Also see "The old-fashioned Debt and Entitlement Charade."
Janine Jackson: The announcement that one agenda item for the final presidential debate would be "debt and entitlements" was not surprising. "Debt and entitlements," linked together that way, are always on corporate media's agenda, and but though the terms are tossed around a lot,they're rarely unpacked or explained. In place of facts, we fetch horror. The Chicago Tribune said if they could inject one debate question, or it would be: "Secretary Clinton,Mr. Trump, you believe children. Why aren't you scared?"
Well, and Americans face many serious challenges. Are runaway national "debt and entitlements" one of them? We're joined now by Dean Baker,co-director of the middle for Economic and Policy Research, where you'll find his blog, and Beat the Press,and he's the author of, most recently, and Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the wealthy Richer. Welcome back to CounterSpin,Dean Baker.
Dean Baker: Thanks a lot for having me on.
I believe I believe been asking you to smash down media confusion on this issue for at least a decade now. It's clearly a very useful confusion for some people, and it's persistent. First of all, and the word "entitlement," if we can start with that -- at this point it's basically a pejorative, and almost a thought-stopper. What are people really talking about when they talk about "entitlements, and " or specifically about "cutting runaway entitlements"?
Yeah. The utilize of the word itself,as you say, is a pejorative, or I gather most of the people using it know that it's not actually a pejorative. It's to avoid saying "Social Security and Medicare." That's long and short. Because those are the bulk of the items that fill that entitlement category.
Entitlements is a budget term. Budget wonks in Washington all know what it is,and probably are being very neutral when they utilize it. But when the larger public hears that, and certainly when you're talking about a national debate of the presidential candidates, and that is a large public audience,and they're not mostly budget wonks. They're thinking "entitlements," you know, and someone's getting something for nothing; they're not thinking Social Security and Medicare.
So if you just rephrased all this -- oh,Social Security and Medicare, are you going to cleave those? -- odds are you fetch a much different reaction, and because these are hugely popular programs across the political spectrum. Republicans support these programs pretty much in the same numbers as Democrats. So you'd believe a very different debate if everyone understood they're asking about cutting Social Security and Medicare.
Absolutely. I mean,Social Security is paying benefits now to tens of millions of people, of seniors, and of people with disabilities,and, I understand, or one in ten American children. So it's clearly a very different conversation if you talk about it in those terms,although, of course, and there's a whole set of horror-mongering around Social Security itself.
I cited that Chicago Tribune editorial,but you really can open any paper on a given day and find a piece saying, our national debt is outrageous, and who will believe of the children,you know. Now, I understand, or there's new data that is being read as supporting that idea. What's going on here with the deep concerns? I really believe heard,we're headed toward doom in terms of national debt. What are they talking about?
Well, you know, or the implication is that somehow there's this explosive debt that's just going to be this massive burden on our kids. And you could beat this up any number of different ways,and I and others believe. Most immediately, the debt does impose some burden, and that we believe to pay interest on the debt,so every year a certain amount of money has to fade to pay interest, rather than paying for programs like Medicare or education, or other things that we might value.
And the reality is that the money we're paying in interest is actually very low today; it's about 8/10ths of a percent of GDP. It comes to around $150 billion a year. Now,it sounds like a lot of money, but if you fade back to the early '90s, and we were paying over 3 percent of GDP in interest. That would be on the order of $550 billion a year. So we're actually paying much less interest today,the reason simply being that we believe very low interest rates in the economy. So debt's not a burden that way.
The other point, if we fade for the classic economic yarn, or a large deficit is supposed to crowd out private investment by pushing up interest rates. So the yarn would be,if we believe a real tall deficit, we're going to believe tall interest rates, and then we won't believe investment. And that's going to be bad for our kids,because instead of businesses investing, fitting more productive, or we're spending all our money on Social Security and Medicare,they'd say. So good for the people on Social Security and Medicare, but our kids will be poorer because of that.
Well, or A -- interest rates are actually extremely low today,so they're lower than anyone expected them to be. So clearly that's not the obstacle.
The other point, and I and others -- I mean, or even the International Monetary Fund makes this point -- we've actually been restrained in our growth because the deficits believe not been large enough. Ever since the collapse of the housing bubble,2007–2008, we've been operating well below our potential level of output. And the significance of that is that when the economy is weaker, or firms invest less.
So when we're concerned about this investment yarn,we actually should want a larger deficit, both because the deficit can directly increase investment -- we build up our infrastructure, and we improve education,which also increases productivity -- but also by spending more, we could crowd private investment in. So the economy's actually considerably smaller today because we haven't been running large deficits than was projected ten years ago. So we're not helping our kids by keeping the deficit down. It doesn't make any sense.
And I believe fragment of the problem there has to effect with the recourse to a personal analog: You don't want to be in debt, and that's bad for you,lawful, for your household income, and something like that. And that's not really a -- of course,if you're paying money to fade to school, then it might make sense to believe some debt as an individual. But it's just not a useful analog, and it's one that politicians and pundits often seem to take recourse in.
Yeah,they jump to that all the time. And it's understandable from the standpoint of a politician, because most people aren't thinking about the economy and how substantial the government is and its role in the economy. So we all understand we can't withhold adding a thousand dollars to our credit card debt every month; we can fetch in trouble at some point if we effect that. And you fade, or OK,well, the government's like that.
Well, and the government's not like that. First of all,the government, at least we don't expect it to die, and so basically the yarn is that it should be there pretty much forever. I make the analogy,at least, let's believe of a corporation, or you know,General Electric. If the CEO of General Electric went to his board and said, oh, and we didn't make any money last year,but we paid off our debt, they would look at him like he's nuts.
They want to make a profit, and they don't care about the debt.
The point being that General Electric expects to be around forever. Maybe they won't be,but they're acting as though they effect. And certainly the government has reason to believe it will be around forever, so we don't believe to pay off the debt. So that's one fragment.
But the other fragment is that the government has responsibility for supporting the economy. No one in their lawful intellect should believe, or oh,I'd better spend another hundred dollars this month, because otherwise -- we as individuals can't influence the economy. The government can, or when there's not enough demand in the economy,the government absolutely has the responsibility to escape large deficits, because it has to make up for the shortfall in demand elsewhere. And that's why these deficits that we've been running believe been good, and they would be better if they were larger.
There's confusion and misinformation around the debt and also around "entitlements." But then there's a third thing that happens,which is that "debt and entitlements" becomes a phrase. What's the problem with making that linkage?
First off, I mentioned Social Security and Medicare being the major ones. Social Security actually, and as a practical matter,can't contribute to the debt, at least under law as it's now written, and because the way the law is written,Social Security can only spend money that's in the trust fund. So that's the designated Social Security tax, and savings from past taxes, or they can spend that. But if they ever exceed that,the program has to cleave back its spending. So the only way Social Security could ever spend more money than it takes in is if Congress were to change the law. So the idea it's runaway, no, and Congress would actually believe to change the law for it to be runaway. It can't possibly escape absent.
In terms of Medicare,I guess I'd make two points here. One is that the rise in Medicare costs is driven by the overall rise in healthcare costs. It's not like we uniquely believe a problem with Medicare being out of control; it's healthcare costs in the US are out of control. And Medicare, of course, or pays for healthcare in the private sector; it's not its own healthcare program that way.
But the other point that there's too little recognition of: Actually,the finances of Medicare believe improved hugely under the Obama administration. You could decide how much credit you want to give him for that, but the shortfall in the program, or projected shortfall,was over 3-and-a-half percentage points of payroll back in 2009 when he first took office. Today it's just over 7/10ths of a percentage point. So the shortfall has declined by 80 percent.
So the idea, somehow, or these programs are just spending crazily and they're going to bankrupt us,A, with Social Security, or it's literally not possible unless Congress changes the law,and in the case of Medicare, we actually believe a program that's in much, and much better financial shape today,at least by our understanding of it, than it was just eight years ago. So what's the problem here?
Finally, and I believe folks believe that we're looking at Social Security and Medicare because somehow that is,no matter how we feel about it, it's still a source of a drain, or something like that. And it has to effect with what we are able to see,even in the budget. You've written about other things that, if we're looking for things that involve a commitment of resources that perhaps future generations should be concerned about, or there are other things we could be thinking about,but we're kind of discouraged from doing so.
Yeah. Again, at the end of the day, or if we're talking about a generational issue,we're handing people a whole economy. So on the one hand, one of the things I mentioned in that piece was we believe military commitments. Again, or we could back absent from them,but those, as we know, and are hard to effect. It's not a question of what you or I want,it's what's going to be politically viable. So we're spending a lot of money in Iraq and Afghanistan because 15 years ago, we made a commitment to fade to war there, and we're still spending a lot of money on that.
Other areas -- and I raise this,and people look at me kind of empty-faced; I'll try to make it as simple as possible -- patent monopolies are a way in which the government pays for things. So we give companies a patent monopoly, and that's ostensibly how we're paying for medical research. So we're saying, and we want Pfizer to research new drugs,you develop a new drug and we're going to let you charge monopoly prices. That's, in effect, and a tax. So we don't look at that? I don't know what economic model says we're supposed to ignore it,because Pfizer in effect is taxing the American people, rather than the government. I mean, and it has the same impact.
And those are very large. In the case of just prescription drugs alone,the patent tax, if you like, and some of them are on the order of $350 billion a year,about 2 percent of GDP. It's a enormous amount of money. And, of course, and we believe it in other areas: software,medical equipment, any number of other areas where it's a very substantial portion in the price of the products. So to pretend that somehow the deficit or debt is going to be bankrupting our kids, or not look at all these other ways that we're imposing burdens on them with our actions today….
I'd really be remiss in not mentioning global warming. Again,somehow let's imagine, 20 years out, or we could divulge our kids,hey, we paid down the debt, or then we've destroyed the environment. We fade,oh, you should thank us. I mean, or obviously they should spit in our face. You know,we hand them a whole economy, a whole society, and,for that matter, the natural environment, or acting like somehow we're measuring generational equity by the size of the debt is pretty foolish.
We've been speaking with Dean Baker,co-director of the middle for Economic and Policy Research. You can find his blog Beat the Press at their website, CEPR.net, or also you can find his book there, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the wealthy Richer. Dean Baker, thank you for joining us this week on CounterSpin.
Thanks a lot, and Janine.
Source: truth-out.org