Friday, January 21, 2011

Business Political Power: The Federal Debt and Entitlements

The conservative business community perpetually puts out massive propaganda on these two subjects that is misleading. We may review each of these two subjects separately:

The Federal Debt

The standard business propaganda is that government spending (for domestic, civilian, purposes) is "excessive" and leads to huge public debt that must be "paid back," and this means a "crushing burden" on "future generations."

This is misleading in several respects:

(1) This leaves out the subject of military spending.

(2) Whether government spending leads to debt at all depends on whether the spending is matched by taxation.

(3) A public debt is not fully analogous to a private debt. A private debt in the singular is a single contract. But a public debt is composed of millions of individual debt securities. If the debt is not to grow, the interest must be paid out of taxation, not out of borrowed funds. But the principal can be refunded indefinitely; governments routinely pay off old securities by floating new ones. There is no legal obligation to "pay back" the total principal. Governments, however, have a practical interest in paying down the principal in order to reduce the interest burden on the government's budget.

(4) A substantial part of a public debt is typically an internal debt, so that payments on this part of the debt go to a nation's own citizens and own financial institutions. This part of a public debt is thus a circular process within the nation, and is no "burden" whatever upon the nation, with the exception of the administrative expenses, which are an infinitesimal fraction of the total outstanding debt.

(5) Where part of a public debt is an external debt, this is a different situation. Payments on this part of the debt go to foreign individuals and institutions. The tax liability to make these payments is, indeed, passed on to future generations as an unearned liability. But future generations also inherit wealth from present generations, which are, by and large, unearned gains. Business propaganda routinely cites one side of the ledger without citing the other. This is the reverse of the accounting used by the Enron corporation, which cited assets but concealed liabilities.

All of this business propaganda has been highly effective in deceiving large sectors of the American public, and thereby creating unwarranted hysteria about public debt and thus--the main aim--generating popular hostility toward governmental activity for social purposes.

On the other hand, there are serious issues connected with the public debt of the U.S. government. It has spiked upward for reasons in addition to Keynesian action against the recent recession, namely two wars in Iraq and one long war in Afghanistan, all fought essentially without raising taxes. In future decades, for demographic reasons, the terms of the Social Security system will have to be revised, though there is no economic imperative whatever that precludes expanding its scope. As the American population ages, medical costs will continue to rise, and there will be growing pressure to confront the reality that the American system for delivering health care is inefficient in the extreme.

Entitlements

A standard theme of business propaganda is that "we cannot deal with the federal debt until we tackle entitlements." The question, however, is which "entitlements"?

There are, in fact, large reductions in government spending that could be made without affecting basic welfare purposes. The following point to a few examples:

  • The U. S. military establishment is larger than the military establishments of all other nations combined; it should be reduced.

  • A far more efficient, and less individualistic, system for delivering healthcare should be adopted.

  • The tax deductibility of mortgage interest, as a universal policy, should be abolished.

  • The subsidy for corn ethanol should be abolished.

  • Dozens of public four-year universities across the nation admit and retain students who are unprepared for college, not only in academic background but also in motivation, because university administrations are maximizing, not genuine education, but their budgets--by inflating enrollments; this is utter waste that should be ended.

  • There are countless government programs, and vested interests behind them, that deserve re-examination.

Contrary, however, to the central aim of business propaganda, there is no economic necessity whatever that precludes expansion, even large expansion, of entitlements that, among other purposes, equalize access to healthcare, post-secondary education (for qualified students), and decent housing located in socially decent neighborhoods, or expand the scope of the social-security system, even to a universal system covering the entire population--so long as the tax level is adjusted accordingly.

* * * * * *

The questions, then, are what parts of American society are to bear the burdens (1) of the austerity involved in paying down the U. S. external debt and (2) of any expansion in domestic social programs.

Business propaganda holds that "we" cannot afford to do both. Yet the slightest glance at the American scene reveals mansions springing up in the countryside, luxury town houses, luxury apartments, and luxury restaurants in fashionable locations, yachts in marinas and in residential yacht slips, and wealthy gated communities--all reflecting high living by the upper middle classes and wealthier groups. Much of our private spending is on luxuries and trivia. Moreover, the United States has attempted to manage its social problems with one of the lowest overall tax levels of any advanced industrialized nation.

It is the perpetual aim of the conservative business community, and of America's great business oligarchy, to keep burdens off the affluent parts of American society and on the lower classes by blocking governmental activity that improves their basic conditions for a decent life.

Measured by civilized purposes, that oligarchy is a predatory and oppressive interest, which should be removed by a socialist transformation, of the type proposed above.

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