Think the budget deficit is too large, but not really something you should worry about? Think again, says former labor secretary Robert Reich. The deficit may be so large as to seem abstract, but it translates to higher prices on everything you buy. Our economy is steadily slowing down, choked by debt—all so tax cuts for the rich can become a permanent fixture.
Robert B. Reich is the Maurice B. Hexter Professor of Social and Economic Policy at Brandeis University, and was the secretary of labor under former President Bill Clinton.
Why should you care if the federal budget deficit rises next year for the fourth year in a row, as the White House now admits it’s likely to? Why worry if, as the Congressional Budget Office has just projected, the deficit will grow by $2 trillion over the next decade if the president succeeds in making his tax cuts permanent, as he aims to do? Why be bothered that most economic forecasters predict that the cost of privatizing Social Security will be an additional $2 trillion over the next 10 years? And none of this includes the mounting costs of the war against terror. What does it all matter? These are just huge numbers, and most peoples’ eyes glaze over when they hear them. Your eyes are probably glazing over right now.
It matters because the deficit has huge effects on you and me. Think of it as a Visa card with the debt we owe the rest of the world totaling a quarter of the whole national economy. As our government slides deeper and deeper into debt, and as personal savings continue to drop and our trade imbalance widens, we’re relying more and more on foreigners to lend us money to keep us going.
As we sink into debt, the IOUs we give foreigners-—and those IOUs are called U.S. dollars-—represent a bigger and bigger risk to lenders. So, naturally, the IOUs become worth less and less, which means the dollar continues to drop relative to foreign currencies. And as the value of the dollar drops, everything we buy from the rest of the world-—including oil-—costs that much more. Oh, and one other thing. As we slide deeper into debt, interest rates here at home have to rise in order to keep foreigners interested in lending us even more money.
Get it? There’s no such thing as a free debt. Inevitably, you and I end up paying more-—more for the goods and services we buy, more on the interest we owe for mortgages and car loans and anything else we’ve bought on credit. And the entire economy slows because the higher interest rates choke off growth.
Those looming federal deficits are big numbers, all right. But your eyes shouldn’t glaze over when you hear them. They have real consequences. They’re going to make most of us poorer.
And why, exactly, are we heading down this path? So that wealthy Americans, who got the bulk of the tax cuts, will continue to get them. And so younger people can invest their Social Security payments in a stock market that will go nowhere because the economy is so weighed down with debt.
I just don’t get it.
This commentary originally appeared on Marketplace, public radio's only daily business news program, and is reprinted via a special arrangement between TomPaine.com and Robert Reich. Marketplace is produced by Minnesota Public Radio and is heard on 322 public radio stations nationwide. More online at www.marketplace.org.
