Saturday, March 1, 2014

Of Debt, Deficits And Doomsday Hysteria--And Why Noem And Thune Should Cool Their Jets Just A Bit

     An exchange between me and an anonymous commenter that's below my last post got me thinking (for once, some of my readers would add, lol).  My correspondent is justifiably concerned about the federal debt, its potential impact on interest rates and wants to know at what point the national debt becomes a concern to me.  Anonymous went on to defend Congresswoman Kristi Noem's vote to shut down the government last October.  I'm glad to share the commenter's opinion and my reaction, both of which are presented in full, below.  On reflection I did some thinking on his Q about the point at which I get concerned about the national debt.  As a reasonably successful businessman of many years standing I know one thing about debt, both public and private:  it should never be lightly regarded and has to be kept at the top of the mind at all times.
     That seems axiomatic to me, but there's a corollary:  Single-minded focus on debt can take too much time, attention and energy away from building the revenue-producing assets that service and reduce that debt.  Since World War II we've had several episodes when the national debt reached levels that seemed alarming at the time, but during each of those episodes the power of the American economy and its unstoppable trend toward growth reduced--if not the dollar amount of the debt--the size of it in relation to the nation's economy, rendering the debt/doomsday hysteria of those eras a passing memory, forgotten all too quickly.  That Congresswoman Noem chose to close down the government once and voted twice to deny the United States Treasury its ability to service the nation's financial obligations by rejecting a debt-ceiling increase only tells me that the lessons of history have been lost on Noem, if ever she knew about them in the first place.  More troubling to me is Senator Thune's recent vote against raising the debt ceiling, particularly since I've been a supporter of his from day one--having given a much younger and unknown John Thune who was running for a GOP nomination to Congress in 1996 his first public exposure in Pennington County.  I took him to be a level-headed pragmatist commited to doing what's best for South Dakota.  Apparently I was wrong:  level-headed pragmatists don't support the self-destructing  financial turmoil that results when they bare threats of disabling the government or shutting it down altogether.
     Without assessing their political motives, I can say that both Noem and Thune are guilty of legislative overkill.  The built-in resilience of the American economy should be nurtured by elected officials, not thwarted by them.   And just how resilient is the American economy?  Don't take my word for it.  Here's what the man himself, Warren Buffet, said yesterday to his shareholders in his annual letter to them:    "America's best days lie ahead . . . I have always considered a 'bet' on ever-rising U.S. prosperity to be very close to a sure thing . . . the mother lode of opportunity lies in America."  Buffet's Berkshire Hathaway, since 1965 one of the most astoundingly successful financial ventures in the history of the United States, went "all in" to the stock market in 2009 at the depth of the bear market on a "buy American" spree that speaks for itself in terms of success.
     I wish our elected Republican reps could show as much faith in the American economy.  Turning their attention to debt reduction at the expense of  finding ways to grow the economy has become an obsession.  I like when members of my party fight for business-friendly legislation meant to increase efficiency, reduce regulations, open markets and convert tax liabilities into productive avenues for growth by reducing them as an incentive for re-investment.   I hate when Republicans go into debt-hysteria mode and do dumb things like shutting down the government.  Why is it so hard for them to get this? 


  1. Thank you for this article and our previous discussion. You bring up a great point that while the debt and cutting spending are very important, having a vibrant and thriving economy is paramount to attack the debt from both ends. Fixating on the debt alone does indeed detract from growing the GDP.

    One thing is for certain, I whole-heartedly agree with your recourse for growing the economy such as business-friendly legislation, reduced regulations, open markets, tax reform, etc. I hope both parties can agree these are important factors to focus on in the years ahead. I do have faith that the American economy will bounce back, but we need to get more people back to work to do so. Thank you again for your insight.

    Kevin (formerly Anonymous)

    1. Thanks, Kevin, for following up. A balanced approach seems the most reasonable to me, with as much emphasis on cutting spending (or at least dedicating it to its most stimulative effects, like infrastructure repair and construction) as on spurring investment in the private sector. I think your point about getting people back to work is the first order of business. Glad we could find some common ground!

    2. Absolutely. I'm looking forward to having more substantive discussions like this. Thanks.


  2. Good post John, and I'm in general agreement with you. Of course, I have questions:

    Many economists see an increase in the minimum wage as an economic stimulant. In my mind, it sounds like Henry Ford paying labor more so they can spend more. It also seems to fit in with the theory (fact?) that lower income people spend, while upper income people save.

    Second, does this mean you support Obama's plan for a great deal of infrastructure spending/stimulus?

    Thanks for your time, and I'm sorry if you've covered this before. I'm new to your blog.

  3. Hi Deb, welcome to the Constant Commoner. I definitely favor an increase in the minimum wage because our economy is more dependent on consumers than ever. As so much of our capital investment has shifted overseas, I don't think we'll ever be the industrial powerhouse that we once were, so we have to take up the slack by empowering consumers all the more. Besides the fairness issue--really, the m.w. hasn't remotely kept up with inflation for quite a number of years now--I just see it as a way of juicing up the economy by putting more money into consumers' pockets. Given the the steady growth of corporate earning the past few years, I'd like to see some of those profits diverted from upper management and shareholders to the workers who make everything possible in the first place. For decades now I've heard that a raise in the minimum wage will have a negative effect, but every time the m.w. goes up, the economy seems to do quite well immediately thereafter. As a great Texas oilman Clint Murchison once said many years ago, "money is like manure, it doesn't do any good unless you spread it around."
    On your second Q, yes, I believe infrastructure spending is the best outlet for stimulus money. It immediately puts people to work, it boosts local economies and it represents a significant capital investment in our country itself. Think about all the great government-funded projects of earlier eras, dams, bridges, the interstate highway system. They're all still a vital part of our growing economy.
    Appreciate the input and the Qs.

  4. Thanks for your response. Your sounding somewhat liberal. Or is that genuine, pragmatic conservatism? There are places where the two are pretty similar.

  5. Pragmatism and knowing something of the history of government's role when the economy is soft. I really don't think this is a conservative/liberal dynamic, it's just the reality of how modern societies have to respond to the business cycle. Collect plenty of taxes and reduce deficits when times are good (ala Clinton) and force feed money into the economy when times are tough (ala Obama's stimulus package). Trying to eliminate deficits and reduce debt when the economy is barely crawling along has never worked, the last time it was tried was when Hoover and his Treasury Secretary Mellon thought cutting spending and reducing the debt was the best way to deal with the softness that resulted after the stock market crash in '29--turning a recession into the worst depression in History.