Yesterday, in an interview with Bloomberg Television, House Speaker John Boehner warned that the U.S. government must balance its budget. After all, he said:
We have spent more than what we have brought into this government for 55 of the last 60 years. There's no business in America that could survive like this. No household in America that could do this. And this government can't do this.
It's hard to think of better evidence for the sustainability of budget deficits than the fact that we have run them for 55 of the last 60 years. If our fiscal practices haven't caught up to us after 60 years, when will they? Or does Boehner take a David Stockman-like position that the last several decades of American advancement have in fact been a ghastly failure?
Of course, budget deficits work because the government is different from a household. A government does not have a life cycle, does not ever expect to stop generating income to support itself, and, therefore, does not ever have to retire its debt. It must keep its debts at a manageable size relative to the economy, which the U.S. has done over that 60 year period. If the economy is growing over the long term, that means the government can run a deficit and grow the debt every year -- sustainably.
Boehner is right that no household could keep borrowing like that. He's not quite right about a business though. Look at the accompanying chart. The orange bars show the net debts of Wal-Mart Stores, Inc. They have soared -- up 5,760 percent since 1987. By comparison, the roughly 600 percent rise in the U.S. public debt over the same period looks restrained. Is Wal-Mart mad? How long can it go on just borrowing and borrowing and borrowing?
The answer is "as long as Wal-Mart keeps growing." The white line shows Wal-Mart's ratio of debt to earnings before interest, taxes, depreciation and amortization. And what that shows is that Wal-Mart's debts have been rising to keep pace with its growing earnings. Similarly, for six decades U.S. government debt has been rising roughly in line with the growth of the economy. Over the last few years, it's grown a lot faster because of cyclical economic weakness. The proper matter for debate is whether recent deficits are too large -- not whether six decades is too long to run them.
Boehner's position on short-term debt is confused, too. If the recent expansion of the public debt is a matter of overriding economic concern, why is Boehner so resolutely opposed to tax increases to pay it down? America's economy has thrived under a variety of tax policies, including much higher top marginal tax rates than are in effect today. Shouldn't Boehner be willing to accept tax increases, or perhaps even be eager for them, in order to fight the debt menace he cites?
Boehner doesn't really care about the public debt, as he made clear when he repeatedly supported debt-expanding measures under a Republican president. What Boehner and House Republicans really want are excuses to cut federal spending, particularly on programs such as Medicaid and food stamps that support low-income Americans. But those cuts are unpopular, so Republicans frame fiscal debate to make such cuts appear necessary to avoid disaster. If you can't borrow or tax more, and can't cut old-age entitlements or the military, which command the majority of federal spending, you're not left with many options but to soak the poor.
Soaking the poor is a policy option. It is not, as Boehner would have it, a policy necessity dictated by the inability of the federal government to borrow or tax sustainably. But if the debate instead becomes about tax and spending priorities -- is it more important to provide universal health care or keep tax rates low on high earners -- it shifts to turf unfavorable to Republicans. So they pretend.
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