After the Great Depression and in the lead up to World War II, the United States debt to GDP ratio was over 100%. And what did we get for that? Not only the resolution of a major world conflict but the New Deal, a package of government stimulus programs that rebooted the economy and created two generations of broadly shared prosperity in America.
Today, the debt to GDP ratio is 60%. So what exactly is the crisis?
Some economists say the more correct measure is the ratio of interest payments to GDP, in which case our current interest-to-GDP ratio is at one of the lowest levels in the last 50 years.
In between the Great Depression and today, the debt-to-GDP ratio increased (mostly under Republican presidents) and decreased (mostly under Democratic presidents) and increased and decreased again. Republicans didn't care about the debt when they were running it up to send 6,612 American young men and women to their deaths in Iraq and Afghanistan. But now those same supposed-fiscal conservatives are howling from the rooftops about the “costs to future generations.” Please.
The solution to the supposed-debt crisis is clear: The vast majority of Americans support letting the tax breaks for millionaires and billionaires expire. In fact, fewer than half of Republicans favor keeping those tax breaks for the rich. And meanwhile, the already-meager support for cutting social programs and entitlements continues to erode. Plus, Democrats promised to protect federal social programs and raise taxes on the wealthy -- and, uh, the Democrats won the election.
But the reason we're even talking about the “debt crisis” is entirely unclear given that, just as after the Great Depression, now is the time America needs government more than ever --- to support the millions who are unemployed or underemployed and support the infrastructure and job-training investments to get our economy back on the road to the future.
Why are Republicans manufacturing a deficit crisis that is not only irrelevant historically but irresponsible in trying to recover our economy? And amidst the back and forth drama between the political parties, who are so few leaders and political commentators addressing the false premise in the first place -- the simple, mathematical fact that the debt just isn't even close to America's biggest problem right now?
The irony is that Republicans actually agree that government spending helps our economy -- or else they wouldn't be worried about the consequences of the so-called "fiscal cliff." If you believe that letting the automatic and drastic budget cuts happen would plummet the economy into a second recession -- as even conservative economists do -- that's the same as acknowledging that current levels of government spending are indeed sustaining our slow but steady recovery.
Millions of Americans understand this concept when they take out college loans — using debt in the present to invest in capacity and opportunity for the future. In fact, plenty of Americans are going into hock now to get degrees and training that will help them economically tomorrow. And, by the way, helps by subsidizing those loans.
In the long-term, yes, public debt and deficits are a problem if they are structural. Ours, however, is the combined result of tax cuts, spending on two wars and government spending to stimulate the economy combined with the second-worse recession in modern history.
We can and should resolve the debt in the long term, as part of recovering our economy overall. But any politician who thinks we should increase unemployment and put more pain on the poor and working class (through government spending cuts) while protecting the few millionaires and billionaires actually doing well in this moment is bound to keep losing elections.
High unemployment is a crisis. The increase in poverty is a crisis. The foreclosure rate is a crisis. The deficit is not a crisis. It is an excuse for bad economics and bad policy that will hurt America today and in the future.