The Causes of Government Debt

As Dean Baker helpfully points out, the problem with the United States Economy is not that we have too much debt, but that we have too little.

The only negative consequences of too much Government debt in an Economy with a Sovereign (owes debts payable in it’s own) Currency are Inflation, Rising Interest Rates, and Decline in Exchange Rates with Other Currencies. All other measures are fictional shibboleths by definition.

So where are they? Really- after decades of Henny Penney doom mongering hysteria where are they?

Inflation is consistently below Fedreral Reserve target averages (which are themselves too low). This is a fact. Interest Rates have never been lower and any attempt to raise them (not for any particular reason but simply because the Federal Reserve mourns the loss of its Monetary tools) is met with howls of outrage from Wall Street. This is a fact. The Dollar’s Exchange rate is detrimentally high (if you believe in Trade which most of these Henny Penneys claim to) fueling enormous Trade Deficits, costing Jobs and Wages for the price of cheap Greek vacations and discount luxury City flats for the Ultra Wealthy. This is a fact.

What freaking Debt Crisis?

No, the real reason for Debt/Deficit Hysteria is unmitigated and unjustified Grasshopper/Ant Calvinism. How can I prove I’m part of the God Blessed Elect if I’m not ever so much better off than the UnGodly?

And it’s easier to repress you than it is to demonstrate my own worth by actually doing something.

Make no mistake- what these people propose is nothing less than leaving the old, the sick, and the “surplus population” floating on an iceberg to die starving mercifully (for us the Elite) out of sight and ear shot so our beautiful minds and consciences are untroubled by the monstrosity of our actions.

All the while directing more Government Welfare at our favorite charity- us.

The Old Debt and Entitlement Charade
By Dean Baker, Truthout
Monday, 17 October 2016 00:00

Why is it that Social Security and Medicare are linked to debt? These are not the only programs that entail future commitments of resources.

For example, our military budget involves large commitments of future resources. New weapon systems can require decades to develop and produce. We commit ourselves not only to the annual salaries of current soldiers, but also many decades of veterans’ benefits. And, when we make military commitments through policies like the expansion of the North American Free Trade Agreement, we are potentially obligating ourselves to vast expenditures in future conflicts.

Many of the government’s largest commitments of future resources do not even appear in the budget. When the government grants a patent or copyright monopoly, it is allowing the holder to effectively tax the public for decades into the future.

This is a fact that is little understood because the folks who constantly scold us about the deficit never point it out. Granting a patent or copyright monopoly is a way in which the government finances research and creative work. The cost of these monopolies is enormous. In the case of prescription drugs, the United States will spend more than $430 billion this year for drugs that would likely cost less than one-fifth this amount if they were sold in a free market without patent protection.

The $350 billion difference between the patent protected price and free market is a bit less than 9 percent of the federal budget. And this is just prescription drugs. If we add in the cost of patent and copyright monopolies in other areas, it would likely come to more than twice this amount.

This is money that the government is committing our children to pay in the form of higher prices — effectively a tax on prescription drugs and other protected items — that never appears in the government books. The deficit hawks will yell and scream about the interest burden we are imposing on our children with the government debt (currently near a post-war low relative to the size of the economy), but don’t want us to pay attention to the huge patent rents the government gives to pharmaceutical, software and entertainment companies.

Of course we have to pay for research and support creative work, but there are far more efficient mechanisms. The deficit hawks prefer patent and copyright monopolies because they can conceal the cost from the public.

It is also important to point out that the economy’s problem since collapse of the housing bubble has been a deficit that is too small, not one that is too large. This is why the interest rate on government debt is incredibly low. (High deficits are supposed to raise interest rates.) We need more demand in the economy to fully employ the labor force and to get firms to spend more money investing in equipment, software, and other areas.

We have paid an enormous price because of the lack of demand in the economy. The economy in 2016 is almost $2 trillion smaller (more than $6,200 per person) than the size that was projected in 2008 before the crash. This is an enormous “austerity tax” that those screaming for smaller deficits have effectively imposed on the country. Millions of people are needlessly unemployed, and tens of millions are earning lower wages, because people in Washington argued it was more important to have a low budget deficit than a strong economy.

But you won’t hear this story in the debate questions. Those organizing the debate want to see Social Security and Medicare cut, so they are framing the topic in a way that cuts to these programs will seem like the only reasonable answer.