If one reads through the current writings of the various Op Ed writers and popular bloggers, one gets two conflicting messages, depending on the political persuasion of the writer:
- President Obama and the Democrats are in trouble because they aren’t standing up strongly enough for their liberal beliefs. They should have held out for the public option in the health care bill. In the midterm elections, they should have run proudly on passing the health care bill. In the current negotiations on extending the Bush-era tax cuts, they should block any bill that includes an extension of the tax cuts for the rich. They should push to make America more like Europe, with a wider government safety net and tighter government regulations. They should address the growing economic disparity between the wealthy and the middle class.
- President Obama and the Democrats are in trouble because their liberal ideas are too liberal for a nation which most polls reveal is really center-right in outlook. They should have focused more on repairing the economy and stimulating business, and not wasted so much time and political capital on serious but peripheral issues like cap-and-trade and the health care bill. They are too anti-business in outlook (or alternatively, they just don't understand business). They truly are “tax and spend” Democrats, and they are running up a ruinous national debt that will eventually cause us all a lot of pain.
Both sides have good arguments. Both sides have articulate and persuasive supporters, though, not withstanding talk radio and Fox News, the media in general appears to be biased somewhat toward the liberals, as is the academic community. And there is a grain of truth in both perspectives. So what is one to make of all of this? Where is reality among all these conflicting views? Here are some observations that may help get to reality:
First, the Federal debt truly is a huge problem. Many states are also in deep trouble financially. Our governments - Federal and state - simply spend more than they can afford at the current tax rates. Here, from http://www.usgovernmentspending.com, is the Federal debt as a percentage of GDP for the last 50 years, since 1960:
By comparison, Ireland’s debt to GDP ratio is projected to rise to 94.7% of GDP in 2011, and that has caused a monetary crisis in the EU zone. Clearly the US Federal debt to GDP ratio is approaching a similar danger zone, if it has not already reached it.
The Federal debt is currently $13.8 trillion, and the Treasury Department projects that it will rise to $19.6 trillion by 2015. We currently spend about $414 billion per year on interest payments on the Federal debt, at an average interest rate of about 3%. We get this low interest rate because the markets in general still trust US Treasury notes. The interest rates on Ireland's government bonds (what they have to offer investors to get them to buy the bonds), now that they are in trouble, have risen past 8%. Greek government bonds last year reached 15.5% interest rates before the EU bailed them out. Should that happen to US Treasury notes, with no one big enough to bail us out, the results would be catastrophic for our economy (as well as the world economy).
Second, the Federal deficit is not really a party issue, a Democrat vs Republican issue. While it is true that the national debt is ballooning uncontrollably under this Democratic administration, the previous Republican administration was also fiscally feckless. During the eight years of the second Bush administration, the Federal deficit climbed from 63.4% of GDP to 83.4% of GDP, an increase of about $4.9 trillion. During these first two years of the Obama administration, that debt has increased another $3 trillion and is projected by the administration itself to increase about $5.9 trillion by the end of his first 4-year term. So this debt problem isn’t confined to one party or the other; it is endemic in our whole current political system. It is true that there are philosophical differences between the parties – Republicans in general are against tax increases, Democrats in general are against decreases in public services – but in practice both parties really operate about the same, taking whatever is the most politically expedient course at the moment.
Third, numerous polls continue to show that the country as a whole is more conservative than liberal, by a good margin. Here, for example, is the Gallup poll tracking of self-reporting conservatives, independents and liberals since 1992:
Fourth, private business provides almost all of the government income. As of 2008, here is where the Federal government gets its money (when it isn't just printing more money out of thin air, as it is doing now):
Clearly, almost all of it comes direct or indirectly from private business - corporate taxes or taxes on what workers earn. So just as clearly a government that wants a lot of revenue to play with ought to do whatever it can to encourage and nurture private enterprise, because that is where its revenue comes from. There simply are no other significant sources of revenue for a government.
From these facts, I think a reasonable person, not constrained by political ideology, would conclude:
1. The Federal debt is probably the single most important problem to tackle, and the problem is big enough that it will take both substantial cuts in spending and substantial increases in revenue (taxes) to solve it.
2. The revenue and the jobs that provide that revenue can only come from private enterprise (businesses), so one ought to do everything possible (loosen government regulations, improve education of the workforce, stimulate innovation, encourage investment, etc) to improve the US business environment and create more well-paying domestic jobs as fast as possible.
3. Cuts in government spending are of necessity going to curtail or eliminate some programs. Because of point (2) above, priority needs to go first to preserving programs that encourage economic growth and jobs creation, even if it is at the (perhaps temporary) expense of more popular liberal social programs. It may seem cruel to cut Social Security to the elderly or food stamps for the poor now, but it is nowhere near as cruel to them as a major economic collapse of the nation's (and therefore the world's) economy would be.
4. Liberal programs to redistribute wealth or increase government services (and many of these are laudable goals) can only be provided in sustainable form if the economy is healthy enough to provide the required revenue. So a healthy economy has to be the first priority, even for liberals - once the economy provides enough revenue, then and only then we can figure out what social programs might be useful.
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