March 01, 2001
Dean Baker
Los Angeles Times, March 1, 2001
Capital Times (Madison, WI), March 5, 2001
Nearly one in five children in the United States live in poverty. Over 43 million Americans lack health insurance. The infant mortality rate in the United States is the highest among industrialized nations, and life expectancy is among the lowest. The United States is the only major industrialized nation where large segments of the elderly have difficulty paying for prescription medicines. Its education system stands, at best, in the middle ranks of the industrialized world.
At a time when the nation is facing real social problems, and the federal government has a huge budget surplus, you would expect that at least some politicians would advocate policies to meet these needs. Instead, most of the country’s so-called “liberals” are advocating paying down the national debt as quickly as possible. This is a policy that essentially means that buying savings bonds is a better use of federal dollars than vaccinating our children or providing prescription drugs to our elderly. While many conservatives openly express this view, it is shocking that people who profess to care about the nation’s social problems now adhere to the same position.
How did we get here? There are certainly examples of failed social policy that can be held up as arguments that the government can’t do anything to address the country’s problems. But at the same time, there are the great success stories, Social Security, Medicare and Medicaid, and Head Start, which prove that the government can effectively meet people’s needs. These programs are so successful and politically popular that even the conservatives who would like to destroy them always claim that they are actually trying to “save” them. There is no market for bad social programs, but the successes in this area have been real and tremendously important in people’s lives. There is no reason for liberals to be shy about advancing policies that could repeat these success stories.
But at a time when the conservatives have jumped into the surplus pot of money to grab tax cuts for the wealthy, the liberals are taking a hands-off policy, insisting on the need for debt reduction. This requires some explanation.
One story is that paying down the debt will lower interest rates, which will encourage investment, which will make the economy grow more rapidly. While there is some sense in which this can be true, the impact is so small that it is unlikely that many people would support debt reduction on these grounds. Virtually all economists would agree that the rapid surge in growth in the late nineties had little to do with deficit or debt reduction. The economic impact of debt reduction is better measured with a microscope than a yardstick.
A second argument is that we have to pay down the debt now, in order to save interest on the debt, and therefore to have more money available when the baby boomers start retiring. Again, interest savings are nice, but is it really worth letting another generation grow up in poverty just to save a few dollars in interest?
Here it is possible to get a very precise measure of the impact of debt reduction on the budget. If we pay down the debt over the next 8 to 12 years, instead of using that money for other purposes, the interest savings by the end of this period will be just over 1 penny for every dollar of national income.
The bottom line is that the federal government has more resources available now for addressing the nation’s problems than at any time since the end of World War II. In other words, our budget picture is much better now than when we created Medicare, Medicaid and Head Start in the mid-sixties. Thankfully, our political leaders in the sixties recognized that we had better things to do with our money than pay off the national debt.
In the distant future, there will be greater demands on the budget, as the baby boomers retire and longevity increases — but interest savings of a penny on a dollar of national income are not going change the basic long-term budget picture to a significant extent in any case.
In other words, if you believe that it is important to do something about child poverty, poor healthcare, inadequate childcare and inferior education, now is the time to act. The conservatives have no qualms about rushing to grab a piece of the surplus pie for tax breaks for the wealthy. The rest of us should have the same attitude about addressing the nation’s outstanding social problems.
