Minor edit w/strikethrough indicating original text on 6/25 AM.
In no way do I think that the role the Federal Debt plays in our economy is a good thing. Increasing debt benefits creditors, and that means it makes life harder for working people. Our current arrangement, increasing the Federal debt in the context of long-term reduction of tax liability of the very wealthy, benefits creditors and makes life harder for working people. That's not a good thing. Everyone should be clear that Democrats, by playing the role of the "sensible" party as regards the debt ceiling, are sensible on the system's terms. Raising the debt ceiling will allow for the smooth functioning of a system that is set up to benefit capital, not labor--not you and me. Raising the debt ceiling is the preferable option only because the consequences to not doing so will harm working people more, in terms of life conditions, than it will the very wealthy.
The important question one can ask is: "why are we in this mess?" I would myself say that the mess is capitalism, not just the debt, but we can go with just the debt. The short answer is that the United States has continually ran up its debt for decades because those with more money--more capital--than they know what to do with have funded it. Indeed, they have required our debt.
We've had, not just in the United States but worldwide, a stagnating economy for decades. The problem for the extremely rich, not just rich people but rich institutions, like central banks, etc., has been a lack of, to them, sufficiently profitable opportunity for investment. If you're sitting on a ton of cash you want to earn something, and stay secure, you invest in T-Bills. Nothing about our economy--the big Federal Debt included--can be understood outside of this long-term historical context.
Here are the important data:
This is from a 2002 article, but the long-term trend remains the same and, indeed if we remember that the late 2000's witness the 2008 collapse and its aftermath--how could we forget?--the trend if anything is exacerbated if one tacks on a decade.
So, what do we see? We see marginally diminishing growth in the decades following 1970. People could get rich in that context, but it was marginally more difficult given that marginally diminished overall growth.
The post-WWII period, marked by relatively high growth, witnessed the developments of, in hindsight, relatively generous social programs and the growth of reformist trade unions, which exchanged the demand to control production for high wages and generous benefits, relative to what came before and what would come after. All of these were in themselves positive developments, but they were developments that at some basic level capital was willing to tolerate given high general rates of growth.
Come the 1970's and lower growth rates, this rapprochement between capital and labor ended, although it took decades for the moderate left to realize it.
Capacity utilization is the key variable for us now. The economy can grow at this point without building new capacity. Capital has no incentive to invest in the productive economy as long at capacity is so underutilized. Again, these numbers stop in 2000: the point is that the problem we face now is not a new one, but a long-term issue. Bush II is not to blame for making the mess, only for taking the structural problems inherent in the system to their logical conclusion.
What is that logic that Bush II merely followed? It's capitalist thinking, which is like alcoholic thinking, only with money. An alcoholic thinks only of how that first drink will bring him or her that familiar sense of ease, not of how by the end of the night he or she will black out and drive the car into a ditch. So is it with capital: it's about the quarterly report.
As the post-WWII economic boom, based on pent-up demand from the Great Depression and physically diminished capacity in Europe and Japan because of the War's destruction, ended by 1973, capital developed a few new rules, while keeping the old one of profits above all. In no particular order:
- Do not use the state to stimulate growth fiscally: that money goes to workers. Use monetary policy, or easy credit, to do so, because that money goes through banks.
- A corporate tax cut is an increase in profit. Political contributions to tax cutting politicians should be seen as a business expense with a very healthy rate of return.
- Worker insecurity varies in direct proportion to the ability of capital to control labor. Strong, healthy, happy workers are out.
There are problems with the above three, which we are living today. As living standards for working people declined since 1973, the engine of real
economic growth--consumption--weakened. That consumption could be stimulated by credit, as was the policy, but at some point a last bender would happen, people would wake up on their floor realizing their debt had become unmanageable, and stop asking for an increase in their credit limits. This happened in 2008.
In the intervening years, though, as putting workers in developed countries to work ceased to be a systemic goal, wealth polarized. As the exceptionally rich--again, not just people but institutions, became exceptionally richer, they needed somewhere they could increasingly stick their capital in large quantities as low risk. The T-Bill filled that function. No risk and a consistent rate of return meant that your super-profits would stay profits. Capital needed this outlet to function smoothly.
I would reiterate that I don't think that this is a good way to run an economy. We are in a position where some on the left-of-center, because House Republicans are making what is for at least some of them a credible threat to refuse to raise the debt ceiling, are reactively and uncritically advocating an increased debt ceiling. Because Republicans say x, we say -x. The debt ceiling will be raised, surely, and the President will not concede much if anything, because this is so systemically important. The Boehners understand this, if the Rand Pauls don't.
Two things, though, come through with this that bear mentioning. First is that the Republican Party, were there need of further evidence after Bush II, has entirely lost the plot of governance. They are a purely discursive entity at this point. There is a rhetorical point to be made that sounds "truthy," to borrow from Stephen Colbert: the government should be responsible and live within its means, because that's what responsible people do. It appeals to a certain sector of the electorate, and this serves the Party electorally and members of the Party individually, as it gets people hyped up for your speaking events and you can raise your fees. Indeed, it is clear that the Republican Party exists at this point to raise speakers' fees for Republican politicians, because they are in this case pursuing a policy goal that will not make the super-rich richer, which historically has been the Republican policy agenda. They are a political discourse without a material politics.
This brings us to the second thing worth mentioning. If, again, any further evidence were needed, this shows us a Democratic Party that at root serves the objective interests of those who benefit most by the system. The function of the Federal debt is to give those people and institutions a safe haven for the profit they got off working peoples' backs. That last is no hyperbole: that's how it works, and though it doesn't get said often it's still true. In the short-term, a failure to raise the debt ceiling would indeed harm working people the most, through economic crisis. What is lacking at this point is any indication that the Democratic Party would put forward policy based on any different assumptions than those that created the situation in the first place.