The budget battle is about to begin again. Congressional Republicans are threatening to refuse to raise the debt ceiling limit if spending isn’t cut, especially for Obamacare, while Democrats and the White House, not surprisingly, are opposing those demands.
Robert Kuttner, author of the new book, Debtors' Prison: The Politics of Austerity Versus Possibility, says the austerity approach that Republicans favor is doomed to failure if the goal is to grow the economy.
He tells The Daily Ticker, “If we try to get blood from a stone, which is the austerity policy, you just shackle the economy’s potential.” What’s needed instead, says Kuttner, is more government spending, which also means more debt. “I would rather see refinancing of private debt, refinancing of mortgages so people can stay in their homes, refinancing of student loans and a new strategy to make college affordable.”
As his book title suggests, Kuttner thinks the austerity approach dooms those people to a life in “debtor’s prison”—like many Europeans in the Middle Ages who were locked up because they couldn’t pay their debts. Not only did they suffer but so did their creditors because imprisoned debtors could not work to pay off their debts.
Kuttner, the co-founder of The American Prospect, is not saying that debt-burdened individuals and families today are being locked up literally but rather metaphorically because unlike many corporations their debt usually is not forgiven in part or in full. There are “too many double standards,” says Kuttner. For example, “Banks got bailed out as creditors and debtors while homeowners got very little relief.”
According to Kuttner, private debt, not government debt, is the problem. “If you have a household whose mortgage is worth more than the house or students who are starting out saddled with debt, they never get to realize their economic potential. The government, by contrast, can borrow money and spend that money and get a recovery going which is what happened finally to cure the Great Depression... World War II… and we did grow our way out of that debt.”
Kuttner says the debt-to-GDP ratio is “now stable, projected to decline a little bit and far below what it was at the end of World War II.” And more government spending on infrastructure such as roads and public transportation would actually circulate in the private sector because the government doesn’t do that work but funnels funds to private contractors who do, which helps grow the economy..
“This whole canard about public debt is partly the work of people who don’t really like social insurance… it’s a great way to bash social security... [and] government generally,” says Kuttner. If those critics were right about the dangers of debt, namely rising inflation, then ”interest rates would be rising very rapidly,” says Kuttner. Instead “they’re rising a tiny bit” because Fed “Chairman Bernanke said that at some point we might have to cease quantitative easing.”
If you agree with Kuttner or disagree, check out the video above to understand one of the key positions in the current deficit/debt debate that will impact most taxpayers.
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