With Sarah Palin’s flair for jumpstarting a meme, filmmaker Michael Moore has declared that America is far from “broke.”
The country is awash in wealth and cash. It’s just that it’s not in your hands. It has been transferred, in the greatest heist in history, from the workers and consumers to the banks and the portfolios of the uber-rich.
This morning, columnist Paul Krugman adds some economic heft to Moore’s declaration:
It really is worth repeating: no matter how much the right-wingers may like to claim that the U.S. government is ‘broke,’ it’s not, in any normal sense of the term. Investors, putting real money on the line, are willing to lend funds to the Feds long-term at an inflation-adjusted interest rate of only 1 percent. There is nothing in the markets or the cash flow requiring immediate austerity.
Reason magazine’s Nick Gillespie and Meredith Bragg counter with a familiar litany of massive budget shortfalls at the federal, state, and local levels. They write:
[W]hat should you call a family or a country that spent about 20 percent of GDP for each of the past 60 years while raising less than 18 percent of GDP each year? And that is facing a massive balloon payment (let's call it entitlement spending on Medicare and Social Security) in the not-too-distant future? And has to keep borrowing money just to pay today’s bills? And has no chance of increasing its take-home pay to cover its expenses?
It’s a pretty safe bet that most of us would call that family or country broke. Or something along those lines.
Well, let’s take a walk “along those lines,” shall we?
I doubt Krugman would dispute the overall picture that Reason paints. In fact he concedes there’s a “long-term problem” that will require a “long-term solution.” And Gillespie and Bragg simplemindedly conflate national and family finances. Obviously, no family can budget like a nation-state whose currency functions as the world’s legal tender—and 60 years is an awfully long and unrealistic timeframe in which one family could be expected to sustain an irresponsible spending spree. [See a roundup of political cartoons on the budget and deficit.]
I agree with Krugman that we’re not currently “broke”—in the sense that a family that’s about to become homeless is broke.
Moore is right that we are “awash in cash.” But the Reason writers are correct, too, about that “massive balloon payment” on the horizon. Moore and his thunderous left-populist ilk are in utter denial about this. With grating naivete, they seem to sincerely believe our long-term debt can be erased through tax increases on the rich alone. Honest liberals acknowledge this.
Both sides, in effect, are right.
America is rich.
America is broke.
Our problem is not simply cash flow or future access to international debt financing. Our problem is one of excessive political commitments—commitments, to be precise, made to the elderly. As Fareed Zakaria writes in Time, “the federal government spends $4 on elderly people for every $1 it spends on those under 18.” [Vote now: Should Congress raise the debt ceiling?]
And of those $4, Social Security and Medicare beneficiaries are not paying via payroll taxes nearly what they think they are. According to a recent Urban Institute study (favorably cited by the conservative Concord Coalition):
Medicare costs now top 3 percentage points of GDP and are headed to above 6 percentage points of GDP by 2055. But Medicare taxes and escalating premiums cover ranges from about 51 to 58 percent over time. To pay for the rest, we borrow from China and elsewhere, and use up ever-larger shares of income tax revenues, leaving ever-smaller shares for other government functions. Bottom line: without reform, current workers would continue to shunt many of their future Medicare costs onto younger generations, just as their parents did with Social Security.
This is what it means for a country to be “broke.”