|WAKE UP, AMERICA!! Well ... They're All Standing Up ...|
Every man, woman and child in America is enslaved to our national debt. As an artist, I have laid out my vision of the dire circumstances that surround us. Now, more than ever, each American must make a choice: will we unlock the shackles that enslave us, or will we give up the greatest gift we have—our freedom. It is my hope and prayer that America will "wake up" before it is too late.Truth be told, I'm a sucker for McNaughton: I love his ham-handed symbolism--the game of deciphering the faces to figure out who is playing which parts (many faces are "real people"). I love that he's hidden actual images of keys in the picture and if you mouse over them you get his secrets to ending the national debt (One of them is Vote Out Obama in 2012--I guess we blew that one). I love this stuff--but I don't think McNaughton is being especially sincere here: I don't think he's a deficit hawk so much as a religiously motivated socially conservative Mormon. Oh, sure--I do think he cares about the deficit and the national debt--but I don't think his image of Obama holding America in chains is really about the nation's monetary policy per se.
I was reminded of this picture and, at the same time, something Mitt Romney said during the debates recently when we learned something about a very influential Excel Spreadsheet. Here's what Mitt Romney said:
He said to moderator Jim Lehrer, who works for PBS: “I’m sorry, Jim. I’m going to the stop the subsidy to PBS. I’m going to stop other things. I like PBS. I love Big Bird. I actually like you, too. But I’m not going to keep on spending money on things to borrow money from China to pay for it.”Does Mitt Romney really think that cutting PBS will have any impact on the deficit? On the national debt? He can't--it's a ridiculous notion--but he said it. Why?
Before we get to why, let's look at what. Specifically, what have we learned recently about deficit cutting and austerity? Let's start with this chart:
|Note: Debt and Deficit are NOT the Same Thing (But This Is Still Worth Noting)|
John Makin, a resident scholar at the American Enterprise Institute, looks at the Congressional Budget Office’s projections and argues that “American fiscal austerity has been moderate and probably . . . has proceeded far enough for now.” A budget deficit that was more than 10 percent of GDP in 2009 is on track to be about half that this year. “The federal budget deficit is shrinking rapidly,” writes Jan Hatzius, the chief economist of Goldman Sachs, in an April 10 report. Goldman estimates that in the first three months of 2013 the deficit was running at 4.5 percent of GDP, and they forecast a deficit of 3 percent of GDP or less in the 2015 fiscal year. Hatzius adds that “there is still a great deal of room for the economic recovery to reduce the deficit for cyclical reasons.”You know who Goldman Sachs is--who is the American Enterprise Institute? They're the think tank (influential during the second Bush administration) that fired David Frum for being a liberal and (allegedly, at least) paid money to scientists for critiques of global warming.
Could it be that policies ... like the sequester ... have already had a deficit reduction impact? They seem to think so. But don't we need actual austerity to break the chains of Obama? Maybe.
A Very Important Excel Spreadsheet
An influential 2011 paper Growth In A Time of Debt by Harvard economists Rinehart and Rogoff has formed the basis for a great deal of thinking and talking about economic austerity programs. Specifically, it says that if the Debt/GDP hits a magic 90% or more tipping point the results are negative growth.
The problem with this paper is that its findings are based on an Excel spreadsheet which, unfortunately, was never peer-reviewed and contained ... a bunch of math errors and missing data (especially Austraila, Canada, and New Zealand who all enjoyed growth after that tipping point). This came to light when a student was assigned to re-create the work on an established paper ... and couldn't do it.
When adjusted and corrected with full data though, it looks like this:
|Oops. Growth Was Actually Positive ...|
Note also that we need to distinguish between debt that is denominated in domestic currency versus that which is denominated in foreign currency-again a distinction that is not always clear in the Reinhart and Rogoff book. It’s like the difference between, for example, Japan and Argentina. In the case of the latter, the currency board arrangement effectively hamstrung monetary and fiscal policy. The central bank could only issue pesos if they were backed by US dollars. So dollars had to be earned through net exports which would then allow the domestic policy to expand.But whether or not the excel is wrong--or data is missing--or the guys didn't distinguish something or other nothing in any of this debate negates the requirements that you pay your debts--that you must run controlled deficits over a large period of time. High debt ratios still do correlate to low growth and that shouldn't surprise anyone--but whether or not there is a specific tipping point which requires decisive dramatic action--a policy trigger so to speak--that is now in question.
It is also noteworthy that a great deal of the energy around selling austerity has been hung on this work. Now that the numbers, themselves, do not say exactly what a lot of proponents thought they did (the authors hold that their original thesis remains--but a lot of the dialog and urgency was centered on the idea of a tipping point and that is no longer the case)--will anyone change their minds?
What if their minds weren't made up based on the "facts" anyway?
The Real Issue: Health Care Costs
The issues around the sequester, stimulus, increasing taxes--or cutting Sesame Street--are all pretty much irrelevant. In fact, even assuming we do next to nothing for the next several years our deficit will continue to fall.
If the current laws that govern federal taxes and spending do not change, the budget deficit will shrink this year to $845 billion, or 5.3 percent of gross domestic product (GDP), its smallest size since 2008. In CBO’s baseline projections, deficits continue to shrink over the next few years, falling to 2.4 percent of GDP by 2015.In fact, it's falling right now:
The problem is that around 2020 heath care costs--most specifically medicare--are projected to rise sharply (end-of-life issues, aging population, etc.) and by 2030, because of this, debt per capita would exceed GDP per capita. This would not be good (American bonds are Junk-Bonds by 2030).
Here’s a pretty important fact that virtually everyone in Washington seems oblivious to: The federal deficit has never fallen as fast as it’s falling now without a coincident recession.
Blue Bars Going Up Are Smaller Deficits
But the takeaway is that all the stuff that people are worried about--arguing about right now? Austerity and cutting SSI and whatever-else? We need to be figuring out how to make health care costs more efficient without damaging the quality of life for people who currently are well served by their medical plans.
When you take all that away the issues about austerity and "entitlement" boil down to one thing (two if you count reductions in military spending if you wish to place that on the table--I don't think those are really on the table for most discussions): ObamaCare.
I'll say, up front, that I am unclear as to whether O-Care will actually achieve any of its goals of lower health care costs (PolitiFact says "Half True") but I know this is where the battle-space needs to happen. It's not about borrowing for PBS and it's not about spending in general. It isn't even about "entitlements" in the way that most people think of them--the broad spectrum of various kinds of government aid such as food stamps and so on.
So Why Cut Big Bird?
The Omnivore holds that not only are all politics personal--most energetic political advocacy is emotional. We have certain emotional needs and we seek facts and positions to support them rather than the other way around. Sure, sometimes a preponderance of the facts can change some opinions (especially if you trust the source) but for the most part our feelings are largely immutable and therefore it's the facts that "must change."
As such my takeaway is that I don't think the mistaken spreadsheet will have much impact on austerity politics. I don't think that the deficit hawks will back off in light of "falling deficits." This is because for the most part the driver isn't the numbers themselves but the emotional issues around making the policy (both for the politicians themselves and, more importantly, their constituent base). I don't think Romney would personally take any joy in axing Sesame Street--but I do think the base he was playing to needed to hear that some of the people's "toys" were being taken away in the name of austerity in order to accept his conservative credentials.
I don't think the visual image of a broadly smiling Obama before a population in chains is simply meant to show how government spending will have some negative impacts on the nation--it's meant to be a visceral gut-punch. It's meant to not only blame Obama--but to ascribe malign intent to what he's doing. Did McNaughton come by the idea that Obama is evil after reading a CBO report? Or did he gather his facts around an emotional core of deciding that Obama is trying to economically (and socially) dismantle America?
Do you think Paul Ryan, who apparently really liked that Rogoff/Rinehold paper, read it and then decided he liked austerity polices? Or did he come into play as a deficit hawk and then pick up a piece of research that seemed to justify him?
I think the answers to these are pretty clear and while I don't think Romney is emotionally driven to ax Big Bird (again, I think it was a political position that played well to his base) and I do think Ryan is a wonk's wonk (meaning that he probably does appreciate the intellectual arguments for austerity as much as the emotional ones) I'm pretty sure that the Excel-error-heard-round-the-world will be far more meaningful to the anti-austerity crowd.
After all--it now becomes their piece of paper to flog as it now upholds their emotionally-driven agenda!