Thursday, January 10, 2013

The next fiscal battle (Part II)

Despite the facts that 1) the money the DoD spends puts a lot of civilians in the private sector to work, and 2) a period of high unemployment/underemployment (with decreased real wages to boot) is hardly the time to start tearing holes in the safety net, national defense and transfer payments are the first two areas everyone wants to start with when budget-trimming begins. 

Before we go further, though, I should address a couple of odd concerns.  First, one might say, “Y’know, Layne, for a guy who professes to write a Catholic blog, you’re awfully shy about saying what’s specifically Catholic about your position.  So far, we haven’t seen anything that an irreligious person couldn’t write.” 

Exactly.  You might stop and ponder that observation for a while.  Especially if you think being religious means constantly introducing some weirdo spin that no “reasonable” person could dream up to a social or political position, or if you think it means being unable to justify an argument without constant resort to holy scriptures.

Truth is, while Catholic social doctrine does allow for some limited government intervention in poverty and business, the Church has no formulaic approach to the problem … it isn’t, strictly speaking, part of general revelation.  In general she prefers that government action be taken at the lowest practical level; the principle is called subsidiarity.   

But while the Church doesn’t mandate a statist approach to the matter, she does frown on laissez-faire economics as an abandonment of responsibility.  Had Bl. Pope Leo XIII, the author of the landmark social-justice encyclical Rerum Novarum, heard Benjamin Franklin’s sentiment that property in excess of a man’s duty to himself and his family belongs to the public,[*] he might have winced and said, “That is too drastic a formula; say rather that the right of property is not absolute, but may be called upon by the people according to reasonable need.”

If I show distaste for cutting transfer payments, then, it’s not because the Church teaches an obligation of the state to provide them at the federal level.  Rather, it’s my personal conviction that this is one thing I would rather the state do badly than no one do at all.  And when those who advocate cuts in transfer payments start by dividing the populace into “makers” and “takers”, they almost invariably commit a grave injustice, a sin of rash judgment — a species of false witness (Ex 20:16; Dt 5:20) — against the vast majority of the poor by ranking them among the “takers”.

Much of Republican reaction to the national debt is, to put it mildly, “sticker shock”.  It’s hard to imagine a billion anything, except as a series of nine zeroes after some more pedestrian number.  A trillion is simply unimaginable … you may as well try to visualize sixteen googol dollars. 

And yet, the government collects over $4 trillion a year because over a hundred million people pay taxes in quadruple or quintuple digits, because tens of thousands of businesses pay taxes in anywhere from five to ten digits.  If a trillion is unimaginable, math at least makes it comprehensible.

On the other hand, a balanced budget is not a sin; rather, it’s good stewardship of the people’s money (assuming, of course, that all other funds are well-spent).

I must say with grudging respect that, in the years ’09, ’10 and ’11, interest payments on the national debt were a smaller percentage of total federal spending than at any other time since 1960, especially in the twenty years embracing the Reagan, Bush père and Clinton Administrations.  It doesn’t follow, though, that the government can continue to spend in the red indefinitely.  As the debt grows, so does the interest it generates; if government receipts fail to grow at the same rate as the debt, then interest payments begin to crowd out other budget items.  Why?  Because all debt is a claim on assets, and as such take priority over all other obligations save those that are absolutely essential to survival.

Then there’s the myth of How Deficit Spending Ended the Great Depression. 

Yeah, GDP and industrial production were back up to their 1929 levels by 1940.  However, unemployment was still in double digits (sound familiar?), only dropping back under 10% when the FDR Administration began drafting soldiers and ramping up production of war materiel for lend-lease to Britain and the Soviet Union in the last year of peace, 1941.  Two years later, production had doubled and the nation was experiencing labor shortages as the country maintained a military that would peak the next year at over 8 million servicemen.  (Today, by contrast, the numbers of active and reserve personnel are almost equal, totaling about 2.96 million members.)  It was World War II, not government spending per se, which got the economy working at full capacity; some economists argue that the New Deal spending actually protracted the Depression.

Is that really the model of “putting the nation back to work” that we want to follow?

Finally, there’s the concern that, by deficit spending, the government essentially sells pieces of itself to the banks.  So long as the government borrows more than it repays, banks, financial institutions and wealthy private investors essentially have an open-ended income stream coming from the public till, as well as a form of leverage on public policy. 

Less-than-arm’s-length associations between the federal government, especially the New York Fed, and the finance industry has led to allegations and persuasive arguments of “regulatory capture” (the subversion of government regulation through cronyism) and “corporate welfare”.  While the desire to profit from public money can exist at all income levels, only the wealthy truly have the resources to spend in rent-seeking behavior. 

This is a particular criticism of the TARP program and SecTreas Timothy Geithner’s role in the “backdoor bailout” of Goldman Sachs, Merrill Lynch, Deutsche Bank and Société Général through federal purchase of credit-default swaps from AIG.  It’s also a criticism of the Obama Administration’s failure to break up the “too big to fail” institutions; as former Fed chairman Alan Greenspan told the Council on Foreign Relations in ’09, “If they’re too big to fail, they’re too big,” noting, “Failure is an integral part, a necessary part of a market system.”

Are such critiques fair or accurate?[†]  As the rabbi said in the story, “True they should be yet?”[‡]  A kind of “Caesar’s wife” rule applies here: Whether or not the charges are true, they shouldn’t even arise.  If you don’t want someone to suspect a fire, you shouldn’t create any smoke.

So on the whole, a balanced budget and paydown of the national debt is a very good idea — when the economy is booming, unemployment is low and the government can maximize its receipts.  When seven percent of the labor force is unemployed and another seven percent is underemployed, when the total labor force has shrunk despite the continuing increase of the population base, when three quarters of the jobs created since the “end” of the recession have been in the government sector, then the economy is not healthy.

Certainly not healthy enough for massive cuts in either military or safety-net spending.

[*] “All the Property that is necessary to a Man for the Conservation of the Individual & the Propagation of the Species, is his natural Right which none can justly deprive him of: But all Property of the Publick, who by their Laws have created it, and who may therefore by other Laws dispose of it, whenever the Welfare of the Publick shall demand such Disposition” (Letter to Robert Morris, 12/25/1783).
[†] Who’s taking over whom?  Such involvement is damned equally as “privatizing success and socializing failure” by liberals and “lemon socialism” by conservatives.  If there’s confusion over which end is the cart and which the horse, then the two ends are too close together.
[‡] An old rabbi approached his younger colleague and said sadly, “My heart is heavy and my words are like lead, for I have heard a rumor about you——”  “It’s a lie!” the young rabbi exploded.  “I know the rumor you speak of, rebbe, and there’s not a shred of truth in it!”  Whereupon the elder drew himself up and thundered, “True it should be yet!  Isn’t it bad enough that it’s a rumor!?”