Atheist Goes Political, vol. 3: Recession, Recovery and National Debt

Video:
http://www.youtube.com/watch?v=H-mLdFUphis

            And then we have the national debt.  Most people, unfortunately, don’t understand the ramifications of having a country in debt.  You see, US debt is measured in increments of $10000 dollars.  One such increment is called a bond.  When one has $10000 to spare and decides to spend it on a bond, that $10000 is called the “principal.”  For other bonds, the duration may be longer or shorter, but for US gov’t bonds, it’s ten years.  That is what’s called the “maturity period;” that is, the period between when the principle is first put in and when it is paid back and the bond officially “matures.”  Each year in between, that bond pays $1000 to its holder.  Now where do you suppose that money comes from?
            The taxpayers of course.  Every $10000 of US debt costs the taxpayers $1000 per year.  That’s money which could be spent on Pell grants, public works projects, paving roads, or laying out new electrical, communication, or plumbing infrastructures.  Instead, it goes into the pockets of US bondholders.  This is part of the reason that the world’s wealthiest country can no longer afford to keep its roads paved.
            So what if someone happens to have $4 million dollars?  Well that someone has the option to buy enough of these bonds to generate $400,000 a year.  That’s $400,000 of passive income every year.  $400,000 of money flowing out of the pockets of US taxpayers into the pockets of US bondholders just for being bondholders; debt-holders.
            If we dichotomize US taxpayers into those who are wealthy enough to buy US gov’t bonds and those who aren’t, we find that one of the two is getting a free ride at the expense of the other.  When the poor get money for not doing anything and it’s barely enough to sustain their existence, it’s called “welfare” and this has all kinds of negative, freeloading connotations, but when the wealthy get money for not doing anything and it keeps them in luxury, it’s called “bonds” or “financial wisdom” or “fiscal responsibility” or something along those lines and this has all kinds of positive connotations.
            But the fact is, if you’ve been following me so far, you now understand enough about US gov’t bonds to use them yourself this way if you have enough money.  This is not difficult to understand.  Therefore, success in this particular market is less a measure of the intelligence one has to begin with and more a measure of the capital one has to begin with.  Thus, this is just one of many ways in which those who have lots of money are more able to make it than those who don’t even if their intelligence is greater.
            As it stands now, our national debt is $14 trillion.  That’s one trillion, four hundred billion tax dollars every year going into the pockets of US bondholders.  In a country with a population of a little over 300 million, that costs each of us almost $5000 per year.  Think about that.  That’s $5000 of your money which could be applied to educational spending or infrastructural spending or scientific research, which instead is going specifically to help the very wealthy get wealthier.
            Toward the end of Clinton’s presidency, we, as a nation, had been generating a surplus for several years.  That means that we had actually been bringing in more in tax revenue than we had been spending.  When a nation is as in debt as we were, that’s a wonderful thing, because every year of surplus is a year in which the debt is just a little lower than the year before.
            The economy was also doing very well.  The GDP was soaring.  The national unemployment rate was 4%.  4!  In every major city, and most of the minor ones, it was nearly impossible to find a retail chain whose biggest promotion did not include the words “Now Hiring.”  Two words one saw in the news every week were “labor shortage,” which is basically economic jargon for a situation with more jobs than employees.  This made it kind of a drag anytime one went shopping for anything other than a job, but given a choice between a national labor shortage and a job market with dozens of people competing for each opening, which would you rather have?
            So the middle class and the working class had virtually no difficulty finding work, GDP was showing annual growth, and the national debt was showing annual reduction.  The sweeping majority of the people in this country were very well off with this situation.  The very wealthy, on the other hand, weren’t so happy about it, of course, because this surplus was generated mainly by taxing them.  They remained quite wealthy, but of course, there’s no such thing as “wealthy enough.”  They knew, of course, that they would be wealthier if these taxes were cut, so they started concentrating on getting someone into office who would cut them.  Enter Dubya and a favorite Republican lie by omission.
            “We must cut taxes!  Cut taxes!  Cut taxes!  Cut taxes!”  Right off the bat, Bush commenced to pontificate about how, after several years of surplus, “...it’s time to start giving money back to the people.”
            “We must cut taxes and give money back to the people.”  Sounds wonderful, doesn’t it?  The thing is, though, when a Republican in public office starts talking about the importance of cutting taxes, one must ask “For whom?”  When a Republican in public office starts talking about the importance of “giving money back to the people,” one must ask, “Which people?”  This is because, all too often, when a Republican talks about “cutting taxes,” he or she means “for the wealthy,” and when this Republican talks about “giving money back to the people,” he or she means “the very wealthy people who happen to be funding my campaign and furnishing me with kickbacks.”  These details, of course, are omitted.
            If the situation Clinton had established could have been maintained, the national debt would have continued to decline, GDP would have continued to climb, the subprime mortgage bubble would never have formed in the first place, let alone popped, and we would not still be paying 10 years later for the mistake of electing Bush.
            Now let’s not lose sight of one key fact here.  Even during Clinton, the very wealthy continued to get wealthier, just not at the expense of the middle class and the working class.  The only people not benefitting from Clinton’s presidency were the few who slipped through the cracks here and there, and we were still managing to generate a surplus and reduce the debt every year.  Even health care expenses were on the decline, because in the interests of competing for employees, companies negotiated competitively with healthcare providers.
            But no.  The time to start “giving money back to the people” does not come after just a few years of surplus.  It comes after the national debt is all paid off; a goal we would be much closer to now if not for Bush.
            Now look at how much of our debt is being held by the likes of China?  China is a big US bondholder.  That’s not just money we owe.  That’s money draining out of one country into another.  This is why we need to concentrate on getting this debt paid off; on getting this drain plugged.  The last time we made any such progress, Clinton was president, and we managed it by taxing those who actually had money to burn.
            If you need water, you don’t look in the middle of the desert.  Likewise, if you need tax revenue to help pay down the national debt, you don’t tax people who don’t have any money.
            So how do we make progress in generating enough revenue to pay down the national debt?  Well let’s see.  We could tax the poor, but they don’t have any money.  We could tax the working class, but in order to generate enough revenue to make a dent, we would have to leave them poor.  We could tax the middle class, but there we run into the same problem with just a slightly deeper dent.  We could tax the wealthy, but the Republicans and the blue dogs won’t let us.  So instead, we remain in debt and money continues to flow out of the pockets of taxpayers and into the pockets of bondholders, which means that bondholders don’t exactly have a reason to support efforts to reduce the debt.
            The real impudence of this is that Republicans insist on blaming this situation on Obama.  It’s true, one of his first acts as president was a huge stimulus package, but this was the only option left to him to get the economy moving again after the Republicans wrecked it.
            Whether an economy is officially in recession or recovery is determined by the Gross Domestic Product (GDP).  This economic indicator is officially defined as a measure of the worth of all the goods and services sold within the economy in question in the period of time in question, but I prefer to think of it as a measure of the amount of money circulating—being spent—within the economy in question.  Not the amount present; the amount being spent.  All the money in the world has no effect on anyone, positive or negative if it isn’t being spent; if it isn’t circulating; if it isn’t being used to foster trade.
            You see, the money in your pocket right now is valuable to you because you are able to exchange it for goods and services that you need and/or want.  But the whole reason this exchange is possible is that the money is likewise valuable to the parties you buy these goods and services from.  The whole reason it is valuable to them is that they too can use it to buy goods and services from other people who can use it to buy goods and services from other people, and so on, and so on.  Every time one of these transactions takes place, every time a certain sum of money is used to buy a final good or service, that trade gets counted in GDP.  That’s what I mean by the amount of money circulating.
            Most of the time, when one of these exchanges takes place, it is to the mutual benefit of both parties, and it opens the door for other exchanges that are to this mutual benefit.  Money freely circulating within an economy makes these trades possible.  The extent of that circulation is measured in GDP.  When GDP declines, it means that less money is circulating, which means that fewer such mutually-beneficial exchanges are taking place.  If your customers suddenly aren’t earning as much money, it means that they’re not buying as much from you, which means you’re not making as much from them, which means that you, likewise, aren’t earning as much money, which means that you are not buying as much from others, which means that they, likewise, are not earning as much from you, and so on.
            When this process begins, like it did with the bursting of the sub-prime mortgage bubble in 2007, it precipitates a decline in GDP.  When such a decline continues for at least two sequential quarters, then we have what is officially recognized as a recession.  It remains a recession until the GDP has started growing again.  So if we are going to get the GDP growing again, we have to encourage the spending of money within the economy.
            The money being spent within an economy comes from four sources: net exports, investing, consumer spending, and government spending.  When Obama was inaugurated, all of our trade partners were in recession as well, so clearly, we could not count on more spending from net exports.  The stock market and the bond market were both in rapid decline which meant no consumer confidence for investors, so clearly, we could not count on more spending from investing either.  Prospective consumers were losing their jobs left and right, so consumers were pinching their pennies, worried that they would be next, and clearly, this meant that we couldn’t count on more GDP growth from consumer spending.  The only option remaining was government spending, so that is the option that Obama and the Dems exercised.
            Perhaps they held some hope of paying for it by taxing the wealthy, but when the tax legislation was due to expire and the Dems wanted to enact new legislation concentrating the tax cuts in the middle class and the working class instead, the Republicans in Congress held that legislation hostage, filibustering it until the Dems agreed to extend the Bush-era tax cuts for the wealthy.  So here we had a situation of increased gov’t spending and decreased taxes all around, resulting, of course, in increasing national debt, which meant more bonds ready to be bought by the well-to-do to funnel our tax dollars into their pockets.
            It is not Obama’s fault that he exercised the only option remaining to him to get the economy moving again.  It is his credit, rather, that this move took an unemployment rate that was skyrocketing and leveled it off.  Since then, the unemployment rate has had the occasional uptick, but overall, is slowly on the decline.  Unfortunately, especially given population growth, this figure always declines more slowly than it rises, and the Republicans have been seizing on this.  Unable to criticize Obama for costing jobs, except when dealing with people in no possession of any facts, they have to be content, instead, to excoriate him for adding them slowly in spite of the fact that this is still a great deal better than Bush could manage.
            Indeed, many of them allege “zero job growth.”  If this were true, it would still be a vast improvement over Bush.  Zero job growth is still better than negative job growth.
            Here’s a rhetorical question for my viewers to consider.  How come, every single time someone brings up tax cuts for the working class and the middle class, the GOP insists that they have to be paid for by cutting something, but never when it comes to tax cuts for the wealthy?  How come only one of these needs paying for?