Since I’m still arse-deep in midterms, I missed this excellent piece on the national debt which liberals love to flog as another example of why Bush is so evil. Now, like Megan McArdle, I’m no fan of the Bush Administrations profligate spending policies. I’m much more towards the “let’s drown government in the bathtub” wing than I am towards the “let’s spend like a liberal and call it ‘compassionate conservatism'” wing. As far as I’m concerned, the Bush Administration’s domestic policies have been a mixed bag at best: tax cuts good, spending like a drunken sailor bad. However, McArdle puts some very badly-needed perspective on the idea that our fiscal situation is somehow incomprehensibly dire:
Yes, my friends, that’s right . . . in five years of fiscal mismanagement, the Bush administration has driven us from debt at German levels to a national debt that is . . . 3% of GDP less than Germany’s. Wait, that’s not right. He’s driven us from 13th place in the OECD debt rankings to . . . 15th place. Okay, but look what that means! We’ve gone from a national debt that was a sane, manageable 34% of GDP, to an unsustainable . . . 37% of GDP.
One could argue, of course, that it is moving in the wrong direction, unlike, say, Ireland or Finland. But lots of countries are moving in the wrong direction: France, the UK, Germany, and Japan, to name just a few, have all seen increases in national debt bigger than ours as a percentage of GDP. That’s partly fiscal profligacy, and partly the fact that a smartly growing economy, such as we’ve enjoyed, makes the debt of previous years relatively smaller. Thus the Bush administration has only seen national debt grow by a small amount on its watch, despite running annual budget deficits in the 2-4% range. Yet somehow it is only ever the American budget deficit which is about to bring the national economy to a crashing halt.
That is why it doesn’t make much sense to me to ask about the “trillions worth of debt” we have accumulated. I mean, I’ve accumulated a substantial amount of debt since I was 4. This doesn’t mean I was richer when my income was 25 cents a week. According to the Office of Management and Budget, the amount of debt held by the public has gone from 26% in 1973 to roughly 40% of GDP in 2005–a big increase, but not as big as that implied by “trillions and trillions!”
That reasoning is exactly why even as a fiscal conservative, I don’t get worked up about the national debt. For one, the more important factor is growth: a growing economy will obviate need for making drastic changes now, and the US economy is still more stable than anyone’s. The idea that your grandchildren will all be living on bread crumbs because we spend all the money now is ridiculous mainly due to the fact that the economy is not a zero sum game. The left seems to have trouble with this concept, as it seems to be the tottering foundation upon which their whole economic castle lies. There isn’t a finite amount of wealth, and the amount of debt we have now may be insignificant later on.
McArdle also explains why repealing the Bush tax cuts would be only as likely to do as much good as pissing in the wind, and is quite likely to be more like shooting ourselves in the foot:
If you think that the Bush tax cuts were a gargantuan bonanza to America’s wealthy, it’s a little disquieting to realize that closing the Social Security gap would require an additional tax increase on the top fifth of earners that would be 30% bigger than the Bush tax cuts.
And that’s if you assume that a hefty tax increase wouldn’t cause a single person to work less. I’m no supply-sider, but I accept that there is a decent amount of deadweight loss from taxation. When you raise taxes, some people work less, or arrange to have more of their income in tax advantaged forms (like capital gains, or tax free benefits), or they disappear into the “gray market” of all-cash work. With a tax increase of that size, I’d expect that such losses would reduce the projected revenue increase by somewhere in the neighbourhood of 10-20% . . . meaning that the tax increase required to actually cover Social Security benefits would have to be bigger still.
The problem we have isn’t too low rates of taxation, it’s the huge liabilities generated by our entitlement programs. Social Security and Medicare will bankrupt this country long before any other problems our economy faces presents much of any threat — yet the left has absolutely no desire to touch those particular sacred cows. The Democrats killed any kind of meaningful Social Security reform, and nobody has the cojones to attack the systemic problems with Medicare — and nobody will until the collapse is already well underway.
That doesn’t mean that the Bush Administration should get a free pass on spending, as their spending habits have been simply atrocious. However, at the same time, raising taxes for the purposes of paying down the debt is a complete waste of time, and wouldn’t produce enough returns to justify their economic costs. Moreover, any party that demands the fiscally ruinous idea of mandatory government-paid health care doesn’t have any right to complain about spending in the first place…