TIME MAGAZINE ARTICLE MISSES THE MARK BIG TIME

…Cover of TIME MAGAZINE says we each personally owe $42,998.12

 

Jim Grant, Donald Trump and the GOP need some classes in economics

 

I wish the Republican candidates would stop talking about what bad financial shaped the United States is in today.  As one economist recently wrote, “The United States government has $13.9 trillion in debt, and I feel fine.”

 

All this brouhaha is about the recent miss-directed TIME magazine article by Mr. Jim Grant.  And my article is to counter the magazine cover where Mr. Grant implies that, “every man, woman, and child will have to pay $42,998.12 in US debt.”

 

First, you must understand that nations that have debt are not like families or corporations with debt.  The debt will be rolled over as the government is not a mortal being.  The requirement from the US government is that the low interest rate must still be paid on the debt.  (BTW: Trump is right, the actual debt is $19 trillion, but he doesn’t mention that number includes obligations we pay to ourselves, such as our own Social Security costs.)

 

The US government can borrow against the debt for 10 years at 1.77%, for 20 years at 2.16%, and for 30 years at 2.58%. It'd be hard for those percentages to get any lower. And that's what makes Mr. Grant's debt doom-mongering not just wrong, but world-historically so.

 

Donald Trump also keeps talking about our trillions in debt, but as with all nations, they all carry debt.  The issue is not the debt, it’s the balance of our debt ratio to our GDP.  Yes our debt is in trillions, but you never hear Mr. Trump mentioning that our economic strength is also in the trillions.  What is like with other corporations, they all have debt, but they also have sales and income.  Today, the US is still the wealthiest nation on the planet, by far.  Actually, our debt to GDP ratio today is better than it was after the end of WWII.

 

Mr. Trump has had many corporate bankruptcies.  But nations produce their own currency, corporations don’t.  The US is not even close to a becoming nationally bankrupt. 

 

Unfortunately, trying to compare the nation’s debt over the decades is a tough issue as our nation’s economy has changed so much over those decades.

 

As an example, in the early 1900’s, more American bread winners made their income from working on a farm and the monetary system then was based on the gold standard.  But once the last world war was over, the US realized that it was the world’s manufacturing leader.  It became clear that things were going to be a lot better in the post WWII period, than they were in the eras before FDR’s New Deal era.

 

But as another example, let’s look at unemployment.  Non-farm unemployment averaged 9.5% during the era of 1880 to 1933, but that same category has averaged at a much more manageable 6.1% since 1946. The reason is that the government and the central bank’s fight against the nation’s recessions, that has made US recessions and unemployment less severe and less frequent.

 

However, today's unemployment in the US is that the available jobs don't match the education of the available American workers.  Yes, we have lost many jobs because those former basic jobs have naturally gone to places with lower labor costs.  And yes, the US wages have been stagnant, but that's because the need today is not for basic labor from a high school education, it's "higher education labor" and we have too many of the poorly educated for filling those openings.  That's why the US brings in so many educated individuals from other countries.

 

But if we follow the GOP’s candidate’s ideas such as Ted Cruz’ flat-tax idea, all of what has been positively achieved would go right down the drain.

 

If we were going to cut taxes by say, $8 trillion over 10 years (that's how much Ted Cruz's flat tax would cost) then you're going to have to get rid of a lot of government to bring the debt down. So you could say goodbye to Social Security, goodbye to Medicare, goodbye to Medicaid, goodbye to Obamacare, and probably goodbye to Food Stamps and Unemployment Insurance, too.  The economy would then in fact, be bankrupt.

 

There is no reason to cut the debt today as is being suggested by the Republican candidates, and no reason to cut the government down to a pre-New Deal size. At least, there are no economic reasons.  What's needed is to develop more American jobs by investing in our infrastructure as other forward nations are doing.  And that’s why the very best Mr. Grant’s article can do is try to scare people by pointing out that our debt is in the trillions, without mentioning that our economy is in the trillions as well.

 

It's not the US government that's bankrupt, it's Mr. Grant's ideas and the GOP’s fear-mongering.

 

Copyright G.Ater  2016