Deficits and Depression

Americans can tolerate belt-tightening, but not the national humiliation of the deficit.

Victor Davis Hanson
Thursday, October 14, 2010

We will learn in November just how angry the public is about a lot of things, from higher taxes to massive unemployment.

But the popular uproar over those issues pales in comparison with the sense of humiliation over the fact that we Americans are quite broke. In 2008, the public was furious at George W. Bush, not because he was too much of a right-wing tightwad, but because he ran up a series of what were then thought to be gargantuan deficits. The result was that under a supposedly conservative administration, and despite six years of an allegedly small-government Republican Congress, the national debt nearly doubled, from $3.3 trillion to $6.3 trillion, in just eight years.

Barack Obama apparently never figured out that he had been elected in part because massive Republican borrowing had sickened the American people. So in near-suicidal fashion, he took Bush’s last scheduled budget deficit of more than $500 billion — Bush’s Keynesian attempt to get the country out of the 2008 recession and financial panic — and nearly tripled it by 2010. Obama’s new red ink will add more than $2.5 trillion to the national debt — with near-trillion-dollar yearly deficits scheduled for the next decade. All of that will result in a U.S. debt of more than $20 trillion.

What exactly is it about big deficits and our accumulated debt that is starting to enrage voters?

First, the public is tired of the nonchalant way that smarmy public officials take credit for dishing out someone else’s cash without a thought of paying it back. Each week, President Obama promises another interest group more freshly borrowed billions, now euphemistically called “stimulus.” But the more money he hands out to states, public employees, the unemployed, or the green industry, the more voters wonder where in the world he’s getting the cash. The next time a senator or representative puts his name on yet another earmarked federal project, let him at least confess whether it was financed with borrowed money.

Second, there is a growing sense of despair that even vastly increased income taxes cannot cover the colossal shortfalls. At least the high Clinton tax rates of the 1990s balanced the budget. But should we bring them back, we would still run a deficit of more than $1 trillion in 2011 — given the vast increases in federal spending.

That bleak reality creates hopelessness — and anger — among voters, who feel they are being taken for fools by their elected officials. Americans oppose tax hikes not because they don’t wish to pay down the debt, but because they suspect the increased revenue will simply be a green light for even greater deficit spending.

Third, it does no good for Beltway technocrats to explain how deficits are good at “stimulating” the economy, or why they do not really have to be paid back. Voters know that such gibberish does not apply to their own mortgages and credit-card bills.

People feel relieved when they can pay off debt and become chronically depressed when they cannot. When the government last balanced the budget — in 2000, under the Clinton administration and a Republican Congress — the country collectively experienced as much of a psychological high as it is now collectively experiencing humiliation over being ridiculed as a spendthrift borrower.

National reputation and sense of self matter. Americans are tired of hearing about inevitable Chinese ascendancy and American decline. They know China is still in many ways a repressive developing country facing huge political, environmental, and demographic challenges. But Americans also concede that China’s huge budget and trade surpluses result in trillions of dollars in cash reserves — and hence global clout, world respect, and a promising future that seems out of reach for spend-now/pay-later America.

Fourth, there is real fear that something terrible will soon come from this unsustainable level of spending. Interest rates are at historic lows. But if they should rise, just servicing the current debt would cost even more hundreds of billions in borrowed dollars. Soon, we will face a bleak choice of slashing either national defense or Social Security — or both — just when the nation is graying and the world is becoming more dangerous than ever. Will the Chinese lend us the money to deploy an aircraft carrier off their coast, or to finance new American health-care entitlements that they cannot afford for 400 million of their own people?

In this election season, all the old political pluses — years of incumbency, entrenched seniority, and pork-barrel earmarks — are proving to be liabilities. Instead, the more public officials admit to being in control when trillions of dollars in debt were run up, the more Americans want them gone.

We are humiliated by what we owe. If we cannot pay it back, we at least want political payback.

It’s that simple this year.