A Nation of Moochers (27 page)

And fear-mongering on the deficit may end up doing as much harm as the fear-mongering on weapons of mass destruction.
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As absurd as it was to suggest that a Nobel Prize–winning columnist for
The New York Times
cheering on a Democratic president and Congress had somehow been “marginalized,” Krugman’s comparison to the run-up to the Iraq war was even more inapposite: Whereas the weapons of mass destruction may well have been nonexistent, the debt is all too real and unmistakable. The balance sheets of the government were littered with evidence of its destructive force. This is not a mirage.

Even so, Krugman dismissed concern over this as “deficit hysteria,” declaring that “Washington now has its priorities all wrong: all the talk is about how to shave a few billion dollars off government spending, while there’s hardly any willingness to tackle mass unemployment.”

Underlying Krugman’s case was the belief that deficits were effective in putting people back to work. But by early 2010, it had already become evident that the massive stimulus plan had failed to hold the line on unemployment. Supporters had promised that the massive deficit spending would hold the jobless rate to around 8 percent; but despite the gusher of borrowed cash, joblessness had neared 10 percent and even after the official end of the recession, the job market had continued to be weak despite attempts to spend and borrow our way to full employment. Faced with the demonstrable failure of the spending to deliver the results promised, Krugman’s answer was to spend even more.

Krugman did make a brief, grudging acknowledgment that it was true that “there is a longer-term budget problem,” and he admitted that even a full recovery “wouldn’t balance the budget,” and might not even reduce the deficit “to a permanently sustainable level.” Someday, he admitted, the government might have to “increase its revenue and control its cost,” but not now.
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What his brief admission concealed was the scope of that problem: The fact is that entitlement spending was unsustainable long before the latest binge, which only served to accelerate the ongoing fiscal disaster.

Ironically, it was none other than Paul Krugman, circa 2003 (when George W. Bush was president), who had made that exact point. Indeed, Krugman (along with partisans on both sides of the divide) seems to take a somewhat relative view of deficits depending on who occupies the White House.

The same economist who dismissed worries over a 2009 deficit equal to 11 percent of GDP and a ten-year projection of $9 trillion sounded the alarm back in 2003 when Bush faced a deficit equal to 3 percent of GDP and a ten-year projected deficit of $1.8 trillion. In 2009 he shrugged off deficit fears, but in 2003 Krugman professed himself to be “terrified” and warned that the smaller Bush deficit was a “fiscal train wreck” and a “looming threat to the federal government’s solvency.”
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As the leading proponent of the Don’t Sweat the Deficit movement, Krugman’s own earlier deficit hysteria is worth quoting: “Last week,” he declared back in March 2003, “I switched to a fixed-rate mortgage. It means higher monthly payments, but I’m terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits … we’re looking at a fiscal crisis that will drive interest rates sky-high.” Krugman continued:

But what’s really scary, what makes a fixed-rate mortgage seem like such a good idea, is the looming threat to the federal government’s solvency.

That may sound alarmist: right now the deficit, while huge in absolute terms, is only 2, make that 3, O.K., maybe 4 percent of G.D.P.

But that misses the point … because of the future liabilities of Social Security and Medicare, the true budget picture is much worse than the conventional deficit numbers suggest.…

How will the train wreck play itself out?… My prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt. And as that temptation becomes obvious, interest rates will soar.

… investors still can’t believe that the leaders of the United States are acting like the rulers of a banana republic. But I’ve done the math, and reached my own conclusions—and I’ve locked in my rate.
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Krugman may have locked in his rate, but apparently not his principles.

Dying in Debt

As Krugman backhandedly acknowledges, the exploding debt is being driven by four items: Social Security, Medicare, Medicaid, and net interest costs. Unlike discretionary spending that can be voted on by each Congress, these costs are largely on autopilot and are on target to swallow the federal budget.

The rising level of debt and the increasingly urgent warnings of a “super debt cycle” helped fuel the Republican resurgence of 2010, but Washington’s fundamental unseriousness was exemplified by the appointment of a bipartisan deficit reduction commission whose recommendations were guaranteed to be ignored by both parties. (When politicians want to delay making a decision, they appoint a task force. When they want to avoid making a decision altogether, they name a Blue Ribbon task force or commission.) When George W. Bush called for reforming Social Security, warning that the system would collapse by 2042, Congress brushed him off. No changes were enacted. The doomsday date was still remote and the choices too painful to make in the near term. Politicians simply kicked the day of reckoning down the road to a later Congress and a later generation.

This brings us back to the ways that mooching changes both culture and character. For previous generations the idea of passing along massive debt to future generations was regarded as anathema, an act of not-just fiscal irresponsibility, but also dereliction of a moral duty. But decades of living off borrowed money has taken its toll on the American psyche, even among older Americans who were once known for their sense of financial probity. The extent to which the debt culture has changed the moral landscape was suggested by a survey by a firm called CESI Debt Solutions, which found that even retired senior citizens were running up credit-card debt for vacations or medical expenses, “and a surprising number have no intention of paying it off before they die.” The survey found that as many as four out of ten retirees had added to their credit card debt “and aren’t worried about paying it off in their lifetime.” Some of them rationalize dying in debt as a way of sticking it to greedy banks. A vice president of CESI explained: “They think, ‘Hey, I’m not going to pay back these guys who ripped off America.’”
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In the end, of course, they will pass the debt along either to their children or to other consumers.

The Bank of Our Kids

In his comic novel
Boomsday,
Christopher Buckley imagines a revolt by the ripped-off young against a self-indulgent generation of boomers. The novel’s heroine, Cassandra, finds that despite her years of study and admission to Yale, she is unable to afford college because her daddy has squandered her college fund; she enlists in the army instead. Cassandra’s revenge comes a decade later when she uses her blog to foment generational revolution, complete with uprisings at golf courses where the white-haired geezers are living out their golden years at the expense of the debt-ridden members of Generation Whatever. The book’s title refers to the day when millions of baby boomers begin to make the transition from taxpayers to tax receivers, or as Cassandra puts it pithily: “Mountainous debt, a deflating economy, and 77 million people retiring. The perfect economic storm.” Ultimately her solution is, well, the ultimate solution: a system of “voluntary transitioning,” which encourages the elderly to go quietly into the good night without bankrupting the country.
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But no one is going quietly and the debt bomb isn’t going away; we are too addicted to spending our children’s money. Debt is, after all, the great enabler of spending.

Deficit spending makes every spending decision easier because it postpones hard choices and encourages politicians to do what they do best: spend Other People’s Money without the other people figuring out that it is their money. At some level, everyone knows that there is no free money; even moochers know they are also the mooched upon. But no one wants to be a sucker, and even moochers can convince themselves they are somehow coming out ahead in the blizzard of criss-crossing dollars. Shifting the costs onto future generations is an essential part of the formula.

Would politicians be quite so ready to spend $60,000 an hour of tax money on Air Force One photo ops or $3.9 million rearranging office furniture at the Securities and Exchange Commission headquarters if they knew they would have to give the bill to living voters?
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Would it be as easy for the government to spend $92 billion on corporate welfare, or $200 billion on lightly used and money-losing high-speed trains, if the bill was handed to taxpayers before the next election? In fact, high-speed trains are a perfect example of the allure of free money mooched from nonvoting future generations.

The Obama administration has already made a $10 billion down payment on a flashy plan to build “high-speed” rail corridors across the nation. All told, the price tag on the plan could reach $200 billion. “What would we get for this huge investment?” asks economist Robert Samuelson. “Not much. Here’s what we wouldn’t get: any meaningful reduction in traffic congestion, greenhouse-gas emissions, air travel, or oil consumption and imports.
Nada, zip.
” Even though it has somehow “become fashionable to think that high-speed trains” will help save the planet, Samuelson notes: “They won’t. They’re a perfect example of wasteful spending masquerading as a respectable social cause.”
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But across the country the argument for the trains essentially boils down to: Take the money or someone else will. States are pitted against states and cities against cities; they’re encouraged to compete with one another for a chance to spend money we don’t have on projects we don’t need. None of that would be possible without the ability to shift the cost onto future generations.

This is true across the board.

Between 2000 and 2010, overall federal spending grew 62 percent faster than inflation. Discretionary spending rose 79 percent faster than inflation; antipoverty spending rose 89 percent faster than inflation. Since 2000, Medicaid and food stamp rolls have exploded with costs and benefits also exceeding inflation. Under the Bush administration, federal spending increased to 20.9 percent of GDP. Even as the recession took hold, the government revved up its spending to a post-WWII record of 24.7 percent of GDP. Officials project a slight dip, but then a surge of spending to 26.5 percent of GDP by 2020.
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The only way this is possible is to charge it to the Bank of the Kids.

Optimists have suggested that the next generation can avoid fiscal Armageddon by simply growing the economy. But while the economy, as measured by the GDP, is estimated to grow by $34,258 per person in the next forty years, the public debt will grow by more than $250,000 per capita.
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We can’t grow ourselves out of this one.

Where will the money have gone? We’ll have spent it on shiny new trains, on farm subsidies and television converter boxes, corporate bailouts and our retirements and health care. Think of it as the Mother of all Mooches.

Part Six

WHAT’S FAIR?