Thursday, July 19, 2012

"We're Broke." —What you mean 'We' Mitt?

One of the key planks in the current right wing con is the idea that "We're broke." Because of this, the argument goes, it is urgent to balance the budget and reduce the deficit. We can't raise taxes because that would hurt "job creators", so we have to savagely cut federal government outlays.

This reminds me of the old Mad Magazine cartoon of E. Nelson Bridewell, reproduced above (click to enlarge). The Lone Ranger and his trusted Indian companion Tonto are surrounded by hostile Indians. The Lone Ranger says to Tonto "Looks like we're finished." Tonto replies, "What you mean, We?"

The United States is today the richest country in the world by far. We have a 15.5 trillion dollar per year GDP. This is double the second largest economy, that of China, which has four times the population. On a per capita basis, we have five small countries ahead of us, but we are the richest of large countries.

Now China is investing 50% of its GDP in infrastructure, and growing at more than quadruple the rate we are. And we are investing only 15% of our GDP, according to these charts.

Admittedly we are very different economies, but at double the total income, do we really need to cut back on our small investments in our future?

Ah, the right wingers will say, you forgot about our crushing debt. That's what makes us have to cut back radically.

That reminds me of another tale from the past. A famous Hollywood director was interviewed by a journalist, who interviewed him on the set of his upcoming blockbuster, and saw him happily in command. The journalist asked him, "How can you be so happy when you are two million dollars in debt?" He answered, "What should I do, cut back on cigars?"

The point is that level of debt in itself is meaningless. The key factors are: 1. The ratio of debt and income, in this case, national income. If you have a high income, you can carry a high mortgage; if not not. You have to look at the ratio. Here our ratio is high, but it has been much higher in the past, during WWII, and we grew out of it successfully after the war. Further, as Paul Krugman points out, Great Britain in its glory years as an empire for half the time had debt at over 100% of GDP.

This points to: 2. Creditworthiness. If you have a brilliant nephew who has been accepted into MIT, then you might be willing to chip in a portion to send him to school. If he is a notorious goof-off, not so much. The US creditworthiness is shown by the willingness of others to lend us money. And the world is falling over themselves to lend money to us even at historically low interest rates.

So "We're" not broke. But yes, we middle class are broke. Our wealth has declined by 40% because of the Reaganomics—facilitated financial collapse and Reaganomics-induced flat income growth for the middle class for thirty years.

So we middle class are broke. But you're not Mitt. You've been raking it in. And you and the rest of you 1 percenters are sitting on 2 trillion dollars, not investing it.

Should you 1 percenters be taxed and the money invested in public goods? Yes, that is something that has proven historically to be oxygen to economic growth. It both creates demand and strengthens public and personal capital, a foundation for growth. Refusal to invest means American decline, and so the debt getting worse in comparsion to income.

So when you say "We're broke," right wingers. I say: What you mean 'we'. Yeah we middle class are broke, but not you. You need to pay up, and stop trying to bamboozle us into thinking that the cure is to make the middle class suffer more.

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