April 29 2013
Debt Deniers: Economically Impaired or Political Cowards?
Today our national debt is $16.77 trillion and growing. About $7 trillion has been added in the last 5 years. On top of money we have already borrowed, our current policies have us on the hook for another $123 trillion in “unfunded liabilities” or promises made to recipients of Social Security, Medicare, and other entitlements.
For the first time ever in August 2011, the credit rating of the U.S. government was downgraded from AAA to AA+.
But a story in today’s Politico highlights a growing group of Democrat lawmakers who deny that the United States is facing any debt trouble. These debt-deniers don’t believe any action is necessary to change course. A trillion dollars in annual deficits seems a-okay to them.
To the average person, this is mind-boggling. If I were to go on spending more and more money each year than the money I earn, eventually I would get into trouble. In fact, I would take action in the near term to limit my spending or seek greater earnings.
That’s what the debt debate has boiled down to so far: Conservative lawmakers have stressed the importance of limiting spending, and liberal lawmakers have argued for tax increases. But now it seems there is a third group: the debt-deniers.
It’s possible that this group truly sees no problem with large debt. Politico points to recent critiques of the “Reinhart-Rogoff” study, once considered empirical evidence that high debt harms the economy:
Perhaps the biggest new weapon handed to intellectuals and Democrats who argue against more austerity-style budget cuts came in an obscure but critically important academic argument that has unfolded in wonk circles in recent days.
A trio of scholars at the University of Massachusetts Amherst poked major holes in one of the foundational documents of the austerity movement, the 2010 paper Growth in a Time of Debt by Harvard economists Carmen Reinhart and Kenneth Rogoff. Their study suggested countries with public debt over 90 percent of gross domestic product suffer much slower — even negative — economic growth.
The University of Massachusetts scholars, led by graduate student Thomas Herndon, found that Reinhart and Rogoff excluded instances of countries with high debt and normal growth and made a critical error in their Excel spreadsheet, which skewed results to make high debt seem more of a threat. The scholars found that growth in countries with debt over 90 percent of GDP was around 2.2 percent, not much different from lower debt countries.
Perhaps now is a good time for a reminder that social sciences, like economics, present observational opportunities that are very hard to measure or extrapolate. Reinhart-Rogoff never suggested that high debt caused slower growth, but their study did suggest the two were associated. And they were not the only ones: The Congressional Budget Office, the Federal Reserve, and the OECD have all agreed that high debt is correlated with economic slowdown.
But it’s also possible that these debt-denying Democrats are simply playing politics. They know the debt may come to haunt us, but they fear that “austerity” isn’t popular. No one really wants tax increases, and many Americans oppose extreme reductions in spending that could be disruptive to the economy.
The good news is that when the debt debate is presented in honest terms, Americans favor so-called “austerity” more than you might think. Independent Women’s Voice recently produced new messaging research that shows Americans support a federal budget “freeze” and important money-saving entitlement reforms.
Americans want to get spending under control – more than 50 percent of respondents in our Control group of swing voters support a spending freeze. And while trying to fight specific spending is a challenge, one message stands out as particularly helpful in generating support for broad spending constraints: speak in terms of “just spending the same” next year as we did this year, just like a family facing financial concerns would do. Directly addressing the spending issue in language that is analogous to a family budget increases support for a budget freeze by nearly 14-points (from 51-65 percent).
Those closely following budget debates know GOP plans focus on slowing the rate of growth, rather than actual reductions. But the typical citizen finds reports about reducing “rates of increase” confusing. And such technical budget talk leaves conservatives vulnerable to demagoguery from the Left about severe “cuts.”
IWV’s research, however, found that talking about saving entitlements for future generations was effective in driving up support (from 51 to 57 points) for a spending freeze, in addition to increasing support for serious entitlement reform policies. A message that clearly articulates the extent of the entitlement problem and positive ways of addressing it boosted support for means-testing both Medicare and Social Security by 8-points, from 44 percent in the Control group to 52 percent.
Politicians from both parties are wary of the “austerity” label. But the truth is, most conservative efforts to limit spending have not actually proposed cuts, but slower rates of spending increases. Surely, that is something that even debt-deniers can get on board with.