the budget

Please Stop Helping Mitch McConnell Lie About the Deficit

A man who is sad that your grandmother isn’t poorer. Photo: Andrew Harrer/Bloomberg via Getty Images

The Republican Party has spent much of this year warning voters that Democrats want to get the government’s hands on their Medicare. The party’s House candidates have savaged Nancy Pelosi for passing (fictional) cuts to Medicare benefits, while President Trump recently “wrote” a column on liberals’ insidious plan to take government health care away from the elderly by giving it to everyone else.

This was always going to be a tricky gambit for the GOP. Simply put, it’s hard to convince people that they can only trust you to protect their entitlement benefits, when you’re also arguing that taxes must never be raised; military spending must never be cut; and the budget deficit is a threat to our grandchildren.

And the difficulty of that maneuver is compounded by the fact that some Republican officeholders can’t quite keep the cat in the bag. Specifically, GOP incumbents (who aren’t currently up for reelection) often feel compelled to demonstrate their seriousness by lamenting the failure of both parties to unite around the common goal of increasing elder poverty. On Tuesday, Mitch McConnell indulged this impulse in an interview with Bloomberg News:

Senate Majority Leader Mitch McConnell blamed rising federal deficits and debt on a bipartisan unwillingness to contain spending on Medicare, Medicaid and Social Security, and said he sees little chance of a major deficit reduction deal while Republicans control Congress and the White House.

“It’s disappointing, but it’s not a Republican problem,” McConnell said Tuesday in an interview with Bloomberg News when asked about the rising deficits and debt. “It’s a bipartisan problem: unwillingness to address the real drivers of the debt by doing anything to adjust those programs to the demographics of America in the future.”

… “I think it would be safe to say that the single biggest disappointment of my time in Congress has been our failure to address the entitlement issue, and it’s a shame, because now the Democrats are promising ‘Medicare for all,”’ he said. “I mean, my gosh, we can’t sustain the Medicare we have at the rate we’re going and that’s the height of irresponsibility.”

On one level, McConnell’s disingenuousness is obvious — so much so, that Bloomberg gently undermines the Majority Leader’s claim to fiscal probity by highlighting the Trump tax cuts’ impact on the deficit (last year, McConnell claimed to believe that his $1.5 trillion tax package would actually pay for itself).

But McConnell’s broader narrative is superficially plausible; and has, in fact, been the common-sense view among “objective” beltway pundits and reporters for some time now. Which is to say: A lot of very serious people believe that cutting Social Security and Medicare benefits is a fiscal necessity — but a political nightmare — and thus, both parties have a moral responsibility to unite in opposition to the plebians’ wishes, and take money out of the pockets of the old and infirm.

Bloomberg’s article does little to contest these assumptions. And yet, they’re no more credible than McConnell’s insistence that cutting Charles Koch’s taxes increases federal revenues.

The claim that Medicare and Social Security are unsustainable — as a matter of simple demographic and fiscal math — proceeds from (at least) four false premises.

1) America’s current levels of public debt are dangerous and unsustainable.

In the wake of the Great Recession, the United States decided to prioritize economic stimulus over deficit reduction (over Mitch McConnell’s furious objections); most of Europe took the opposite tack. Time has vindicated the Keynesians.

Over the past decade, the U.S. has put well over $10 trillion on the national credit card — and bought ourselves rates of economic growth, unemployment, and inflation that have been the envy of the Western world. Donald Trump’s decision to push through another round of deficit-financed stimulus — near the ostensible peak of an expansion — was widely derided as irresponsible. And certainly, the regressive structure of his stimulus was lamentable; but the decision to forgo belt-tightening is looking pretty good. Running the economy hot has pushed the unemployment rate down near record lows, while bringing many Americans back into the labor force, and thus, increasing our economy’s productive capacity. Meanwhile, our borrowing costs have remained minuscule.

To state the should-be-obvious: The U.S. government is not like a household because it can print its own currency. And unlike, say, Venezuela, our currency is backed by a vast and dynamic economy — while our public debts are primarily owned by our own citizens. This makes our debt an exceptionally safe investment, in a world growing ever more crowded with savers desperate for a secure place to store their wealth. For this and other reasons, racking up $21 trillion of debt hasn’t prevented America from continuing to borrow money at near-zero interest rates. And there is little reason to expect those rates to spike rapidly at any point in the foreseeable future. Currently, America’s debt is equal to a little over 100 percent of its GDP. Japan, meanwhile, has debt equal to 250 percent of its GDP — and can still borrow money at virtually no cost.

To see our nation’s current level of indebtedness as an urgent crisis, one must presume that our borrowing costs could skyrocket at any moment — and send the nation hurtling into debt spiral. But as Paul Krugman recently explained, this story is less plausible today than it was ten years ago:

The usual scare story about debt warns about a debt spiral: deficits mean higher debt, which means higher interest payments, which means bigger deficits, which means faster growth in debt, and so on until confidence collapses. But this kind of debt spiral can only happen if the interest rate on the debt is higher than the economy’s growth rate.

And this hasn’t been true for a while. Here’s the average interest rate paid on federal debt:

2) America cannot significantly increase legal immigration.
McConnell’s entire narrative is rooted in the idea that the U.S. won’t have enough prime-age workers to support its retired population due to demographic changes that Congress can do nothing about. But this is patently false. As President Trump so often laments, there are a lot of working-age foreigners who would love to immigrate to our country, if we’d open our borders to them. To no small degree, our nation’s demographics are a policy choice.

3) America cannot significantly reduce its military spending.
The United States does not need to run balanced budgets. But it does have real resource constraints. It is true that we cannot cut taxes and increase spending forever, without eventually triggering unacceptably high rates of inflation. But popular support for America’s current levels of military spending is much weaker than for the maintenance of entitlement benefits at their current levels. And our nation’s military budget is far more aberrantly expensive (relative to other countries’) than our safety-net programs for the elderly are. No budget “math” dictates that the Pentagon’s funding cannot be cut, but that aid to seniors can be. It is an ideological assumption, and objective news outlets should not allow politicians to present it as anything else.

4) America cannot afford to increase taxes enough to sustain a welfare state comparable to those in other advanced democracies.
America’s tax level, as a percentage of GDP, is much lower than most of its peers in Western Europe, as is its level of social spending. To say that our existing safety net is so generous, it cannot possibly be sustained by tax rates that are compatible with economic growth, is to deny the existence of Scandinavia. Again, this is an intensely ideological claim, not a factual one.

In fact, as Democrats on the Senate Budget Committee recently illustrated, if you subtract the past 18 years of tax cuts, and increases in defense war spending, from Uncle Sam’s tab, this year’s $779 billion deficit becomes a surplus.

All of which is to say: Deficit hawks are not entitled to present their austere ideology as incontrovertible truth. If there is an entitlement crisis in the U.S. today, it is that the “objective” press believes that they are.

Please Stop Helping Mitch McConnell Lie About the Deficit