It's everybody's fault.
That's what ordinary Americans must think as they try to understand the self-inflicted debt crisis that threatens to sink the U.S. economy. The national debt is big and problematic, yet there are plenty of ways to close the gap between how much Washington spends and how much it earns in revenue. Economics isn't the problem. Politics is. Republicans and Democrats seem unable to compromise on a mix of spending cuts and tax increases that will reduce Washington's need to borrow and get the federal budget under control. They can't even agree to raise the government's borrowing limit, which is necessary to keep the government functioning normally. If there's no action by early August, it will trigger severe spending cuts that could cause another recession if they last for more than a few days.
[See who will suffer if there's no deal on the debt.]
While working urgently to forestall the crisis they're creating, politicians in Washington have also been taking time out for the important work of blaming each other and lobbing insults. Leading Republicans like Rep. Eric Cantor and Sen. Mitch McConnell say it will be President Obama's fault if the Republicans hold out on a debt deal and the economy crashes. Democratic Sen. Harry Reid says Cantor is "childish," while Democratic Sen. Claire McCaskill says that McConnell has "lost his mind."
Entertaining as all this bickering is, it obscures the real reasons we have a debt crisis in the first place. Political partisans always blame the other side and find oversimplified ways to validate their own views, but the debt crisis is born of bipartisan opportunism and across-the-board neglect in Washington. Here's how some key figures have helped create the problem:
President Obama. When Obama took office in January of 2009, the federal debt was about $10 trillion, or roughly 70 percent of GDP. Today it's about $14.3 trillion, which is close to 100 percent of GDP. By the end of Obama's third year, the debt will have risen by about $5.5 trillion, or 55 percent. That's partly because of all the stimulus spending enacted under Obama, meant to help end the worst recession since the 1930s. But it's specious to say that Obama should have foregone all that extra spending just to keep the debt under control. Any president, Democrat or Republican, would have been under severe pressure to do something to ease the pain of the recession, and it's worth keeping in mind that President George W. Bush, a Republican, enacted a smaller stimulus plan in 2008, when the magnitude of the nascent recession was still unknown. We have new doubts today about the effectiveness of stimulus spending, but in 2008 and 2009 it was widely considered one of the most effective ways to battle a recession.
Obama's real failure was paying no heed to the debt during his first two years in office and failing to pass some kind of debt-reduction plan while the Democrats still controlled both houses of Congress. That legitimized accusations that Democrats were eager to spend without worrying about the consequences. Obama deserves credit for one thing: establishing the Bowles-Simpson debt-reduction commission in early 2010, after the Democrat-controlled Senate refused to set up its own debt panel. Many of that group's recommendations, which were published after the 2010 midterms, could end up as part of a final budget deal.
[See why you should worry about a "TARP moment".]
But Obama miscalculated on the timing. He probably figured that Congress would automatically raise the government's borrowing limit this year, as it has many times in the past, which would allow him to put off his own debt plan until 2013, assuming he got re-elected. Instead, Republicans who gained control of the House last year have refused to raise the debt ceiling unless Obama agrees to deep spending cuts, which is why the health of the whole economy now hinges on a political smackdown in Washington. Obama never saw it coming.
John Boehner. The House speaker claims credit for the huge deal last December that extended the Bush tax cuts of 2001 and 2003—but that deal has already made the national debt appreciably worse. Over two years, the tax-cut extensions will increase the debt by about $850 billion, comparable to the cost of the 2009 Obama stimulus plan that Republicans have roundly derided. Yet judging by the lackluster economy, the extension of the Bush tax cuts and other measures passed late last year haven't been any more effective than Obama's big stimulus plan. Boehner is more moderate than some Tea Party Republicans, yet the House speaker seems captive to a restive minority of conservative House members who seem willing to risk the consequences of a default on U.S. debt instead of compromising on a package of spending cuts and tax increases.
[See how Washington is killing jobs.]
George W. Bush. President Obama's predecessor inherited a balanced budget, with no deficit, when he took office in 2001. For each of the next eight years, the Bush administration ran up a deficit, adding about $3.5 trillion to the national debt over two terms. Bush also left two thorny problems for the next president to solve. The tax cuts he enacted in 2001 and 2003 were never offset with spending cuts or other revenue gains, which meant they'd add to the debt indefinitely unless repealed. And while those tax cuts were scheduled to expire at the end of 2010, it was clear all along that any president who allowed that to happen would effectively be raising taxes on most Americans, an act sure to be punished at the voting booth. Bush also passed the costly Medicare prescription drug benefit, without coming up with funds or spending cuts to cover the cost of that either, adding more than $100 billion per year to the debt.
The Tea Party. Conservatives exorcised about reckless spending in Washington deserve credit for forcing the issue. The rapidly rising national debt was bound to become a major problem sooner or later, and Tea Party pressure has compelled Obama and the Democrats to address the debt sooner than they would have otherwise. But Tea Partiers have now become intransigent over the issue of tax increases, the biggest thing blocking a deal that would raise the debt ceiling and allow Washington to move on to other important problems, like the jobs shortage. Tea Party water carriers like Cantor and McConnell have insisted that the debt be reduced by spending cuts alone, which most economists and others who have studied the problem think would be ruinous, if not politically impossible. If spending cuts were the only option, it would require steep cuts in Medicare, Medicaid, Social Security, and national security, which is why most budget experts feel some tax increases are needed. The Bowles-Simpson recommendations, for instance, amounted to about 75 percent spending cuts and 25 percent tax increases. Other proposals are closer to a 50-50 mix. Obama's proposals, while not yet public, reportedly call for spending cuts to account for 60 to 80 percent of $4 trillion in savings, with higher taxes on the wealthy and the closing of loopholes to cover the rest. That's why Obama is increasingly seen as a centrist on the debt, with Tea Partiers drifting toward an obstructionist extreme.
[See 3 ways to spot small-government phonies.]
The recession. High unemployment, lost wages and other effects of the 2007-2009 recession have lopped perhaps $1.5 trillion off government tax revenue, effectively forcing Washington to borrow that amount to keep operating at a consistent level. Stimulus spending, bailouts, and other emergency measures meant to keep the economy afloat have cost at least $2 trillion more. So the recession has probably added $4 trillion or so to the national debt. It's easy for critics to argue that the government shouldn't have spent as much as it did during the recession. But if it hadn't, and the recession had been deeper or longer, tax revenues would have plunged even more.
Voters. Sorry people, but many ordinary Americans have contributed to the debt problem too, by demanding a free lunch from the politicians they send to Washington. The federal tax burden has been declining over the last decade, while government spending on a per-person basis is higher than it has been historically. We're basically trying to sustain a generous welfare state—particularly with regard to Medicare and Social Security benefits for seniors—without the taxes required to finance it. The result is mounting debt that could bury future generations.
Americans are beginning to understand that perpetual deficit spending is a dangerous Ponzi scheme, but there's still rampant inconsistency about how to solve the problem. Surveys repeatedly show that most Americans want retirement benefits and other government programs to continue at current levels, yet they're opposed to the tax increases or deep cuts elsewhere that would be required to pull that off. So in a way, the debt problem really is everybody's fault. Let's just hope America as a whole hasn't lost its mind.
Twitter: @rickjnewman
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