. Embarrassing…but true.
7Alan, ashamed to say I thought we owed most of debt to China and Japan. Thank you for setting me straight, I understood a bit of the math lecture on our debt and will now have to do a bit more reading. I never mind being corrected, it is how we learn the truth.
8Some would say that common sense cannot be quantified. Wrong, when common sense and snacilbupeR are in the same sentence, it’s a solid number – zero.
I don’t need a solid figure whether it be $1.86 or $2.20 per meal to know that the value of Meals on Wheels is a geometric figure such that for every dollar spent the intrinsic value is proportionally 20 or more times those figures. Forget about being kind and doing the right thing with Granny and Grampa, we can also do this the fiscal ‘conservative’ way; every dollar spent on feeding them and keeping them healthy in their own homes is at least $100 per day savings in the Medicaid costs of of warehousing the elderly.
“Warehousing” good word. Use it often when communicating with your snacilbupeR Congress varmints. If you communicate with AARP and Gray Panther organizations, toss in the word. Let the elderly know their elected ‘representatives’ plan to warehouse them in exchange for tax cuts for the .01%. “Sorry Granny, but your life isn’t worth a davit on a yacht, but a few thousand of you dead makes a nice down payment.”
9@Adam Eran
As soon as I read the first sentence of your post, “like most of the “left” you are mistaken about so many things.” I punched out. I’ve learned that when a poster starts with such a condescending emotional generality, the potential for usable content thereafter is infinitesimally small. I meant to listen, but then I didn’t.
10snacilbupeR Congress critters are also fond of the word ‘offset.’ No problem. Easy enough to recommend a few. Let’s talk belt tightening and austerity beginning with Donnie. For starters he can bring his hostage Messalina to Dee Cee along with their special little snowflake. That saves all of us tax dollars in travel expenses, added security, etc. and the business owners in NYC can get back to business. Same with Marred-Largess. Donnie and his punk posse have ground businesses to a halt there, while costing taxpayers $millions per trip of which there have already been 7 in a mere 8 weeks.
Donnie dreams of being CiC. He can start with leadership by example. Military Moms and Dads move their families whatever school term their children might be attending on a moments notice. Move the twat and brat, Donnie.
Speaking of security, seems the Secret Service is spread a little thin defending 3 full time residences for the Orange Foolius. Latest intruder was on the WH lawn 16 minutes before being detected. Unless AZ is willing to sacrifice their senior Senator to yell “get off my lawn” 24/7, we the people who pay the bills for Donnie’s foolishness have the right to demand that Donnie bring back the Secret Service to protect OUR lawn.
11@Adam Like most who are arrogant, you actually have to read a post before commenting. This entire piece was NOT about reducing the level of debt, but the effects of tax rates and spending on the Debt to GDP ratio and how conservatives falsely assert the dangers of high debt to achieve their actual goal of reducing services to people they don’t like.
MMT as a theory is circular with a fatal flaw. The assumption that US currency is the dominate currency and can be printed in unlimited quantities ignores the reality of the abuse of that ability causing the shift away to other currencies or commodities to reflect value. This is where MMT falls apart.
Next time you comment, it might be a good idea to start without finger wagging arrogance; oh, and actually reading the piece you’re commenting on.
12Speaking of short-fingered vulgarians, this is really the perfect image:
http://shortfingers.com/image/140343293218
13El Jefe and Micr, let’s give Adam Eran the benefit of the doubt and allow as maybe he posted his comment on the wrong site.
“Lefties” was clue number 1, when it is so beyond obvious who the deficit hawks are, as well as how wrong they are.
Adam Eran, just a suggestion, but maybe you should do a cut & paste of your comment and send it to: http://www.speaker.gov/contact/
We appreciate your anger and frustration. But before I can reach out in a manner genuine to communication, it would be helpful if you would reach a little across the divide by owning your misdirected anger. TIA
14@ Jane & PKM
15You got about half of it, we are also protecting Don Jr, Eric and Ivanka. When they jet off to Uruguay or Azerbaijan to open negotiations for a new hotel, choose floor tile or talk to the plumber we pay for a SS detail. Don’t know about Tiffany.
Debbo, the thing most odd about the short-fingered vulgarian is his insistence on wearing French cuffs that accent the teeny little wrists leading to his diminutive little paws. Must be the price he pays for Chinese tailored shirts with extra long tails to stuff into his pants to cover for his other short comings.
Not sure what the fashion rule is, but when the belt reaches the armpits, isn’t it time to switch to suspenders, Donnie?
16James Baker! As in the Traitor that negotiated with Iran to hold on to U.S. hostages until Uncle Ronny won the Presidency and was inaugurated? That Slimey Sum’Bitch?! He’s only in the game to advance the interests of the .01%! Probably one of the worst critters to have ever been unleashed upon the civilized world by the (formerly) great state of texas. Sad.
17Bananas, there’s that, too, which is way beyond any definition of Secret Service detail extended to a president’s family. We can only hope the media and Congress move beyond the shiny objects of Donnie’s twitter eruptions and address the more serious issues of his threat(s) to national security, Emoluments Clause of Article I, Section 9 violations and ALL the conflicts of interests Donnie, his family and his cabinet embody.
18El Jefe. This was a good piece to consider on the issue of SS solvency, national debt, the effect of tax rate policy, and the almost opposite conclusions that most Republicans and Democrats have. It would really help if there was some consensus on the facts before conclusions are reached. Then there is always someone that can’t wait to change the subject so he can wow us and expound on a new and dubious economic theory as it relates to the national debt and the value of the US greenback. I liked your analysis. I guess the take a way for me is that we can be wrong because we are dumb on the facts, and we can be wrong because we think we are so much smarter than the mainstream and overlook the obvious.
19The desert Beacon nails the Bully Budget with facts, plain and simple: https://desertbeacon.wordpress.com/2017/03/18/the-bully-budget-a-saturday-rant/
TedinAustin, there’s a list of dirty tricks going back to Nixon. Although it could be said that Ike deserves some blame for that mistake. It would be a real act of journalism to hear from the Iranian hostages and their families. Or, maybe the Viet Nam veterans who did extra time in the Hanoi Hilton, while Tricky Dick and Kissinger blew off the Paris Peace Accords. Iran/Contra, etc. There’s a list of their sins, should the snacilbupeR conspiracy theorists like Breibart, Bannon and Flicky Flynn ever develop critical thinking skills.
20Skip Belt, Adam Eran and whoever, please proceed. “we can be wrong because we think we are so much smarter than the mainstream and overlook the obvious.” Maybe begin with defining what you mean by “mainstream” and “obvious.”
Or, skip the tweets and let’s talk economics. Your choice. We can make this conversation real and begin by addressing the budget that Donnie supposedly penned. https://desertbeacon.wordpress.com/2017/03/18/the-bully-budget-a-saturday-rant/
21while I agree overall with your analysis, when SS & Medicare payments exceed revenues, that does contribute to the debt. the trust fund bonds have to be cashed out, to pay for excess SS payments, and general revenues (or borrowings) used to pay the excess medicare payments. the budget is not an income statement, it is simply a statement of revenues (of all types) and expenditures (of all types). this would include long-term capital investments (Navy ships) and period costs (the expense of operating that ship). if you take out capital expenditures, and the debt associated with them, the budget actually looks pretty damn good.
22The racists have the president for which they have long sought!
23El Jefe and others: As much as I appreciate your perspectives on the issue of “The Debt”, I must also chide you all for your wordiness. We might as well be arguing about angels and pinheads. It is just such conversations that make most American’s eyes glaze over and tune out.
America does not have a debt problem. It has a revenue problem. And since Reagan, the Republicans have been responsible for increasing that problem by favoring the rich in monetary and tax policies putting more pressure on the constantly decreasing “middle class” to fund the government. One prime example is the Republican policy of continued budget cutting of the IRS, the single government agency responsible for collecting revenues to fund the government. Add on tax policies that favor the rich and corporations, and, well, you have a recipe for fiscal disaster.
How did we get here? Step by step. And sadly, we can only get out if it the same way. A long, difficult, step-by-step process that, quite frankly, America has not the courage or stomach to pursue. Countries large and small have been down this road in the past and now, so shall we. Thank god, I won’t be around to suffer through it. This is a “gift” we have given our children. Shame on us.
24They’re trotting out James Baker again? Hasn’t he done enough damage to the US over the past decades?
Regarding the debt … Your chart shows that 2/3 of the debt is held in the US and 1/3 is held by foreign countries, not an insignificant amount. And as my late father, an economist, pointed out to me back in the 1980s when Reagan was running up the debt, paying off US holders of debt recirculates the money in the US economy, but not so with foreign holders of debt. (Yes, the money payed to foreign banks could indirectly, eventually work its way back into the US economy.) Enjoyed your article otherwise!
25@Jane & PKM
Dont have to give up your Senator for WH protection duties. Call Clint Eastwood for TDY in DC. If he can blather for 40 minutes to an empty chair he can stare at the east lawn from time to time say “Get off my lawn!”
26Micr, thanks pal. But Jane and I wouldn’t be giving up our Senator. McCain is AZ, we live in NV. Although you give great thought provocation as to a useful purpose for Dean Heller, our snacilbupeR obstruction to progress.
😀 Dean’s been so busy backpedaling from Donnie this week, taht he might enjoy a rest on the WH lawn interrupted by moments of rising from a lawn chair to shout to passing clouds.
Math. Nah. Arithmetic. Donnie has split the Secret Service three ways between NYC, the WH and FL with the additional burden of protecting his foreign assets and asses (Uday, Qusay, Mistake Cake Ivanka and her hubby, Jared 666.) So, in less than 60 days Donnie’s drain on the Secret Service is to hire more? That didn’t happen. But even *IF* it had, the insanity of training the caliber of people we should expect does not happen overnight. As if we needed additional evidence that Donnie is a moron …
27Jane & PKM, hence this is why CJ has his own Praetorian Guard. That time lag between hiring newbie on the SS and the roll out of trained newbies is not insignificant. Furthermore, I’ve been hearing that there are current SS members who will not stop a bullet for the President. Have no idea how or what the PG feels about the same issue. Would actually love to know!
28maggie, we’re on the same page. Donnie has every right to his “Praetorian Guard” on his own property(s) and at his own expense. However, he and his extensive family of privileged moochers are not entitled to interfere with the duties of the Secret Service at OUR house, the WH, nor impose on the Secret Service the additional risks of ‘friendly’ cross fire from Donnie’s interloping Praetorian Guard.
It’s standard SS protocol that when the President travels everyone is cleared out and cleared back onto the destination premises, so that would also include his Praetorian Guard as an additional unnecessary expense at those times.
As for Donnie’s allegedly ‘adult’ children, let them travel with, live with and pay for the Praetorian Guard. There is no precedent for them to have Secret Service protection. While Messalina and little Pucktard have some claims on Secret Service protection, there are limits. Limits that start with the two of them residing in the White House and Messy being on official business when she travels. NY —-> FL doesn’t qualify.
So questions do need to be asked of Homeland Security as to where the lines of responsibility are drawn and to Congress as to how much Donnie is hosing the taxpayers for his convenience and that of his traveling brood.
29El Jefe- As dbtexas said you are invaluable. I knew they were stealing from the trust fund but I never understood how they were pulling it off until now. If we have to settle this via revolution I think all the smart people who embezzled our money and gave it away to organizations like the private prison industry should be lined up and shot.
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