In a reply to my post on a progressive deficit reduction plan, a commenter suggested that holding Federal interest costs at the rate of .0226 in the coming years would “crush” retirees and savers, and throw them under the bus. Presumably, the commenter feels the same about the possibility I brought up of eliminating interest costs entirely by ceasing to issue debt instruments.
I think good answers to concerns like these about the Government limiting or ceasing to issue debt involve highlighting what other uses there are for the $11.8 Trillion we would save off CBO-based projections. Here’s one argument based on what else we would do with that money.
Not many worker or middle class retirees or savers buy Treasury Bonds, and most dollars borrowed using Treasury Bonds are not lent by working or middle class retirees.
Most of the dollars lent are provided by foreign Governments and wealthy individuals. For them T-Bonds are a safe harbor for some of their money, because there is no risk of loss in buying them. The interest they earn amounts overwhelmingly to unneeded welfare for the rich and foreign Governments who would otherwise have to let their USD sit in their reserve accounts at the Fed.
Since the Government really doesn’t need to borrow to remain solvent, the truth is that forcing it do so, which is what Congress is doing, is deciding that the Government ought to subsidize foreign Governments and wealthy individuals. As I’ve pointed out, this subsidy will cost the Government $11.8 Trillion over the next 15 years.
Alternatively, rather than subsidizing wealthy people and foreign Governments Congress could:
use the average of $787 Billion freed up to pay for HR 676 Medicare for All which provides virtually free health care for all Americans, and they could do that w/o raising taxes.
This move would also immediately reduce Medical expenditures to $1.7 Trillion per year from the current $2.5 – 2.6 Trillion, saving Americans $800 – 900 Billion in medical costs.
It would also end bankruptcies and foreclosures due to lack of health insurance for all Americans. It would also save (most probably) 57,000 fatalities per year experience by Americans who don’t have health insurance. It would also directly create an additional 2.2 million net jobs as estimated by an Econometric Study originally published by the California Nurses Association. It would also create additional yet-to-be-estimated jobs by freeing up private sector money for spending in areas other than medical expenditures. Finally, based on the experience of other nations, and also the fact that even in the US the escalation of Medicare costs is less than the escalation we’re experiencing in private sector insurance, it would also stabilize the increase in the cost of insurance and medical care that deficit hawks and doves think is the primary cause of alarming deficit/debt projections after 2020.
This is only one of the trade-offs the US making by continuing to pay interest when it doesn’t have to pay any. The average $786 Billion per year freed up from the CBO projections can also be applied to converting quickly to an economy fueled by alternative energy sources. We could use the money to subsidize alternative energy development to make energy from alternative sources immediately competitive with oil. Of course, if we were to do that the $700 Billion in oil imports saved would immediately give us a positive balance of trade, cutting our current need for Government deficit spending by roughly 4.8% of GDP.
The more general point here, going beyond this argument is that debt issuance is just another instance of enormous Federal spending for the benefit of the wealthy and foreign nations, while crying poverty when it comes to expenditures for public purposes including benefiting most working Americans. We $11.8 T for interest payments, but we can’t afford Social Security without cutting it. Health Care Reform programs, of course, have to be paid for with tax increases because we have no money. We can’t afford to re-build our infrastructure because we have no money. We can’t afford a Federal Jobs Guarantee Program because we have no money. We have to cut the Food Stamps program to pay for the Child Nutrition program because we have no money. On the other hand, we have an average of $786 Billion per year over the next 15 years to pay for interest on the national debt, and we also have $1.05 Trillion dollars in tax cuts for the rich to give them over the next 15 years.
The argument about crushing savers and retirees is just another convenient trope people use to justify a program that is overwhelmingly one for the rich and powerful. We need to be very wary about these kinds of tropes, recognize them for what they are and immediately call bullshit. Every Federal program needs to evaluated in relation to its public purposes. Every program that is primarily there to benefit the wealthy and the powerful needs to be ended and the money put to other purposes. We have gone on long enough paying “taxes” to the plutocrats. We need now to protect the public purposes of Government fiscal activity and question every expenditure relative to possible trade-off. This is especially true in cases where a particular program is projected to cost 11.8 Trillion over the next 15 years, and make no mistake, our debt issuance activity is a Government program that we can choose to retain or end, every bit as much as Medicare, or Social Security, or HeadStart, or any of our agricultural aid programs. Do we really need this program designed to pay interest to foreign Governments and rich people? Is the amount of money that goes to middle class savers and working and middle class retirees enough to justify the projected 11.8 Trillion cost over 15 years? Does the benefit from that really stack up against the benefit of having Medicare for All?
One of the biggest advantages for people interested in solving national problems through Federal spending is that ceasing to issue debt, would result in paying off our current debt instruments almost entirely within a few years. This would stop all the blustering and chest-beating about the overwhelming financial burden we are leaving for our grandchildren in the form of the national debt. That notion is nonsense, of course, but Government spending without debt issuance would not only save 11.8T in interest costs, but would also shut up all the misplaced bleating about our grandchildren.
The real problem we are leaving for our grandchildren right now is that our unnecessary concern about the size of the national debt is preventing us from spending what we need to spend to solve our national problems. What this foolish concern is doing is stopping us from producing goods and services and leaving a much richer nation for our grandchildren.
(Cross-posted at FireDogLake and Fiscal Sustainability).
