With government offices shut in observance of Veterans Day, I again commend last week’s Stand Up For Heroes concert linked to Friday. I happen to love the Max Weinberg Big Band that kicks it off, but if you skip ahead to minute 54, you get a short video of what some of our veterans have to deal with … and if you skip to minute 58 you get to meet a marine so badly burned he’s had to undergo 55 surgeries — and be inspired by his spirit. Oh — and there’s guitarist John Mayer, Pink Floyd’s Roger Waters — and did I mention Bruce Springsteen?
In case you’re off today and have good speakers attached to your computer, have at it.
Here’s the thing to remember as we seek a balanced approach to a sustainable fiscal future. Well, three things to remember:
First, we need to get our National Debt growing — in most though not all years — slower than the economy as a whole. If we do that, then over the decades to come we’ll shrink the Debt relative to the economy as a whole just as we did from 1946 through 1980, when we gradually lowered it from 121% of GDP back down to the same 30% it had been before the onset of the Depression and World War II. (In 1980, we elected Reagan/Bush, whose tax cuts overshot and quadrupled the Debt; and then in 2000 George W. Bush, who quickly squandered the Clinton/Gore surplus, leaving Barack Obama with a $1.5 trillion deficit. And a roughly 100% ratio of debt to GDP. And an economy in such terrible shape that the only sensible thing to do was — and is — to incur yet more debt, in the short run, to get it moving again.)
Second, that means we can still run a deficit in most years, especially since some of the things the government spends on are quite legitimately long-term investments. In human terms, it’s the difference between borrowing to buy groceries, which are consumed within a week, and borrowing to build a house, which may provide shelter for 100 years. If over the next 70 years our economy typically grew by 2% in real terms and a further 2% for inflation — 4% nominal annual growth — but the deficit grew at just 2.5% a year, then by 2082 our economy would have grown more than 15-fold but our debt less than 6-fold. It would have shrunk significantly relative to the economy as a whole. And 2.5% of our current debt is about $400 billion. So it’s not a balanced budget we need to get to every year, or even most years (unless we want to stop making investments in the future); it’s a budget within perhaps $400 billion of balance.
Third, and mainly, if we bend down the projected long-term cost of entitlements — by for example (among other things) keeping 62 as the early-retirement age for Social Security but allowing the “full benefits” age, currently slated to top out at 67 in 2027, to keep rising by one month a year to, say, 70 in 2063 — then, by proving to ourselves and the global financial markets that we have righted our financial ship, we may well see confidence restored, economic growth enhanced . . . and a prosperity so robust that even before any of the entitlement cutbacks kick in, Congress can repeal them. And start sweetening benefits again. But first we do need to get our financial house in order. This is in everyone’s interest. The sounder our economy, the better it will be able to support the kind of social safety net, and other social services, most of us would like to see.
Note that the revenue enhancements do need to kick in right away. So income above $250,000 does need to be taxed more (as it was before George W. Bush came along and threw things wildly out of balance). Right now. For real. But the entitlement cutbacks don’t need to kick in for at least 10 years, so long as they are agreed to now. And my point is that, by the end of those ten years (or maybe it will have to be 15 or 20), we may well be in a position to repeal the cuts! Even before they take effect! Certainly there will be tens of millions of voters urging that; and a Congress that — like any Congress — would prefer to give than rescind.
It makes no more sense for us liberals to be intransigent on entitlement reform than for conservatives to dread the 28% Reagan capital gains rate or the Clinton 39.6% ordinary income rate.
Or for anyone to believe that we need to “balance the budget” — let alone “pay off the debt.” We just need to have the debt growing slower than the economy.
Quote of the Day
That I'm their competition.~Famed hedge fund manager Michael Steinhardt, when asked the most important thing an investor could learn from him.
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