Anyone who attempts to justify the last 5 years of national fiscal management immediately steps into my line of fire. How anyone can say squandering a national budget surplus, an increase of 38% in the total national debt, a voluntary war and decreasing government revenue to pay for that war is a good thing is beyond my comprehension. So, when
Nick Danger at Redstate attempted to do just that, he immediately proved to be not only an enemy of sound fiscal policy, but of logic and reason as well.
Before I get to the meat of his argument, I want to address his most obvious fallacy - at least for anyone who knows how to read a webpage.
There are what Democrats call tax cuts, and what the rest of us must still call tax rate cuts even if revenues have risen.
Mr. Danger. Please go to the following link. It is from the Congressional Budget Office. Scroll down to table 3. The first column is the amount of individual tax receipts for various years, which are organized chronologically for ease of viewing. You will notice that for the years 2001-2004, the individual receipts were 994.3 billion, 858.3 billion, 793.7 billion and 809 billion respectively. Perhaps it is just my being a Democrat who is uninitiated in Republican math, but 858 is less than 994 and 793 is less than 858 and 809 is only slightly more than 793.7. It sure looks to me that the tax cuts decreased revenue. As a comparison, note that in 1998 individual receipts totaled 826 billion. It also looks like the tax revenue after the tax cuts for the rich were still less than those in 1998 when tax revenue was higher.
On to Mr. Danger's main argument:
Here is why we take on debt: He who has the cash makes the rules. If we have the cash, we get to say how it's spent. Remember, money is power. It is a force you squirt at the world to make it change. We drive the change, when and where we want. What the foreigners get is a debt instrument. They are passive investors. Those are the best kind. This is especially important with respect to China. China is accumulating massive amounts of our debt. Good. Better that than they should have the cash, which they would probably spend on things that we would think are scary. Every dollar we can get them to loan us another dollar they don't have for building battleships. Bush understands this. Too many people don't
Let's take this one step at a time.
If we have the cash, we get to say how it's spent. Mr. Danger's argument is that by getting in way over our heads, we get to direct the cash flow from floating debt. So, let's see how this money is spent to make sure we're getting our money's worth.
Iraq - where the insurgency is obviously in its last throes - has had nearly 250 fatalities in the last week. 1 billion dollars recently went missing from their defense ministry. Our main enemy there has used the American presence to unite our enemies against us. If this is a success, then we are in deep trouble.
I was going to ask someone who recently spent 5 pleasure filled days at the Superdome how they felt about FEMA's allocation of money, but all of those people are hard to find.
I was going to ask a state official how he felt about the money spent for no child left behind, but he wouldn't comment because of a pending lawsuit. It involves something about lack of money.
I was going to ask someone how they felt about the new prescription drug plan that was going to lower the cost of prescriptions, but everyone was mad about the second rate increase.
Better that than they should have the cash, which they would probably spend on things that we would think are scary. Every dollar we can get them to loan us another dollar they don't have for building battleships: You're a tricky one Mr. Danger. You brilliant leader's plan is to slowly siphon off China's excess money so they can't build a military. First and foremost, Mr. Danger is advocating a policy of international extortion where the US will pay countries to not develop a military. Mr. Danger is forgetting that bonds have this thing called interest - usually a semi-annual payment of money the borrower pays to the lender for using the lender's money. For some reason, I don't think this is a good policy. Secondly, the US would have to sell a hell of a lot bonds to the Chinese for this to be a truly effective policy. According to the CIA factbook, the Chinese spend approximately 4.3% of their GDP on the military. To make a meaningful dent in Chinese military expenditures, we would have to sell enough bonds to China to sufficiently dent the remaining 95.6% of their GDP to make it painful to build a military. That's a lot of bonds. Thirdly, and most importantly, his argument assumes the Chinese are willing to forego military spending to purchase US government obligations. That simply does not make any sense at all. If they want to build a military, they will find a way because from their perspective, it is in their interest.
Our children are not going to have to pay it back. Institutions are not individuals. For our purposes, institutions are immortal. If some of their debt comes due, they simply roll it over. They can do this perpetually. IBM probably has debt on its books that's been there since the 1920's. It's been rolled over several times. No one cares. So long as IBM sees opportunities for investing cash that return more than the interest rate, they will never pay the debt back... they'll just keep rolling it over. And then the Sun burns out. This can be a difficult concept for non-finance-types to understand. But it is crucial to understanding what's going on here. So long as the U.S. economy keeps growing... so long as we have opportunities to invest cash in ways that earn a higher rate than we have to pay in interest... we should keep rolling over our debt, and adding more as we can, forever. All these people who moan about the chillrun do not understand this game. The chillrun aren't going to pay it back. They don't have to. They're going to roll it over, and add more of their own. As will their children. Until the Sun burns out.
First, creditors love it when you say: "we're not going to pay you back."
Mr. Danger, it is you who don't "understand the game." You see, while you are technically correct about the way corporations handle their debt there is one big difference between a corporation and a country. Corporations don't issue their own currency.
You see Mr. Danger, there is this thing called Mr. Dollar. He is our friend. We use him to buy and sell goods. It's a whole lot easier than bartering Mr. Cow for Mr. Horse. Everyone likes Mr. Dollar until people lose confidence in the country that makes Mr. Dollar.. Then a big problem happens. Mr. Dollar loses value relative to other currencies like Mr. Yen and Mr. Euro. When this happens, Mr. Central Banker raises Mr. Interest Rates to protect Mr. Dollar's value in the international currency markets. Or Mr. Trader sells Mr. US Treasury Bond because Mr. Trader worries about the fiscal sanity of people who issue Mr. Dollar. This means it is more expensive to borrow Mr. Dollar. When this happens the Mr. Economy slows down, and sometimes Mr. Recession comes to visit. If Mr. Dollar drops a lot and Mr. Central Banker is a fool, Mr. Inflation comes from other countries to visit. And that hurts Mr. Consumer.
The reality of Mr. Danger's exercise in intellectual stupidity is he can't accept a simple fact: his president, a Republican who is supposed to stand for fiscal conservatism, has engaged in the most reckless fiscal policy of any president in the history of the United States. Mr. Bush has alienated allies, lied to the American people about the reasons for going to war, presided over the worst Post WWII economic expansion, squandered a revenue surplus that could have been used to repay debt and a few other things. The only thing constant about Bush's presidency is he consistently screws things up. And the true-blue, "Republicans until they die" supporters are having a very difficult time dealing with Bush's absolute failure and incompetence. As a result, they are stretching logic and justification beyond absurdity, into the twilight zone of reasoning.
In a way, I almost fell sorry for them. Well, not really.