The following post is by Dealbreaker reader and commenter Infinite Guest.
This is the worst time in decades to try to reduce the deficit. Unemployment is immorally high, growth remains anemic, private deleveraging shows no signs of abatement, infrastructure is rapidly deteriorating and the prospect of a stagflationary double-dip recession is all too imminent. Yet the drum beat for deficit reduction is deafening, with everyone from Standard & Poor’s to the Committee for Economic Development to the AFL-CIO keeping time, and the rest of the world joining in, marching for a cure to our ailing fiscal health. But if Dr. Dominique Strauss-Kahn prescribes it, and Dr. Zhou Xiaohuan concurs, then it’s snake oil. Don’t drink it.
To be fair, the cacophony of voices calling for deficit reduction is just that, a cacophony. Each special interest has its own rationale for deficit reduction, political, economic and otherwise, and each one places a different level of emphasis on the goal, with a different timeline, different priorities and tactics for achieving it. The AFL-CIO tepidly supports deficit reduction lite, at the bottom of a list of concerns trumped ultimately by the continuance of its own tenuous relevance. The Chinese are focused on their own political stability, now threatened by commodity inflation and their own rudderless domestic economy. The IMF needs contributor nations to appear credible if it has any hope of enforcing its agreements with debtor nations. The Tea Party misunderstands the inchoate backlash that bought them power as a mandate for Objectivism. President Obama is fighting for his political life. Standard & Poor’s, as near as I can fathom, is simply conducting a marketing exercise. But any attention paid to deficit reduction is wasted. Deficit reduction is not a legitimate strategy, period. It is merely one of the pleasant side-effects of a more balanced national economy.
Of all the various approaches floated to address our deficit, the one that seems most likely to succeed is the high-sounding “shared sacrifice.” Shared sacrifice is bullshit. It’s nationalist bullshit meant to distract pensioners from the exiguity of their pensions. It’s statist bullshit to bully the fortunate among us into silence. Shared sacrifice is what we must do when our homes are under attack by a foreign enemy. Otherwise anyone selling you shared sacrifice is picking your pocket.
The nice thing about using leverage is that when things go your way they go your way bigger. Uncle Sam has used a nice amount of leverage and at least has the sense to recognize (for the most part) that he should continue to do so. But there’s more than one kind of leverage.
At home, literally trillions of dollars are languishing on corporate balance sheets right now for a dearth of good investment opportunities. That would be crazy were it not for the stunning lack of leadership that characterizes our public sector. It’s fundamental: Who wants to invest in a country that can’t get its political act together? Chew on this: Spain is ahead of the United States in alternative energy. How is that possible? Among other advantages we have a more flexible economy, better immigration policy, a better educated and more productive labor pool on our side. Good leaders would find some way to encourage better utilization of all those factors. Or at least to stop discouraging their utilization. They may not even have to write any new legislation; they could start by conducting a better, more intelligible dialogue. Good leaders would signal something to the marketplace other than their willingness to squeeze the yield out of Treasurys at any cost. I’m not breaking any new ground when I say that private dollars invested domestically create jobs, which stimulates consumption, which improves profits. Income tax, sales tax and corporate taxes follow proportionately.
The story abroad is no different. Rather than living up to the ideal of American exceptionalism, we lean ever further toward repeating Queen Victoria’s British empire, sucking commodities out of our colonies as they grow progressively more dissatisfied with the burden of our friendship. It doesn’t end well. And like any pseudo-imperial power, we are too slow to recognize how badly we’re hurting ourselves. The core failure common to our China trade, our wars and our energy policy is that we are shipping boatloads of money overseas to people who don’t even want it. We should be recirculating that capital at home. The “how” is the same here. Our trade deficits, like our budget deficits, are only a symptom of the failure of leadership to encourage domestic investment.
Take care of the economy and the deficit will take care of itself.