Wednesday, March 31, 2010

Debt and the Deficit

In the video linked in the post below, Pam Stout reminds us that a big reason that the Tea Party came into being was a sense of dread over the size of the national debt and deficits. At just the right moment Donnald B. Marron puts this into scholarly perspective with pictures in National Affairs. (As an aside, those, like Letterman, who complain that the Tea Partiers weren't active when Bush was President, should notice how much worse the trends are under Obama.)

First, to help me get your attention I offer two graphs from the article.

Obama towers over his predecessors.

Obama - Up, Up and Away!

Unfortunately, voters still aren't paying attention and don't seem to care about the impending disaster. However, just as a Republican might have won the 2008 Presidential election if they had listened to Rasmussen and positioned themselves on economic issues, so now, Republican candidates could start winning, and positioning by taking on the debt issue. More from Mr. Marron:

Before we can hope to make a dent in our deficits and debt, there must be broad agreement among the public and the governing class that we even need to. There are still some commentators on both the right and the left who continue to insist that deficits and debt do not matter much. It is important to understand why they are mistaken.

Running deficits can certainly be appropriate — and even beneficial — at times of particular stress, such as wars and recessions. But in the long run, persistent large deficits and growing debts undermine our nation's prosperity.

He goes on to point out seven key reasons why long term deficits and debt hurt the United States. Summarizing:
  1. Debt undermines growth by crowding out investment.
  2. Debt fuels inflation, a hidden tax and destroyer of wealth.
  3. Foreign holding of our debt gives them leverage to negotiate in other areas.
  4. Use of shorter and shorter term debt puts interest rate risk on the budget.
  5. Rising debt limits our ability to raise money to combat a new crisis or our ability to go to war (not always a bad thing I guess.)
  6. Due to the magic of compound interest, debts grow on their own. Especially when you are financing current operations out of debt.
  7. We're screwing our children and grandchildren. (Marron uses the PC "intergenerational fairness.")
This is why we should applaud Jim Bunning for his insistence on pay-go. This is why we should mock every stimulus boondoggle. This is why we should demand an end to earmarks. This is why we should demand less spending everywhere. This is why we need to get the Democrats out of the majority in Congress and Obama out of the White House.

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