U.S. leaders must heed debt panel's ideas before dollar collapses

Despite all the groaning and foot stamping that met the preliminary suggestions of President Obama’s bipartisan commission on reducing the national debt, none of its big ideas was terribly novel.

To the contrary, most of them long have been talked about in public-policy circles — like gradually raising the retirement age to 69 over the next 65 years, eliminating the mortgage-interest tax deduction and other targeted tax deductions and reimbursing some of the money to the public by reducing income and corporate tax rates, raising the gasoline tax, cutting farm subsidies, freezing the compensation of federal government employees and reducing their numbers by 10 percent, and means-testing Social Security pension payments. Indeed, income tax breaks were reduced along with tax rates during the Reagan administration.

Another idea, cutting Medicare spending, was part of the recent national medical insurance legislation. Restricting medical malpractice lawsuits wasn’t, but Republicans have advocated it for a long time, and now it’s on the commission’s list.

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There are good reasons for these suggestions.

With medical advances, people have been living longer and healthier lives and, on average, by 2075 most people well may be able to work productively until they are 69 and older. Along with the government’s bubble-blowing suppression of interest rates, the mortgage interest rate deduction shares blame for the vast overbuilding in real estate in recent years and is regressive, favoring wealthy property owners over poor renters.

Farm subsidies go mostly to big agribusiness, not to struggling family farms and migrant farmworkers. Many well-to-do retirees spend their Social Security pension income maintaining vacation or winter homes down south. Medicare could be means-tested as well; Medicaid already is.

Gasoline taxes could be used to encourage conversion to modes of transport that don’t rely on Middle East oil imports, like electric and natural gas vehicles.

The commission’s list has huge omissions, so there are great opportunities for even bigger savings. Wall Street having become less the engine of capital formation than a parasite on the economy that draws its income from market churn and manipulation, a tax on financial transactions, as proposed by Ralph Nader, might raise billions each year and push Wall Street back to its proper purpose.

And while the commission would cut military weapons development, it didn’t mention the U.S. government’s practice of undertaking stupid imperial wars at least once in every generation — Korea, Vietnam, Iraq, Afghanistan — wars whose cost is far greater than the cost of weapons systems. Somehow these wars have been undertaken without the slightest discussion of whether the country can afford them — perhaps because they have been financed not by taxes but by the rest of the world’s purchase of the U.S. government debt instruments.

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While the president and Congress don’t yet have the political courage to face up to the choices set forth by the debt reduction commission, the debt issue well may be resolved without the president and Congress — resolved by the rest of the world, which already is demonstrating reluctance to keep buying U.S. government debt and financing this country’s overconsumption and imperial wars. As the portion of U.S. debt purchased by other countries declines, the portion that will have to be purchased by Americans or by the U.S. government itself — monetized debt — increases.

This is already sharply devaluing the dollar, and dollar devaluation is in effect a tax on everything as prices rise. While the federal government long has fudged and falsified the consumer price index and has subsidized investment banks in their use of derivatives to suppress commodity prices, diverting investment demand for inflation hedges away from real things and into paper claims on real things, commodity prices still have broken out dramatically. This is manifested at supermarkets, gas pumps and elsewhere — not just in the United States but throughout the world, another reason why the rest of the world is starting to balk at U.S. debt issuance.

Refusal by the United States to make hard choices and to constrain government to the necessities — the things a decent society can’t live without — likely will mean the collapse of the dollar and a decline in living standards so severe as to cause social disruption. Will the country have to experience that to get motivated? Has all the patriotism been shipped out to Iraq and Afghanistan?

Chris Powell is managing editor of the Journal Inquirer in Manchester.