It is one thing to have a disagreement over priorities. It is another thing to think one’s opinions are that of a crackpot or are downright crazy. While RGF and New Mexico Voices for Children certainly don’t agree on much (even they agree that film subsidies are a bad idea though) Nick Estes’ column in today’s Albuquerque Journal is downright nutty.
His premises are twofold: 1) budget deficits and debt don’t matter; 2) trade deficits do matter and are bad. Naturally, he is exactly wrong on both accounts.
See the chart below as a starting point: 
Yes, World War II saw an incredible run-up in the national debt. Thankfully, this was a TEMPORARY situation as the debt was “invested” in defeating Imperial Japan and Nazi Germany. That’s a good investment if there ever was one. Notice what happened to the debt after the War. It went down quickly. Notably, federal spending declined dramatically after WW II which was decried at the time by Keynesians who thought it would plunge our economy into another Great Depression. It obviously did nothing of the sort. Instead, the massive resource shift from war fighting to the private sector economy drove the economic boom of the following decades.
Today’s debt is a result of decades of overspending and the design of our so-called “Entitlement” programs, specifically Medicare and Social Security. As the chart above illustrates, the debt problem will get a whole lot worse, not better, with no end in sight.
Oh, and just because “we owe it to ourselves” doesn’t make indebtedness any less problematic. The problem with debt is not in the debt itself, but the burden it places on those who must pay it back and the potential for default. Remember the housing bubble? “Owing it to ourselves” didn’t make it any less painful. Ever make a bad loan to a friend or relative? Still painful.
Estes’ 2nd point is that trade deficits DO matter. Wrong again. China and other nations with which we have trade deficits are giving us stuff and accepting dollars. When it comes down to it, I’d rather have stuff than dollar bills because you can do a lot more with stuff than those slips of money which are being printed (not bills, but just zeroes these days) by the Federal Reserve. Oh, and Estes is wrong again in stating that China is not the world’s worst currency manipulator. It is actually the USA and Ben Bernake.
UPDATE: If Mr. Estes or anyone from Voices for Children reads this column, I’d love to set up a public debate on these issues, especially the all-important government debt/deficit issue. Any reasonable time, any reasonable place. It would be great to have a public discussion on these issues.
Great rebuttal, Paul!
Try to get it in the Journal, so the masses can digest it.
They need to give me a column to rebut all the left wing garbage that appears on their pages (and the Journal is better than most). Problem is, they only give me one column every few months and this one wasn’t worth it.
Mr. Gessing, you just don’t understand poverty pimp economics. NM Voices for children exists because the rampant poverty in the state allows the non-profit to harp about the danger of free markets (jobs) while they apply for the plethora of federal grants targeted for programs geared toward disadvantaged populations. Nick Estes would be out of a job but the outlook for our nation’s economic health would be better if the federal government stopped borrowing money from the Chinese to fund feckless antipoverty programs (like the one that employs Estes) and pursued policies that instead were designed to stimulate economic growth and eliminate reckless spending and debt.
If he were unemployed, Mr. Estes would be forced to find a job someplace else that gave him a platform to preach the perils of capitalism while advocating for the unfortunate hapless masses living without opportunity in stagnant economies saddled with burdensome debt. I believe the island of Cyprus with their junk credit status might potentially be a good fit for his brand of economic theories. Estes could even establish his own non-profit called “Economics for Cypriots” with his idiotic debt doesn’t matter mantra.
In New Mexico, if we educated kids and produced an educated workforce and attracted companies interested in investing and bringing higher paying jobs to our state, a large portion of our population would cease to be disadvantaged and would perhaps be able to provide for the needs of their children. This would give parents an opportunity to be an effective voice for their own children.
It is intersting that you assume NM Voices runs on federal money. We do not, in fact, have any federal grants, nor have we for many years. The vast majority of our funding comes from private foundations, most of which were set up by free-market capitalists who either wanted to ‘give back’ to the communities they profited from, or understood that, as a country, our economic destinies are linked–that we all do better when we all do better.
And a small correction for Paul–Social Security is not responsible for one penny of the national debt. The trust fund is still flush enough to cover current beneficiaries, and small changes to the income cap would make it stable for many years to come.
Sorry Sharon, Social Security is now “borrowing from the Treasury” which increases the national debt. A program simply can’t spend more than it is taking in and not contribute to the debt.
Paul, The following is pulled from the 2012 report of the Trustees of the Old-Age and Survivors Insurance and Federal Disability Insurance Trust Fund (aka Social Security): “Total expenditures in 2011 were $736 billion. Total income was $805 billion, which consisted of $691 billion in non-interest income and $114 billion in interest earnings. Assets held in special issue U.S. Treasury securities grew to $2.7 trillion.” (Report on SSA website: http://www.ssa.gov/oact/tr/2012/tr2012.pdf)
In other words, the money “borrowed” from the US Treasury was interest income from the money the SSA has been loaning to the Treasury. The $2.7 trillion in SSA assets is SSA money – it does not belong to the Treasury.
This is a bit like “borrowing” from your left pocket to pay your right pocket. How is the federal government paying itself interest? Social Security is either in a deficit situation now or on the very verge of such a situation, one that will get much worse. That is reality.
Outstanding on all counts but the comment about the good investment in WW2.
The Crackpot replies! Most important, my op-ed did not say that “deficits don’t matter.”: It made the distinction between a time like now when the economy is operating hundreds of billions below its capacity, and a hopeful time in the future when the economy is back to full employment. Deficits are the right thing to do now, to replace the demand lost to the bursting of the housing bubble. Something closer to a balanced budget, or maybe even a surplus like under Clinton, would be the right thing in the future, when aggregate demand is enough to employ all our people. This is standard macroeconomics and has been well known since the 1930s.
So the scary chart (also trotted out by Paul Ryan) is totally misleading. Neither I nor any other sensible commentator on this stuff advocates continuing to run big deficits into the indefinite future, producing an ever-increasing debt to GDP ratio as shown on the chart. As mentioned by my colleague Sharon Kayne, Social Security is not contributing to this problem now and would not in the future if we reasonably increase the income cap on the tax. Social Security is expected to rise from 5% of GDP now to 6.2% in ten years, and then stay at that level forever.
The scary future on the chart is entirely due to projected increases in Medicare, Medicaid and other government health programs. But the reason they rise is that the cost of health care on the private market is expected to rise continually. Except for the VA and other small programs, the government just buys health care from private providers. Costs for private insurance have gone up even faster than Medicare, but the reason is the same–it’s an insanely expensive system. Europe provides the same quality health care for half the price. We had sure better learn something from them or we will have a much bigger problem than we have now–Paul’s chart could come true!
Let me also explain why the trade deficit is a coming problem. True, we get “stuff” from foreign sellers; more than they buy from us. True, we give them dollars, registered on computers, in exchange. They get more dollars from us than they give back when buying our export goods and services. But they don’t just stuff those dollars in their mattresses, they invest them in the U.S. — 20% in US Treasury bonds and 80% in private U.S. assets. They expect to get a return on all those investments, just like we get a return on investments we have overseas. At the moment, we get more money back than we pay out, because foreigners are looking for safety and we are looking for high returns. But if we keep up this trade deficit, that difference will be less and less until it’s reversed. Then our kids will have to pay out of their pockets, not to other Americans, but to foreigners. Most conservatives think this is a potential problem (Gov. Romney certainly did) so Mr. Gessing to his credit is showing some real independence in urging us to ignore it. Right on Paul!
Thanks for the reply Nick, I look forward to setting up that debate.
Since I didn’t see a ‘reply’ option on your last post to me, I’m answering you here: The federal government isn’t paying itself interest. It’s paying the trust fund interest—and the trust fund is the savings account that we workers have been paying into via payroll taxes. It’s OUR money. With $2.7 trillion in assets, the trust fund is not in danger of running a deficit for some time. It’s not even in danger of drawing down the principal yet.
Paul, in response to Mr. Estes’ comment, “Deficits are the right thing to do now, to replace the demand lost to the bursting of the housing bubble.” I’ve never understood the idea that demand can be lost. Does a person’s desire to buy something go away, or does the amount of money in that individual’s pocket change? I would argue the latter since human nature does not change. When folks win the lottery or get a raise, they generally spend more. So it is not demand that drives, but the availability of money. So the question should be: What is the best way to get more money in the hands of the consumer? The government could do it, but this method is inefficient and leads to deficits. So the obvious choice seems to be the private sector through lower taxes and regulations (i.e. supply-side economics).
Thanks, very good points. I am working to set up a live debate with Mr. Estes. Keep your eyes out for that!