I've been thinking for quite some time about the piss poor job Congressional Democrats and the White House are doing in articulating the concept of debt in the United States.
This diary is going to make two BIG assumptions right up front. It's going to assume that a) the debt ceiling gets raised before the deadline; and b) that Democrats win the war of public opinion with respect to who is more trustworthy and serious about addressing the issue of national debt.
Big assumptions, I know, in this crazy, fluid political environment in which we exist. But I'd rather get a jump on the messaging I envision and put it out there for critique, revision and refinement. Even if a) and/or b) above do not occur, I think how we talk about debt as Democrats politically and progressives ideologically is critically important.
More after the fold.
I always hate to say this because it sounds so arrogant - so "I know more than you do" (not you the Daily Kos reader/writer/commenter - but "you" the average American who probably gets information in small bites and who doesn't or hasn't delved into the nuances of economic policy with respect to debt) - but any discussion about debt needs to be broken down to simple examples to which virtually any person from any walk of life can relate. I don't have a lot of faith in the average American voter to do nuance or to do their homework so that critical analysis is possible.
The basic idea I have is to re-set the way we discuss debt, and to break it down to a personal example to which a broad majority can relate.
An individual or a family inherently understands the concept of "good debt" vs. "bad debt". As toxic as the housing market has become, a person who purchases a home that they can afford and that is priced fairly using a mortgage instrument that is legal and proper is taking on good debt. There's an asset tied to that debt, and one that will appreciate over time (yes, even allowing for the correction the market continues to make for the overblown prices paid prior to 2008 - many of those purchases violated one or all of the three italicized items listed above). What is left when that debt is repaid is an asset that has both monetary and intrinsic value. You could sell it and pocket the cash - or you can continue to live in it (because everyone needs shelter) for a very low cost. Indeed - Brett Arends of MarketWatch estimates that, even with the housing debacle of recent years, the return on a fair, legal, affordable housing investment is 1-2% above inflation.
In some cases, a car is a very good investment as well despite the fact that it doesn't hold value over time. Most Americans live in places where public transportation simply isn't comprehensive enough to provide for their transportation needs. Without a car, where a person is able to work logistically is vastly more limited than where they could work with a car to get them back and forth [Please note: I am a fan of public transportation a supporter of more comprehensive public transportation primarily for environmental reasons; but I'm also a realist and know that this ideal doesn't exist today.] The car opens up additional choices and opportunity.
A good debt investment doesn't have to have something as tangible as a house or a car attached to it, either. Take student loans, for example. The Census Bureau estimates that a college graduate will earn an average $1M more in their lifetime than a high school graduate earns. Investing in a good education to raise lifetime earning potential is just an overall good idea.
These concepts - buying a house, owning a car, and taking out a loan to pay tuition to attend college and receive a degree - are very relatable to the average American.
If you followed the Republican approach to "debt management" (placed in quotations very deliberately), you would never buy a house or car until and unless you could purchase it for cash and you wouldn't go to college unless you could pay the tuition without borrowing. You would never be able to gain the benefit of a home as an asset, a car as means to more diverse opportunity, and a post-secondary education as means to better your own personal economic outlook. In Republican-land, it's "No cash? Too bad for you!".
Joe Average can relate to bad debt, too. It's probably not the best idea to buy a $3,000 home theater system on his 18% interest credit card when his income means he can only barely keep abreast of the minimum payments that creates.
Indeed - some debt is not only good debt - it's essential debt in the national debate. Democrats and progressives should be embracing the debt discussion as I see it. We should be owning it - but not in the way that we have been, with cuts and "shared sacrifice" and what have you. We should own it by clearly outlining and hammering the idea of good debt vs. bad debt.
Good national debts:
1. Education - let's face it. A generation of stupid children are a future economic drag. An investment in education, nationally, pays off by avoiding expense down the road.
2. Healthcare - an investment in affordable, comprehensive healthcare pays off in a myriad of ways. People with access to affordable preventative care miss fewer days of work, are generally more productive while at work, and suffer less chronic illnesses over a lifetime. Additionally, there is a cost to every taxpayer of paying for conditions that are preventable with access to affordable healthcare. With healthcare, what you pay today you save down the road.
3. Infrastructure - We need roads to drive on, trains and subways to ride on, bridges to carry us over water and other impediments, electricity, water, etc. etc. to survive in the modern world. It's always easier to keep maintenance up on something than it is to pay to replace or repair it once it has failed. Much like with a car - the investment in maintenance pays off in extended life of the car itself.
4. Energy independence and investment in the Green Economy - this pays off of SO many levels. From a national security perspective, the lower our dependence on foreign oil the better. From a jobs perspective, the more we invest in the Green Economy, domestically, the more Green jobs can be created by both government and industry down the road. From an overall economic strength perspective, the more diverse our economy and the more we can lead in a particular area of global demand, the better everyone does - from the billionaire right on down to the janitor.
There are so many other good national debts that have either an intrinsic or extrinsic return attached to them - I've just given a few examples. My point is to begin to express the things we care about - the things we find valuable - in terms of good investments. I'm hard pressed to think of a single investment that virtually any of us would deem as necessary from a national perspective that wouldn't be considered a good investment - one that pays off down the road.
Bad national debts include:
1. TAX CUTS, TAX CUTS, TAX CUTS. Let me caveat this a bit, however. There is a rate at which taxation is optimal across the board. Just as there is such a thing as too little taxation, so too is there a thing as too much taxation. But in today's economic climate, the persistent calls for tax cuts parlays into a hidden tax on those who are least equipped to bear the burden as other good investments are shunned to allow for wealthier people to maintain an artificially low (and economically unhealthy) tax rate.
2. Wars. I'm not saying there aren't circumstances where we must defend ourselves. But it goes almost without saying that the wars in which we are current engaged are mostly a very bad investment with zero to negative return.
Again - LOTS more bad debts I could detail. Just trying to give a flavor of how I see a discussion of complex policy broken down in such a way that Joe Everyman could relate.
Another thing that I find instructive in attempting to reframe this discussion and public perception is the concept of one's debt-to-income ratio. For Joe Everyman, a mortgage lender is going to look for a debt-to-income ratio - proposed mortgage included - that does not exceed 36%. If you add up all of your monthly debt obligations - car payment(s), mortgage payment, credit card bills etc., it shouldn't exceed 36% of your gross income.
With that relatable rule of thumb in mind, in 2010 the US' "income" was $2.162T. It's expenses were $3.456T (source). That makes the US' debt-to-income ratio 37.4%. Not all that dire or pressing as Republicans would have you believe.
Driving the point home a little harder: USA Today expresses debt-to-income by using total GDP ($14.5T) against total (cumulative) debt ($14.3T). In that scenario, the ratio is almost exactly 1 to 1. They then give a great example of leading companies' debt-to-income ratios:
•IBM— 2-1
•Dupont — 3-1
•United Technologies — 3-1
•Boeing — 4-1
•Caterpillar — 14-1
•JP Morgan Chase — 50-1
The difference between these successful businesses and the US? They invest in their future, knowing that they will prosper more and make more from those investments. Joe Everyman buys a car and a house and takes out a student loan because he's investing in his future.
The Republicans seem to think that investing in the future is a bad thing. No house for you, no car for you, no education for you - bring cash or get lost. You're on your own, Joe.
So in summary - what I'm positing is the following:
- To maintain our AAA bond rating (which does matter, but that's a subject for another diary and for someone more skilled than I in the bond market), we have to show that we are taking a reasoned and logical approach to debt.
- Not all debt is created equal: there is a big, vast difference between good debt (investment) and bad debt (pissing money away on tax cuts and wars and the like - money down the rabbit hole).
- The way to articulate this to Joe Average is to relate it to the good debt and bad debt that he and his family can/have accrued. This isn't rocket science.
- There will be a very narrow window of advantage for Democrats in reframing this debt discussion provided the assumptions I made in the introduction hold true.
It's time to take this argument back. But as I said in the introduction - I want to put this out there for critique, revision and refinement. I'd also welcome some ideas on how to distill this further and get it to Congressional and Administration Democrats if the judgment is that the fundamental argument is sound.
I welcome and look forward to your feedback!