Solving our deficit and national debt problems
By Dr. Mark Edelman and Dr. Barry Flinchbaugh
© Copyright Agri-Pulse Communications, Inc.
Edelman: Professor, I can remember a decade ago when as a late baby boomer, I goaded you about our government's annual deficits and national debt that had been growing since the 1960s. You used to say don't mind junior, the debt amounts to a fraction of our Gross Domestic Product (GDP) which is a measure of our economic activity. Well, what do you say now that the national debt has grown to 62% of our GDP?
Flinchbaugh: Well times have changed. It is impossible to solve overnight. It took us half a century to create the current circumstances. It is important first to recognize the principle causes so that we as a nation can address those - instead of treating symptoms that won't make a difference. Treating the symptoms can even make matters worse because the politicians claim they solved the problem when they really have not done anything that amounts to a hill of soybeans.
Edelman: Well, the bi-partisan Debt Commission calls it the “looming fiscal crisis” and the “moment of truth.” If the government borrows too much, they say it makes it more expensive and difficult for entrepreneurs and businesses to raise capital, innovate, and create jobs. Without jobs, unemployment remains high and consumer spending which accounts for 70% of the GDP will be choked off.
Flinchbaugh: Mark, have you been sipping something with the “Tea Partiers”? You sound like you are hollering that the sky is falling and that draconian cuts are needed. That will result in large layoffs and create a double dip Great Recession. We are just now getting some positive signs in the overall economy and agriculture remains strong, so the worst thing that can happen is for the Tea Partiers to get all of the cuts that they have asked for. We need to separate the short term from the longer term problems. We never will solve the deficit and debt issues if our economy goes back into a recession or depression and stays there for the next decade. Also the current level of debt at 62% of GDP is partly due to depressed economic activity during the last three years of recessionary conditions.
Edelman: So, we ought to worry more about staying out of recession during the current recovery than solving the deficit and debt problems? I agree, all of the “Cut, Cut, Cut” fanaticism has re-spooked the consumers. Many are starting to worry about their jobs again and some have never found a job since unemployment rose the first time in 2009. Red meat consumption tends to decline as economic woes rise. If the consumer confidence index falls dramatically, it's a sign that they are starting to cut back on consumption spending, which drives the economy. In economics, what people believe to be true - regardless of the facts - often happens as a self-fulfilling prophesy.
Flinchbaugh: Let's cut to the chase. The Debt Commission basically spent 65 pages to tell us the deficit and debt are growing problems requiring some attention. To avert a fiscal crisis, we must put our financial house in order. That can only be done if we address the four 3rd rails of politics: Medicare, Medicaid, Social Security, and Defense. All other solutions only treat the symptoms and don't solve the problems. So far in the debate, few political leaders have been willing to publicly mention the main solutions, let alone address them.
Edelman: So the longer term causes of the deficit and debt problems are a consequence of fighting two wars in a decade and providing more entitlement benefits in Social Security, Medicare and Medicaid than we can afford. I used to harp on this in the 1990s because we have a long-term structural demographic mismatch. We have gone from having 16 workers in 1950 paying into Social Security for every person who receives benefits, to the present where we have three workers paying in for each person receiving benefits. Plus, people are living more than a decade longer. The Debt Commission provides projections that within a couple of decades, we will hit two workers paying into the fund for every person receiving benefits. Most of the healthcare costs are spent during the last few years of life. As someone who has three young adult children entering the workforce and trying to make ends meet, doing nothing is not what I would call leaving the world in a better place for future generations.
Flinchbaugh: That's right. And that's why it is a cruel hoax to suggest the problems can be solved by cuts in all the other discretionary areas, like food programs, farm programs, or earmarks without addressing the four root causes of the deficit and debt problems. Faulty thinking like that won't solve the problem, but can very likely put us back into a recession or worse.
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