Andrew Sullivan responds to Freddie DeBoer’s post on debt, deficits, and “seriousness”:
The current math simply demands either massive tax hikes or massive benefit cuts in the future. Adjusting now will make the future, relative suffering less rather than more painful. And like Megan, I'd like to see the cuts focus on those who are most able to afford it. To use the obvious example: why should we be sending Warren Buffet a social security check?
But my worry is that not only will acting now make the pain more bearable later, but not acting now may precipitate a financial collapse of confidence in the US that would mean far worse misery than the government actually balancing its books. Borrowing to help people now - at the great expense of people later - is not a responsible policy. And financial panics and crises tend to happen with little warning. [Emphasis mine]
If Sullivan believes we’re facing eminent financial collapse, then he needs to actually make the case for urgency. Instead, his blog is a collection of evidence-free, apocalyptic assertions, each derived from his intuition, or something like it.
As it stands, the case for urgency is slim. The 10-year interest rate for Treasury securities remains below 4 percent (3.58 percent as of yesterday), and the 30-year rate remains below 5 percent (4.66 percent as of yesterday). Likewise, as John Irons has noted, rates remain low for inflation-protected securities, which is a useful measure, since it "allows one to look only at the non-inflation component of interest rates -- and thus look more precisely at any shift in default risk.” Since 2003, the 10-year rate for these securities has been low and stable, mostly ranging from 1 percent to 3 percent:
The same is also true for 30-year rates, and both remain below their pre-recession highs.
Obviously, we can’t run debts in perpetuity. But for now, there’s no reason to panic about deficits or the debt. In the short term, economic growth and higher revenue will reduce both. And as I’ve noted before, the Bush tax cuts remain the single largest driver of short-term debt, and repealing them would stabilize the debt for the next decade. In the longer-term, lawmakers will need to slow health-care spending to have any chance at tackling the debt. As Paul Krugman put it, “What would a serious approach to our fiscal problems involve? I can summarize it in seven words: health care, health care, health care, revenue.” If and when the debt becomes a huge problem, the bond markets will put us on notice, and we’ll react, as we’ve done in the past.
I know I’m beating a dead horse, but the real problem is high and persistent unemployment. In addition to the 14 million Americans who are officially unemployed, there are 11 million Americans who have either left the job market, or are underemployed. Together, as Brookings’ Michael Greenstone and Adam Looney point out, “a full 16 percent of the workforce is unemployed or underemployed:”
Pace Sullivan, the most responsible thing we can do is borrow to help people now; debt-financed spending and investment remain the best option for moving the joblessness rate back to its pre-recession levels. For now, budget default is a distant and unlikely hypothetical. More immediate -- and equally terrifying -- is the prospect of high, long-term joblessness, and a permanent underclass of unskilled people. Given the size of our economy, the United States could probably weather a debt crisis. I can’t say the same for a social one.
