Understanding the ‘debt problem’

Updated
Understanding the 'debt problem'
Understanding the 'debt problem'

Glenn Thrush and Reid Epstein’s Politico piece on President Obama’s “debt problem” helps capture a lot of what’s wrong with the larger debate and the political establishment’s confusion about fiscal matters.

President Barack Obama won’t be able to enjoy much of a victory lap from his win over congressional Republicans on the fiscal cliff fight.

There are about 16.4 trillion reasons why.

The staggering national debt – up about 60 percent from the $10 trillion Obama inherited when he took office in January 2009 – is the single biggest blemish on Obama’s record, even if the rapid descent into red began under President George W. Bush.

For insights, the piece quotes the head of the right-wing Club for Growth, far-right activist Grover Norquist, and a Democratic economist saying Obama has to “deal with his own left wing.”

Sigh.

I realize the political establishment is uncomfortable with large deficits and a massive debt – though oddly the discomfort only seems to emerge when there’s a Democratic president – but it’s worth remembering a few truths from time to time.

First, when there’s a global economic crash, and the government needs to invest to rescue the economy, large deficits are good, not bad, especially when borrowing is cheap and easy. Had the president focused on reducing the $1.3 trillion deficit he inherited from Bush/Cheney, instead of job creation and economic growth, the recession would have intensified, and yet, too many reports simply accept it as a given that higher deficits are worthy of condemnation.

Second, under Obama, as the economy started to improve, the deficit started to shrink anyway. Though the political establishment usually ignores these details, the deficit is $300 billion smaller now than when the president took office – marking the fastest deficit reduction since the end of World War II.

Third, Obama keeps pushing massive debt-reduction proposals on the table, as well as all kinds of policies that shrink the deficit (health care reform, cap and trade, Dream Act), but Republicans have opposed all of them.

And then finally, there’s the simple matter of what, exactly, is driving the nation’s budget shortfall.

For Politico, the fact that the national debt is nearly 60% larger necessarily makes this a major “blemish” on the president’s record. This only makes sense, of course, if one assumes that a larger debt is a bad thing – and given the circumstances, it’s not – and that it’s Obama’s policies that are responsible for the increase.

But as we’ve discussed before, that’s simply not the case. The facts are incontrovertible: towards the end of President Clinton’s second term, debt clocks that had been established in various U.S. locations had to be shut down – the deficit had been eliminated and the clocks had never been set to run backwards. By the time Clinton left office in 2001, the nation not only had a large surplus, it was also on track to pay off the entirety of its debt – roughly $5 trillion at the time – by the end of the decade.

Then the Bush/Cheney era happened. Republicans took a massive surplus and turned it into an even more massive deficit, adding the costs of two wars, two tax cuts, Medicare expansion, and a Wall Street bailout to the national charge card.

Sen. Orrin Hatch (R-Utah) later referred to the Bush/Cheney era as a time in which Republicans decided “it was standard practice not to pay for things.” In just eight years, GOP policymakers added $5 trillion to the debt in eight years.

But then Obama was just as reckless, right? Wrong. The key takeaway here is that it’s Republican policies, not the president’s agenda, that’s driving the national debt now and into the future.

Understanding the 'debt problem'

I’m also a fan of this image, put together by the New York Times, which provides context the Politico piece did not.

Understanding the 'debt problem'

The underlying point of the Politico piece is that conservatives are correct about every aspect of the debate: the debt is a real problem, Obama deserves the blame, and it’s up to the White House to put things right. There’s ample evidence that this is entirely backwards – economic growth and job creation are the problem, Obama’s making things better, and with negative yields on Treasuries, we should be borrowing more, investing more, and leaving deficit reduction for a later, healthier time.

Politico and Debt

Understanding the 'debt problem'

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