The Real Debt Issue: It’s Not How Much We Will Owe, It’s Who Will Hold the Note

There’s a dirty little secret lurking behind the Republican’s debt and deficit hysteria.

No, it’s not the fact that austerity during an economic downturn is a proven way to shrink the economy and create debt. Although true, that’s hardly a secret. Economists are just about screaming it out to anyone who will listen. 

And no, it’s not the fact that every country that’s tried austerity in an economic downturn is either experiencing a double dip recession or approaching one. That’s a matter of record that folks like Krugman, and Reich and Stiglitz have been pointing out on a near daily basis.

And no, it’s not the fact that countries like Iceland and China that ignored the austerity mongers have prospered.

It’s not even the fact that Republicans don’t really give a damn about deficits.

Nope. The dirty little secret is that if we follow their advice, we the people will end up with more debt than if we don’t, and fat cats and corporations will be holding the note.

Here’s why.

First, the main drivers of debt — medical and retirement costs — are much cheaper when administered by government. Impossible you say? Why, doesn’t everyone know that big ol’ gubmint’ is clumsy and inefficient, while the private sector is agile and efficient.

Well, let’s step outside the bubble for a moment and check some facts. You know, the things that make up reality.

First, overhead on Medicare, Medicaid, Veteran’s health care and Social Security are far lower than private sector equivalents. Overhead for Medicare comes in at around 2% while private health insurance averages close to 17% of revenue. And Medicare gets higher satisfaction rates and better health outcomes than private insurance. 

We will need medical care and retirement, regardless of whether it is provided by government or the private sector. And we will have to pay for them — either by taxes or out of pocket.

Countries like Chile that experimented with private sector versions of social security experienced overheads of 14% or more, while social security has an administrative overhead of about 4%. 

Or take student loans. Until public pressure forced Congress to kill it, a heavily subsidized private sector loan program ran in parallel to the federal direct loan program. Even with the subsidies, the banks couldn’t compete with the more efficient government program.

The second reason you’ll owe more if we cut government is that government is far better at containing cost increases. 

The single biggest factor driving debt is health care. The share of the economy devoted to health care grew from about 7.2 percent in 1970 to 17.9 in 2010, and it is expected to reach 25% of the economy by 2025.  

If we cut the budget and privatize health care this dizzying increase will continue — in fact it will accelerate, because Medicare is far more effective at containing costs than private health insurance.

The third reason you’ll end up with more debt is that corporations have a fiduciary responsibility to put profits over people.

Overturning the Glass-Steagal Act was a critical part of the conservative playbook. Until Clinton’s adminstration, banks were prohibited from taking your money and playing beach blanket bingo with it. Now they routinely take big risks with your money. Why? Because we the people are underwriting those risks with our taxes. 

And once we gut the budget, the already lame enforcement of the financial sector will get even worse, as the SEC is targeted for deep cuts.

Because Republicans — and some Democrats — fought “too big to fail” we now have even fewer banks controlling more of our collective national wealth. This not only concentrates economic power, it concentrates political power. 

Already income disparity in the US is worse than in Iran or Cambodia, and the US ranks lower on intergenerational income mobility than just about any developed country. In short, you’re getting a smaller share of the economic pie, and your kids will get even less.   

The reason all this is occurring is because for 30 years we’ve been pushing policies that favor speculators and the uber rich over wage earners and the middle class, and because we’ve let the private market run amuck. Not surprisingly, the market does what it does best — it concentrates wealth. Today, the top fifth of the population has 87% of the nation’s wealth, while the bottom fifth now has no net wealth (PDF). If we keep the same policies we’ll continue to concentrate wealth, and spread debt.

We will need medical care and retirement, regardless of whether it is provided by government or the private sector. And we will have to pay for them — either by taxes or out of pocket. 

The only difference is, who will hold be holding the note. A government that can contain costs and deliver services efficiently — a government that can borrow at low or no cost and print money. Most importantly, one that must answer to us. Or a private sector that is unconstrained, motivated by maximizing profits, and uninterested in controlling costs. 

Our personal debt will be larger if we choose the conservative playbook. And the disparity in wealth and income that has marked the last 30 years will accelerate. Yeah, eventually the deficit might go down, but you are unlikely to care much as you drive your decrepit car past an opulent gated community on your way to a low paying job you can’t afford to leave because you’re mired in private debt.