Via Twitter buddy and MIT colleague/Technology Review publisher/editor Jason Pontin, I got myself steered to this brutal, elegantly clear account of the core theft at the heart of the “crisis” implied by the federal debt.
Writing at the website of the literary mag n+1, Stephen Squibb lays it out:
Letting one dollar equal a trillion, the total debt of the US Government is roughly $14.27. This divides into $8.32 of public debt, which is held by other nations, individuals, and institutions, and $5.95 of intragovernmental debt, which is owed to programs like Social Security and Medicare, and to the Federal Reserve.
Of the $8.32 of public debt, $4.47 is owed to other countries: $1.15 to China, $0.91 to Japan, $0.36 to the UK, roughly $0.20 each to oil exporters and Brazil, and $1.70 to the rest of the world. $0.63 is due to mutual funds, $0.61 to private pension plans, and $0.31 to depositors like commercial banks, credit institutions, and credit unions. Insurance companies hold $0.25 and savings bonds and state pensions $.018 each, while individuals, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and other investors are due $1.21.
Intra-governmental debt is something of a misnomer: $4.53 of it is really money owed by the government to the American people. The biggest single number in sight, $2.40, represents what Americans have collectively set aside for retirement, or Social Security. This $2.40 is a surplus, collected over decades, as the total revenues from Social Security payroll taxes have exceeded the total amount being paid to beneficiaries. This surplus has been invested in the government, where it counts towards the total debt. The psychological impact of this language game should be clear. What ought to be celebrated as sound financial planning appears instead as further evidence of reckless profligacy. The more money we save, the poorer we are told we are. There is also $1.68 in savings for health care and $0.40 dedicated to needs such as highways, housing, the disposal of nuclear waste, and unemployment insurance.
The remaining $1.42, the second-largest amount, is owed to the Federal Reserve, a public-private institution born of a compromise a century ago between a familiar set of bankers and a less familiar set of populists. The Fed has bought government debt over the last three years in increasing quantity as part of its quantitative easing programs. Unlike other money owed by the government, this debt has no destination, and in many ways is fictitious. If the money were to be repaid, it would simply cease to exist.
He also makes clear where the debt comes from:
The three primary causes for the rapid expansion of the federal debt from $5.77 in 2000 to over $14.00 today are well known. The first is the Bush tax cuts, which with interest cost $2.39 ($1.30 went to the top 20 percent of earners); the second is $1.47 the wars in Iraq and Afghanistan; and the third is about $1.20 in lost tax revenues due to the recession and a dollar for TARP and other stimulus programs. The Medicare prescription drug benefit cost $0.22 and the health care bill $0.15. Because the federal budget was balanced at the turn of the century, these added costs really do correspond to the size of the current problem, an expansion financed almost entirely by issuing new public debt.
This is essentially the same story discussed on my last post (with a material error now corrected): the McArdles of the world may not like to confront the sources of our debt, nor the implied policy responses, but the facts, sadly, remain stubbornly factual.
The quotes above form Squibb’s set-up; the rest of the piece is an analysis of what the “resolution” to the debt crisis actually means. Two money quotes:
The fact that John Boehner walked away shouldn’t obscure the facts: A Democratic president offered to pay for the Bush tax cuts by handing over the health care, education, safety, and savings of the American people.
It is worth remembering what drove us to the edge of the cliff: the right’s absolute commitment to the further robbery of the American people for the benefit of unproductive wealth.
Read the whole thing. Despite the author’s occasional use of DFH words like “hegemony,” it’s sharp and depressing as hell. Squibb offers some truly gloomy last thoughts, but here’s mine:
The response to this whole episode is not usefully despair. Rather, there is a specific pair of tasks we need to drive our representatives to accomplish: the first is to come up — fast — with a tax expenditure reform package that includes as much as possible, to begin the tax reform vs. cuts argument of the new Catfood
Commission Super Congress with as much revenue on the table as possible. Wonkish — I know, but haven’t we learned by now that it is the first statement of policy that drives the rest of the discussion?
And second: begin the pressure now and now-er on Obama to keep the extension of the Bush tax cuts at risk unless a genuinely acceptable package comes out of the new Big Daddy committee and the Congress. No ten cents on the dollar nonsense. It is not just fairness, but the actual long-term economic and social future of the country that depends on getting revenue up to its historic fraction of GDP. Again, wonkish, a bit — but necessary, IMHO. So call and write your folks — and the White House — as often as you can.
Image: Francisco de Goya, Robbery, c. 1794