Borrowed Time

Continuing with the Styx theme, one song stands out in thinking about the chaos in Washington surrounding the negotiations on raising the debt ceiling.

In their 1979 triple Platinum album Cornerstone, one of the best songs was “Borrowed Time,” co-written by Dennis De Young and Tommy Shaw.   The song was supposedly a reflection on the US in the late seventies, but more poignantly it predicted the path the country would take the next thirty years.  The lyrics read, in part:

“I had my car, and I made the scene
Didn’t give a damn about no gasoline
They can go to hell
My friend we never thought about the world
And its realities
The promised land was ours
We were the Great Society

I’m so confused by the things I read, I need the truth
But the truth is, I don’t know who to believe
The left say yes, and the right says no
I’m in between and the more I learn
Well, the less that I know
I got to make a show
Livin’ high, living fine
Livin’ high on borrowed time

When this song came out, the US debt to GDP ratio was 30%.   Our debt as a proportion of GDP would double to 60% by 1990 as the Reagan Administration infamously claimed “budget deficits don’t matter” and created the appearance of prosperity through deficit spending.   Given that oil prices were going down as well, people thought things were going fantastically, especially when the Soviet Union fell and the US won the Cold War.

In the 90s the current account deficit, which also started growing in 1981 (basically meaning that we were borrowing from foreigners to finance our consumption) rose to new heights as the US experienced the bubble.    Much of that was also an illusory economy, but at least the budget was balanced.   After 2000 the borrow and spend mentality continued, the current account deficit grew, and these imbalances finally exploded into a deep recession in 2008.

Thirty years of living high on borrowed time, and now the politicians and the public demand a quick fix.   There isn’t one.   We’ve been living beyond our means for thirty years.   Even when the federal budget was in balance, private borrowing was soaring (and the private sector is no better than the government in this regard — public debt is about 80% of GDP now, private and public is near 400% of GDP).    We consumed on credit, even as we as a nation were producing less.  Consider this analogy:  what if you as an individual were burning 2000 calories a day, but consuming 2100?

It might seem like your eating wasn’t out of line; 100 calories is half a candy bar.   But in 15 years you’d find that your weight would have gone from 175 to 320.   In 30 years you’d be up to 470.   You’d experience massive health problems and you’d find your excess of 100 calories a day — a tiny snack — yielded tremendous problems.   There would be no quick fix, you’d have to eat less and exercise more to lose weight, and it would take awhile.

The problem is the same with us — we have to spend less and increase revenue to get our budget under control, and find a way to produce more while consuming less.   That’s what a recession forces you to do, there’s no escaping it.   To blame Obama for not “fixing” this (or to blame it all on Bush) misses the point.   We’ve done this to ourselves as a society, the politicians can no more bail us than a doctor can undo decades of overeating.

Here’s a tidbit from the Washington Post:    “In 2001, revenues were at 19.5 percent of gross domestic product and spending was at 18.6 percent of GDP. That was our surplus. In 2010, revenues were at 14.9 percent of GDP while spending was at 23.9 percent. That’s our deficit: Revenues are down and spending is up.”

As we argue about whether or not to raise the debt ceiling, note how we’ve decreased taxes and raised spending at the same time.   I gave this graph last year, but it’s worth repeating

In the last thirty years most of the wealth gain has gone to the top 1%, gaining 281%, while the top 20% gained a total 0f 95%.   The middle fifth and lower (60% of the population) did not gain enough to keep up with inflation.   Moreover, as graphs posted last December show, the US tax system is the least progressive in the industrialized world.  Our wealthiest are the richest in the world, while our poorest are in the same category as Greece or the Czech Republic.    Finally, tax increases do no more harm to the economy than spending cuts; in fact, since money that would be gained by tax rate hikes otherwise often go to buying foreign goods or paying down loans, cutting spending hurts the economy more than tax increases do.

So it’s a no brainer.   The wealthiest, who have had their taxes cut dramatically in the last 30 years, and who are taxed a historic lows, and lower than in any other industrialized state, have the capacity to pay slightly higher taxes to help us deal with the budget crisis and getting our house back in order.    The Republican refusal to allow any kind of tax increase is based on fantasy.   It’s like a religious belief of their base that taxes are always bad.  Sometimes, you need to raise them.   If Democrats have to accept that some of their programs need to be cut, well, Republicans have to accept that the rich might pay a little more in taxes.   Even with Obama’s proposals they’d pay less than in other industrialized states, and less than Reagan’s tax proposals back in the 80s.

So as the fiasco continues, as the negotiators try to prevent financial meltdown, the House Republicans are acting like petulant children, sticking their lips out and saying “we’ll never cut taxes, we don’t want to compromise, you have to do it our way.”   House Speaker John Boehner has been more adult, but he doesn’t seem to be able to control his party.   He’s like the dad in the station wagon screaming to the kids to behave but they ignore him.   Cantor is like the mom taking the kids side, leaving the poor dad unable to control the situation.   No wonder the public gives Congress such low rankings!

This crisis is a bipartisan creation.   30 years of economic imbalances won’t be solved overnight.   Adults have to make compromises and sometimes do what they don’t want to do.    The Democrats will have to make cuts, including entitlement reform.   Republicans will have to accept tax increases on the wealthy.   Americans will have to learn that you can’t live 30 years on borrowed time and not have difficult adjustments to recover.

  1. #1 by classicliberal2 on July 14, 2011 - 21:57

    “Adults have to make compromises and sometimes do what they don’t want to do. The Democrats will have to make cuts, including entitlement reform. Republicans will have to accept tax increases on the wealthy. Americans will have to learn that you can’t live 30 years on borrowed time and not have difficult adjustments to recover.”

    I continue to strenuously object to the use of the phrase “entitlement reform” to describe ruinous cuts in the relevant programs, without any consideration given to what sort of cut is a good idea. That’s not “reform.” Chopping up those programs is EXTREMELY unpopular–we’re talking 75%-80% or more of the public opposed to it. One can argue people aren’t being realistic–that’s always a potential problem in a democratic society–but their feelings are very clear on this. To stand against that strong a public sentiment, there should be strong arguments to counter it. In this case, there simply aren’t.

    Why, for example, chop up Social Security, a program that is so remarkably successful, in the name of reducing a debt to which it doesn’t contribute a single penny? Because a small minority is grossly overrepresented in a single body of congress? That’s not a basis for sound policy. Cutting government spending, which increases unemployment, is completely irresponsible in the current economic climate. Increasing taxes on the wealthy and Big Business as a means of deficit reduction, on the other hand, has just as strong or stronger public support as does opposition to cutting Social Security, yet we’re unable to do so because, again, a small, fanatical minority has seized a share of government power wildly disproportionate to their actual numbers, and doesn’t like it? Not sound policy. You, yourself, make the case above why its sound policy to let those who have gotten all of the benefits of the last decades pay more, and the rest of the case–the most important part of it–is that no one else can afford to pay much more.

    They could pay a little more. Allowing the Bush income tax cuts to expire, across the board, would have meant a fortune in restored revenue, but, for most people, it would only amount to a few extra dollars a week in taxes–few, except those at the upper end of the income scale, would have even noticed (this is something people tend not to understand). We are, in any case, taxed at an historically low level right now, and have been for years. The present huge deficit is almost entirely the result of a combination of a severe downturn in receipts as a consequence of the economic downturn, and of a continuation of ruinous and stupid Bush policies by the present administration. Leaving Iraq by the end of the year and Afghanistan even sooner, if possible, would help. Ripping the guts out of Bush’s welfare program for the pharmaceutical industry would help. An improving economy, tied with some sound policy like an increase in taxes on those at the top and a refusal of any significant cuts in other spending,[1] will do the rest.

    But that would make sense, so there’s little chance of it.


    [1] Realistically, military spending, which eats up half of the discretionary budget, could be halved, once forces are withdrawn, and the economy begins to improve. These cuts would increase unemployment, as well, but not as badly as cuts to other parts of the budget (the military is the least efficient category of expenditures in the government).

    Left Hook!

  2. #2 by Scott Erb on July 14, 2011 - 22:12

    I say entitlement reform to differentiate it from simply cutting it. There could be creative ways to try to make sure that changes do not actually do harm. I don’t mind increasing the retirement age (they’re doing that all over Europe) — life expectancies have dramatically increased over the years. I think we could look to restructuring health care even more — greater use of Physicians Assistants, increased hospice and even home hospice care, etc. I don’t support any specific plan, I just think the reality is both sides have to give some.

    I think we should give up super power pretensions and have a saner budget for national defense. Halving military spending is an option. I also agree that the “welfare program for the pharmaceutical industry” should be cut.

    And you do make a point that is really driving me crazy in the GOP rhetoric. They harp about how tax increases hurt the economy, but don’t seem to understand that spending cuts do the same thing. In fact, spending cuts probably have a more harmful effect on economic growth and job creation than do tax increases. I don’t see how the GOP can get away with that line — I wish we had a more economically literate public.

  3. #3 by Norbrook on July 15, 2011 - 03:14

    One of the things that has been apparent is that raising the taxes on the wealthiest does not hurt the economy, but has the opposite effect. One of the most drastic failures was the idea of “trickle down” economics, or “supply side.” One of the key beliefs in that was that by cutting the tax burden on the wealthy, they would turn around and spend and invest more, increasing the opportunities (and wealth) for the lower levels. Instead, they apparently sent the money elsewhere, and sat on it here. So in terms of “increasing the economy” and so on, while it may have done wonders for China and other countries, it’s been the opposite for this country’s middle class.

    I also wish we had a more economically literate public. Actually, I wish we had a more literacy in civics. There was a recent poll in which some 40-50% of Medicare and Social Security recipients stated they didn’t use “government social programs.” Which is stunning, since both of those are government social programs. Economically, it’s obvious, just doing simple math, that you “can’t get there from here” with the deficit if you’re just talking spending cuts. You have to raise revenue as well. Sometimes it takes a threat to something that the people actually value to get that message across. For example, I’m pretty sure Texas, Kentucky, and South Carolina (to name three of the more prominent Tea Party Republican states) would have absolute conniption fits if the military bases in those states were closed to balance the budget.

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