Our debt is overstated by $4.8 trillion

We Owe $11,931,450,993,082.90 *
So What’s the Problem?

Flash: Our public debt is nearly $5 trillion less than you have been told. And that is because Congress raided $4.8 trillion from the Social Security and Medicare Trust Funds starting back in 1983, and the raids have continued intermittently to today. What happened to the money? It went to other government agencies to help sustain their over-spending. The expected payback date: Never. The consequences? Both Social Security and Medicare are now in financial trouble and they are on a projected path to going broke. Why did this happen? Republicans have hated both Social Security and Medicare since their inceptions. Raiding the cash flows that sustain the programs is legal, albeit a dishonest way to try to bring about their demise.

As both programs were proving to be huge successes, the Reagan administration began raiding the “surplus” funds that were accumulating in them. Both are pay-as-you-go programs sustained by payroll taxes. Neither program has contributed one dime to the public debt. What better way to destroy programs you hate than to steal the money that sustains them? Now, the same band of renegades in Congress want to inflate our debt numbers as a way of falsely proclaiming debt to be the cause of our economic woes. Some of the programs they love to hate include unemployment compensation, food stamps, aid to children, fixing highways, bridges, and other infrastructure. They are not fond of NASA and space exploration, higher education, research and development in science or health care, in developing renewable fuels, and they simply refuse to acknowledge issues like climate change and methane gas leakages into the atmosphere as being real.

Why? Because they have been handed their agenda by such pseudo-intellectual luminaries as the Koch brothers of oil fame, or infamy, as the case may be. And the Koch agenda is to reduce the size of the federal government down to a bare minimum consisting of Congress, the Armed Forces, and not much more. Their ultimate objective is to achieve a plutocracy where all wealth and control rest in the hands of the ultra rich, while the other 99 percent either die from diseases, malnutrition, or perhaps from the guillotine (resurrected from the French revolution).

More Whys? It’s what rich bastards do. They hoard the wealth, starve the people, and behead the insolent. (Perhaps historians can provide a less gory description of objectives, but I doubt if they can do it in fewer words).

Back to our debt. It is really not a problem at all. It is approximately 73 percent of GDP, a figure well below the same ratio following WWII. And what happened back then when it was 115 percent of GDP? It came tumbling down. And how did that happen? Not much. We simply grew the economy at a real average rate of 3.3 percent. By 1970 that debt-to-GDP ratio had fallen to around .40. And, we also had two wars between 1945 and 1970—Korea and Vietnam. We did nothing heroic. We just grew our way out of debt.

Since 1970 our real GDP has grown by only 2.2 percent per year. And, yes, 1.1 percent additional growth would have given us a GDP of about 25 trillion instead of our present $15 trillion. A $25 trillion economy would be producing $8.5 trillion more in personal income than it is today, we would be collecting $4 trillion more in tax revenues (local, state, and fed-eral), our unemployment rate would be near zero, and our public debt would be about one-half of today’s total.

So why aren’t we producing more? Because we can’t cut spending and expect the economy to grow. It works just the opposite: We need to increase spending: at the consumer level, at the business level, and at the government level. Every first year Econ student has seen the relationships among these variables: GDP = C + I + G + NX

Where:
GDP = total value of all goods and services produced in one year
C = consumer spending (about 70 % of GDP)
I = business investment
G = government spending
NX = net exports (exports minus imports)

Does this mean that the Republicans have got it backwards? YES! Cutting government spending reduces GDP, reduces personal incomes, reduces employment, and it reduces tax revenues. Conversely, increasing government spending increases GDP, increases personal incomes, increases employment, and increases tax revenues. Moreover, as all these elements expand, debt and deficits fall, the dollar stabilizes or increases in international trade, and our trade posture (exports minus imports) improves.

So we have a set of circumstances in which plutocrats control the Republican party (especially the Tea Party faction), via bad legislation at the state and national levels, by election rigging via gerrymandering and by obscene voting law changes. The Republicans have managed to stand logic on its head, throw decency to the wind, and they have given us the mess we find ourselves in.

Personally, I am disappointed that there are 10,000 or so economists who know all this but have not had the backbone to speak out. Two Nobel Prize winners have been notable exceptions: Joseph Stiglitz and Paul Krugman. A third is Robert Reich. As for me, I’m leaving for New Zealand before they resurrect the guillotines.
 
* As of 10-13-2013, U.S. Treasury