Deficit of Mass Destruction

January 5, 2011

Our national leaders are telling us that the national debt is a grave and gathering crisis akin to the weapons of mass destruction that justified our invasion of Iraq.  Members of Congress assure us that we are going to leave a mountain of debt to our children.  Talk radio hosts terrify the public with the prospect that the Chinese may call in our loans and drive the country into bankruptcy.

Underlying all these scary stories is the assumption that the national debt is like family debt.  Talking heads are telling us that the government must learn to live within its means just like any American household.  Of course, the housing crisis demonstrated that neither American households nor American corporations are living within their means, but let us leave that issue aside.  The important point is that national debt is not like a family’s debt in two important respects.

First, the national debt is uncollectable.  A household’s debt is, in the last analysis, collected by the government.  The legal system enforces the contracts on which debt is based.  If you default on your mortgage, eventually the sheriff will throw you into the street and the court will give the bank possession of your house.   However, there is no international court that can, for example, give China possession of California.

Second, the government can raise its income at will by charging more for its services.  A family breadwinner cannot simply give himself a raise, but the government can simply raise taxes.

The important question is not the level of the national debt but the reason for the borrowing.  If the debt finances education or infrastructure that pays for itself in increased productivity, it is constructive.  If it finances tax cuts for the rich or give-away programs for the poor or middle-class, it is unsustainable and we must pay for it by decreasing spending or by increasing taxes.

Why then are our leaders trying to persuade us that we are facing a crisis?  Like the supposed threats that led us to invade Iraq, the debt crisis is mostly a sales pitch.  National leaders are doing the bidding of their large contributors.   They are trying to persuade us that what we need is austerity and not higher taxes on the rich.  But this is a hard sell because the rich can very well afford to pay.

According to Professor G. William Domhof‘s article “Wealth, Income, and Power” 20% of the U.S. households own 85% of the nation’s wealth and the top 1% own 35% of America. Furthermore, the wealth concentration is increasing.   In 1960 the average CEO made 42 times the pay of the average factory worker. By 2000 the CEO was making 531 times the worker’s salary.

The promoters of the China will soon own California hysteria want to persuade us that there is a debt crisis and that cuts in government spending offer the only solution.   To a modern Machiavellian this sounds like a variation on the age old theme of the oligarchy versus the populous.  Will the public accept cuts in services to fix a phony crisis while the rich get richer?  Improbable, social unrest is a much more likely response.


One Response to “Deficit of Mass Destruction”

  1. […] Party is promulgating the idea that there is a deficit crisis that demands immediate action, a deficit of mass destruction. While the S & P rating concerned the long-term, and focused on political issues, press […]

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