03 August 2011

Debt and blockbusters

Summer is a time for blockbuster movies--sprawling, spectacular, and
illogical monuments to excess. This summer, the most successful disaster
film hasn't been a Hollywood creation has been the Countdown to the

The imaginary apocalypses now playing the multiplex pale next to the
consequences of America's impending defaults, downgrades, or some
combination of the two. (Sure, evil transforming robots might wreck
Chicago, but a default would have wrecked my retirement portfolio.)

Ironically, the national debt played a supporting role in one of the
summer's biggest movies, Captain America. The movie shows the journey of
Steve Rogers, a good-hearted Boy Scout type who wants to defend the world
against the bad guys, from 98-pound weakling to world-saving superhero.

But Captain America's first assignment isn't punching Hitler in the jaw.
It's traveling across the country selling war bonds. In other words, in
today's debate over the national debt, Captain America would be foursquare
for spending more money than the government earns.

What's more, he would be part of a proud pro-debt tradition. Contrary to
Tea Party slogans, the debt has been a central tool for uniting Americans
for most of U.S. history. Buying debt has even been seen as a patriotic

Forget the wonk-centered debate over the extent to which American
policymakers have abandoned--or ever adopted--Keynesian ideas. The national
debt has been an essential part of the American experience ever since 1790,
when Alexander Hamilton made a deal with Thomas Jefferson and James Madison
to swap the location of the national capital for the federal government's
assumption of state debts (what we would today call a "bailout").

The resulting bargain ensured both that the capital would be located in the
South instead of the commercial, cosmopolitan, and (the South feared)
abolitionist North and that the federal government would play a major role
in the nation's financial markets.

The creation of the debt thus insured the future of the Union by binding
both Southerners and Northerners to the federal government. Subsequent uses
have been just as calculated: the Civil War was paid for by a mix of
taxation, inflation, and debt sales, as was American involvement in both
World Wars and the defense buildup that helped the United States win the
Cold War.

In every case, policymakers calculated that taking on massive amounts of
debt was in the national interest--and voters agreed. Voters not only
returned the politicians who voted for that spending to office, they turned
out in droves to buy bonds in order to support deficit spending.

Captain America's bond salesmanship was fictional, but real-life bond sales
drives featured Bette Davis and Rita Hayworth. Irving Berlin even wrote a
theme song for bond sales performed by Bugs Bunny ("Here comes the freedom
man/Asking you to buy a share of freedom today").

For most of their history, in other words, Americans have managed to stop
worrying and love the debt. That's not a part of the nation's history that
John Boehner, Eric Cantor, or the Tea Party's members care to remember.
They instead claim that the debt is the result of out-of-control Washington

And they're right. Unlike earlier generations' deficit spending, the
contemporary national debt wasn't incurred to beat the Nazis or save the
Union. It's the result of decisions taken in President George W. Bush's
first term to slash taxes on the wealthy without cutting spending
elsewhere--and then to embark on costly nation-building projects without
raising taxes to pay for them.

For all their righteous anger about the debt, then, the pro-default crowd
misses the point. The problem isn't the size of the national debt. Instead,
it's the purposes for which it was spent and the ability of the government
to raise the revenue to pay for the money that it has already spent.

A default on the debt would signal the end of an unbroken American
tradition of faithful repayment. Doing the right thing now requires a
steadfat mix of spending cuts and tax increases. That would be a dull
ending to the high-stakes negotiations, but real life isn't a  movie, and
sometimes boring endings are the best kind.

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