April 12, 2013--Debt

There is a great deal of misinformation in circulation about debt. It intensified two days ago when President Obama presented his budget "blueprint."

In it he calls for an additional $1.4 trillion in debt reduction over the next ten years; but at the end of the decade, the U.S would still have to borrow hundreds of millions annually to balance its books. This debt, however, is not necessarily a bad thing.

Republicans in Congress, in any case, are up in arms, ignoring the fact that Obama conceded in advance significant cuts in Social  Security and Medicare--outraging his supporters on the left. Speaker of the House John Boehner, raced to the microphones to condemn Obama's proposals, even though they are the kind of budget cuts for which Republicans have been clamoring. Once again we are seeing that whatever Obama proposes, even if it is a Republican idea, once he proposes it, GOP leaders, in knee-jerk fashion, rise to oppose it.

But one thing Boehner said in opposition is striking in its ignorance of even personal economics--he said, that like families, the government should be required to pay its bills on time and not go into debt.

If we expect families to ante up, pay all their bills on time, and not go into debt--as Boehner insists--our economy would be devestated.

Pretty much every American family is in significant debt--mortgages are debts, car loans are debts, student loans are debts; and all of these debts are essential to fueling a modern, vibrant economy. If everyone was required to pay cash for a house, car, or college education, the housing industry would collapse as would the auto industry. In addition, perhaps half the students currently enrolled in college would be forced to drop out.

Debt, as it was thankfully invented centuries ago, is what enabled our form of capitalism to develop because unless individuals, businesses, and national economies are allowed to borrow money, we would still be living in a subsistence, barter economy.

I doubt that Speaker Boehner or Congressman Paul Ryan would like to see that. They might like to roll the clock back to the good-old-days, but not those old days.

Yes, neither governments nor families should be wasteful and roll up irresponsible levels of debt, just manageable ones. Ones that can be afforded. Our deficits are too large and thus our national debt has been growing at too rapid a pace. But in the judgement of most credible economists, our national level to debt if viewed as a percentage of GDB is still manageable. But to be cautious and wise we should be prudent and chip away at it.

During the Obama years, with Republican help, the annual budget deficit has been cut nearly in half; and if his proposed blueprint is given careful consideration (don't hold your breath), it will be cut much further. So let's cool the partisan rhetoric and get to work.