Comparing government debt to personal debt is comparing apples to oranges, a fact that many fail to understand. I often hear comments like “I pay my bills, the government should pay theirs.” I actually find it almost heartbreaking that last year people donated $2.8 million dollars to the Department of the Treasury for the purpose of reducing the public debt. I fear that these people are under the impression that the debt will eventually be paid off. Interest expenses on public debt in 2010 totaled about $414 billion dollars, and the debt increased by about $1.7 trillion that year. Let us assume that the government both stops all new borrowing and manages to pay all of the interest itself. The $2.8 million per year provided by the generous benefactors would then reduce the debt to zero by year 5125417. That's right, we are just over five million years away from being debt free by donation.
The debt is a problem. United States debt to GDP ratio is 92.7% according to the IMF. That is high, but Japan's is 225.8%, and that country has yet to enter an economic crisis. Still, too much money is wasted on interest, but unlike personal debt, increasing public debt often improves the overall health of the economy. Granted, personal debt can be used to pay for education and some other things that improve an individual's financial health, but all of the credit card debt accumulated in exchange for clothes, liquor, and BBQ Branding Irons has little long term economic benefits. The government, on the other hand, often spends money on infrastructure like roads. This type of spending can generate economic returns that outweigh the cost of interest. It should also be noted that the government pays a much lower interest rate than individuals.
Before we go any further I should make the disclosure that I am not a Keynesian, I'm a socialist. I believe that all forms of capitalism will eventually fail. I also believe that the working class should advance policies that are in its own interest, regardless of those policies' effect on the economy in general. Having said that, I believe that government intervention in the economy can alleviate some of the problems that capitalism creates. Thus the Keynesians do have a point. Increasing government spending can create jobs, and build capital that the private sector is failing to build itself (such as infrastructure and education). Part of the reason that past attempts at Keynesian policy have been ineffective is that they are always implemented halfheartedly. Politicians always like to compromise. The other problem is that, simply put, the government is spending on the wrong things.
The next time a Republican lectures you on the need to cut the bloated government budget, ask him/her this question: What is the federal government's largest expenditure. I would guess that most wouldn't have an answer for you, but some might suggest that Social Security or the Department of Health and Human Services (HHS) is the largest federal expenditure. It is true that, at $854.06 billion for the year 2010, HHS is the single greatest outlay listed in the Department of the Treasury's reports. However, 93% of that money goes to Medicare and Medicaid (usually considered 'mandatory' items). Social Security is listed as $754.179 billion, while the Department of Defense is listed as $666.717 billion. However, it is generally accepted that this is not the true cost of the U.S. Military. Nuclear weapons, environmental cleanup related to nuclear weapons, and naval nuclear reactors are handled by the Department of Energy at a cost of $17.88 billion. $9.942 billion goes to the Coast Guard through the Department of Homeland Security. International Security Assistance is listed as $11.373 billion. The largest expense of U.S. militirism that often gets ignored is the Department of Veterans Affairs at $108.275 billion. The total for all of these is $814.187 billion.
To the extent that the United States is practicing Keynesianism, it is practicing military Keynesianism. As the debate continues about the raising the debt ceiling, I urge people to keep two things in mind: the level of debt is a problem, but not a crisis; and to the extent that there is a spending problem, it is one of poor priorities.
No comments:
Post a Comment