The Mad Science of the National Debt

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According to House Speaker John Boehner, fast becoming the pope of the blossoming new national Church of Budgetary Misunderstanding, this would solve the "not paying the bills" problem. "I think doing a debt-prioritization bill makes it clear to our bondholders that we're going to meet our obligations," he said. He added, ominously, "Listen. Those who have loaned us money, like in any other proceeding, if you will, court proceeding, the bondholders usually get paid first. Same thing here."

Boehner was now moving the ill-considered metaphor from the government being like a household needing to pay its bills to the government being, apparently, like a business in bankruptcy (the only kind of court proceeding where bondholders move to the front of the line).

Guaranteeing that Chinese bondholders would get paid off before veterans or elderly citizens waiting for medical care is politically a weird enough idea to begin with, but for the House speaker to think that getting Congress to prepare the government to behave like a bankrupt business would reassure the markets about the stability of U.S. sovereign debt is pure lunacy. Remember, Standard & Poor's has already downgraded the United States once, and we've paid more than a billion in increased borrowing costs, thanks to delays in raising the debt ceiling last time around, meaning the Boehner bill is dead on arrival – Wall Street is already not reassured by the behavior of our bozo Congress.

The national debt is totally unlike a family budget for about a gazillion reasons, not the least of which being that families cannot raise money by fiat or deflate the size of their debt unilaterally and that family members die instead of existing infinitely. Comparing your family budget to the sovereign debt of the United States is a little like comparing two kindergartners tossing a paper airplane to the Apollo 11 mission. It's an automatically bogus argument, which raises the question of why it's made so often, and not only by Republicans of the Coburn type, whom we expect to be clueless dopes. In fact, the overuse of this loony household analogy just proves that when it comes to debt, people may have ideas, but nobody knows exactly what he or she is talking about, a fact proved dramatically by another recent story:


Do deficits matter or don't they? are we on the edge of collapse or aren't we? The only thing anyone can say with absolute certainty is anyone who claims to have the exact answer to that question is either lying, misguided, or both. We saw a graphic demonstration of this recently with the comeuppance of Harvard economists Carmen Reinhart and Kenneth Rogoff, whose May 2010 paper "Growth in a Time of Debt" was cited by austerity-lovers across the world as a prescient warning against the perils of government spending.

Reinhart and Rogoff posited that catastrophe would ensue if government debt exceeded 90 percent of gross domestic product. Wisconsin Congressman Paul Ryan, a political one-trick pony who's about 10 minutes from his next career modeling for the Gap in red states, cited that stat in his 2013 budget as proof that the United States (whose debt is near 104 percent of GDP, according to the St. Louis Fed) is on the track to stagflation. But then, in mid-April, a trio of University of Massachusetts economists reviewed the Harvard hotshots' work and found that they made a series of errors, including some ridiculous Excel spreadsheet gaffes, that essentially nullified their anti-stimulus thesis. That they had helped provide the intellectual justification for austerity policies around the world (Britain's loathsome Chancellor of the Exchequer George Osborne was a huge fan), and who knows how many thousands or millions of job cuts, was no matter. Two weeks later, in the Financial Times, the two Harvard windheads reversed course, arguing that they had been in favor of using debt to stimulate growth all along. "Borrowing to finance productive infrastructure raises long-run potential growth," they wrote. "We have argued this consistently since the beginning of the crisis."

Actually, they hadn't made anything like such an argument (at most, they allowed that existing government stimulus should be reversed slowly), but that's not the point. The point is that when it comes to whether or not deficits matter, economic arguments are always crafted to fit the politics. The party in power almost always unapologetically engages in deficit spending, while the other party argues passionately against the evils of debt and deficits.

This simple, once-cheerful law of politics is the reason why one can jump on the Internet anytime and find examples of Dick Cheney sounding like Paul Krugman ("Reagan proved deficits don't matter") and/or Barack Obama sounding like Paul Ryan (Candidate Obama in 2008: "The problem is, is that the way Bush has done it over the past eight years is to take out a credit card from the Bank of China in the name of our children . . ."). The reigning party spends, the opposition pisses and moans – until now, things have never been any different.

But today's Republicans have gamely spent the Obama years predicting the imminent arrival of a giant Earth-smashing debt asteroid. That this is transparently an effort to target social programs loathed for purely ideological reasons is obvious, but it's hard not to admire the balls: After spending much of the past decade borrowing from, among other places, the Social Security trust fund to pay for massive tax cuts and bank bailouts, America's wealthy are now turning around and demanding both $5.7 trillion in new tax breaks and significant cuts to things like Social Security, which incidentally is self-funding and running a huge surplus.

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Matt Taibbi

Matt Taibbi is a contributing editor for Rolling Stone. He’s the author of five books and a winner of the National Magazine Award for commentary. Please direct all media requests to taibbimedia@yahoo.com.