Wednesday, March 16, 2011

But Really, America is Not Broke

Recently, Michael Moore made a speech to protestors in Wisconsin which was published as an editorial in the Huffington Post under the title "America is Not Broke." The idea that America is not, in fact, broke has come as a surprise to many. Don't we have a giant federal budget deficit? Aren't state governments (including our own here in California) scrambling to deal with massive shortfalls? What about high unemployment? And on and on. The geniuses at Reason.tv recently decided to tap into such misunderstandings in order to make the following highly misleading video:

The breathtakingly ugly dude in this video either has no understanding of how finance works, or he is being deliberately obtuse in order to keep his viewers from understanding the financial condition of the U.S. The most obvious way to look at whether the US government is broke is to look at interest rates on federal government bonds. This is the same as looking at how much the government has to pay to borrow money. If we were broke, this interest rate would be astronomical because people would risk lending to us only in exchange for very high returns. As it stands today, the interest rate on government bonds is at record lows. That means it's cheaper for the US government to borrow right now than at any time in recent history. Needless to say, this would not happen if the country was bankrupt unless markets are completely irrational. If Republicans think the U.S. is broke and can't afford to borrow any more money, then what logically follows is that they believe that markets are completely irrational.

Another way of looking at this question (Is America Broke?) is to look at our debt-to-GDP ratio. This ratio compares public debt to the total wealth of our economy, and its useful for making historical and international comparisons. Our debt-to-GDP ratio is currently high, but much much lower than it was right after World War II. Despite this much bigger public debt after World War II, there was a massive postwar economic boom. In other words, America was either broke during the postwar economic boom that created the modern American middle class or it's not broke right now. You pick.

Finally, this pitifully hideous dude from the video completely ignores Michael Moore's point in favor of making glib remarks about Charlie Sheen. Moore is not denying that federal, state and local governments face significant budget deficits, he is saying that the reason they face deficits is due to a series of government policies in recent decades that culminated in the Bush years. These policies were, in effect, massive wealth transfer policies that redistributed money and economic power from the middle class to the super rich. And while you can quibble about the nature of those policies, what there is no question about is the wealth of this nation. America is still the richest country in the world. We are not, by any means or honest measurement, broke.

Originally posted on March 10, 2011 at the Cal Democrats Blog.

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