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A CEO manifesto on debt and deficit
Republican U.S. presidential candidate Mitt Romney speaks during a campaign rally as a national debt clock runs in the background on September 26, 2012 in Toledo, Ohio. CEOs from across the country are asking Congress to figure out how to decrease the deficit. But how pure are their intentions?
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When was the last time a CEO had a manifesto anyway?
Felix Salmon, finance blogger at Reuters and regular guest on our Weekly Wrap segment, says that's a good question.
A whole host of CEOs from companies like Delta Air Lines, Time Warner Cable and Macy's have signed onto a campaign called "Fix the Deficit." It asks Congress to come up with a bi-partisan solution to reduce the federal deficit.
But Salmon says the U.S. federal deficit is high but not unmanageable. He says we're already moving in the right direction because debt in the United States -- both public debt of the government and private debt of consumers and businesses alike -- has dropped since the financial crisis. Salmon says one reason the debt is so high is because of the actions of businesses.
"The companies...they are borrowing less," he says. "What that means is there's less economic activity going on and the goverment is stepping in with its own borrowing to try and keep the economy moving...what [the corporate sector] should be doing is taking advantage of these low interest rates to borrow money and invest in the economy. And they're not doing that."
Salmon says the CEOs might have alterior motives -- they're hoping a bi-partisan approach to reducing the deficit could ultimately result in lower corporate taxes.
But Salmon doesn't just criticize CEOs. He says everyone -- both political parties, candidates, moderators and the public -- should be more concerned with bringing down unemployment than the deficit.
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I guess I would be in the minority that doesn't think Felix is a moron. I was actually agreeing with Felix (e.g. CEOs want the 47% to pay more in taxes so CEOs wouldn't be the only ones). CEOs make much more than they ever have, so yes, they should contribute and contribute more. Sure, the deficit is horrible, but look who got us there... BUSH! Bush confused political capital with actual assets and spent way too much of both. So if both personal and gov't debt is on the decline, can we afford to spend a little more to decrease the deficit (allow the 47% to pay income taxes)? And why should the gov't have to do all the pulling. Incent the corporations to spend. Look at Apple. Their coffers have over $1B in them.
OMFG! Look at all the panicked vitriol over a little Demand Side reality. Just how many usernames can the disgraced ghost of Louis Rukeyser have. In a rare moment of honesty, disgraced VP, Cheney, Dick, said debt didn't matter. NOW it does? Is this "Romnesia" thing contagious? Silly failed trickle-down talking points aside: Mr. Salmon speaks some sweet and needed truth: IT'S JOBS, STUPIDS!!
After listening to Marketplace for the last 20 or so years, I was compelled to register on your site for the first time to comment on this Felix Salmon piece. It is insulting to everyone's intelligence to put such an uninformed, anecdotal, biased story on your show. We have Paul Krugman to espouse this "debt doesn't matter" point of view, and most serious economists don't agree with him anyways. Let's keep Marketplace a source of objective, interesting information as it has been to me for so many years.
I found this story very frustrating.
It's been reported that this group of high-profile CEOs is mobilizing to provide political cover for congressional Republicans who have signed Grover Norquist's no-new-tax pledge. Members of the group have stated that they wouldn't mind higher tax rates in some cases--so long as a long-term bipartisan deficit deal is reached.
Everyone knows there will eventually be a deal to contain the debt but nobody knows what it will look like.
CEOs hate that uncertainty because companies cannot anticipate their future tax rates and the future structure of their tax burdens. This means firms cannot effectively predict how much money they will make or lose on certain investments in the new tax environment. That makes hiring and investing in their own businesses much riskier than they need be. Uncertainty over government spending levels is also a drag on businesses. Fiscal clarity would allow companies to plan their own futures a lot more confidently and remove a huge obstacle to growth.
In these ways, we all are hurt by Washington's inability to come up with a clear solution to our growing debt. The good QIII economic figures were tainted by a drop in business investment. These CEOs are doing their part to make a deal more politically feasible--idle accusations of corporate "meddling" and undue influence do nothing to make a deal more politically feasible. The idea that CEOs shouldn't be doing everything in their power to support a bipartisan deal is irresponsible.
Felix's conviction that debt drives the economy is an unhealthy one. Many businesses have tons of cash right now. What they don't see are expanding markets and opportunity. So, they don't go into debt. I would much rather have an economy driven by savings than one driven by debt.
Tracking Mr. Salmon’s logic became increasingly difficult as the interview went on – at a certain point I was certain I was listening to after work beer talk at the local pub!
He intimated, though not coming right out and saying it, that it is a negative that we (individuals and businesses alike) all have less debt than we did prior to the economic downturn. This logic is rubbish! Among the many lessens of the crash is debt at its core creates a false economy.
He said businesses should take on more debt just because interest rates are so low – as if there was no business environment factor whatsoever. Every indicator, even the fact that cash is so cheap, tells a person with a bit of business savvy, that the economic climate is crap and to hang on if you can. Businesses take on more debt, if they can somehow qualify in this environment, when the added cash will INCREASE BUSINESS, if for no other reason to have a hope of loan repayment. Any leader of a business large or small that borrows money because it is cheap will not be around very long.
He also said that government is stepping in borrowing TONS of cash because of our intransigence (apparently) as individuals and businesses to do so, as if there is a debt pie that must be eaten or the system will collapse. NO, the system IS collapsing because of this idiotic premise. While government can generate economic activity by improving infrastructure up to a point, the full-frontal Keynesian approach has its limits and we are there.
There was so much more but I need to get back to work.
Well Kai and Felix, this segment got me so worked up I actually registered on your site - so I'm guessing the segment hit it's goal of increasing ad revenue in various ways.
First off, here's a brilliant NYTimes piece of reporting on how debt and public spending is ruining Illinois. You can duplicate it for California, New York, and other governmental economies. These are states with the most "public investment", the widest and highest of taxes and 'revenue enhancing' laws and regulations.
http://www.nytimes.com/2012/10/25/business/illinois-debt-takes-toll-on-s...
Felix was totally dismissive of the terrible effects of adding MORE debt onto an already debt laden role - he just dismissed it out of hand as ridiculous, which is a great way to say "I don't get it" rather than making an argument.
But let's really take down Felix on a point by point basis:
- Felix said, "US deficit is high right now, it's not unprecedented". Yes, it's not unprecedented compared to World War Two (though it's close) when the spending was driven primarily by war across the pacific, throughout europe, and in North Africa. We fought on more fronts, with more depth, and vastly more war-time spending. And the deficit was DRIVEN by those wars.
Comparatively, today's wartime operations drive about 10-20% of the yearly deficit. So our current debt and it's drivers truly is unprecedented, in that they are not driven by short-term conflicts, but by structural budget design issues.
- Felix said, "The total amount of debt in the country is coming down, has been coming down since the crisis. So we're moving in the right direction"
For a financial reporter, this is just illiterate. We had a credit crisis. We had a housing bubble. We had a foreclosure explosion. We had a massive recession causing companies to hoard cash and pay down their debt because they couldn't use cash OR debt to expand their operations.
OF COURSE total debt (privately held debt, really) has gone down. That was not a result of "moving in the right direction". It was an unintended consequence of a credit crisis, burst housing bubble, and recession.
- Felix said, "What they [CEOs] should be doing is borrowing money to invest in the economy."
Really? A CEOs job isn't to protect those employees still working? It's not to create maximal value for their company they steward? A CEOs job does not extend to investing in the economy - their job is to invest where they see opportunity for growth, and to pull back when they see the risk outweighing the growth potential.
To put this another way Felix, the equivalent of your stance is that individuals have a responsibility to take advantage of record low interest rates to "invest" - even if they don't have any opportunties which outweigh the risk of that investment.
And that is why you are not a CEO.
- Lastly, one point i'll comment on but not strictly disagree with you on, "People have convinced themselves our national debt is some sort of massive problem we need to deal with urgently."
We currently will be paying about $400 billion per year in interest debt, and will grow about 7-10% per year for the foreseeable future. Note that Obamacare's total projected cost (which we can safely assume is low) is about $200 billion per year after it launches.
To put it in further comparison, our total annual defense budget is about $700-$800 billion per year. So our interest payments on our debt are about half of our total defense budget. And growing.
I agree our most imminent national problem is employment. But close seconds include the federal debt, medicare spending, healthcare spending growth (not yet even addressed), and social security stabilization.
And let's not forget that doesn't even address the massive state debts and unfunded obligations and pensions.
Thus, it is amazing to me the dismissiveness you have towards prominent private citizens who look at the total picture and say "My company, my employees, and the citizenry are at risk from this debt. If you want growth AND deficit reduction, you must cut spending and increase revenues while not over-taxing ala New York, California, and Illinois"
Total debt has declined since 2007. He used this as a point that
It appears everyone agrees the economy must grow to generate sufficient revenue to pay down the debt and establish a level of commerce that puts people back to work. Increased tax revenue will follow increased commerce.
Since Republicans first got the idea that "trickle down" is a viable economic policy, household incomes have remained level or actually fallen except for those households able to influence government policy. These self-serving 'wealth creators' flooded the economy with dollars and debt and now want to put the cost of paying off that debt on the people that made their wealth possible, consumers. These are the same consumers who's incomes have stagnated and are no longer sufficient to support more than bare existence.
So now these corporate 'wealth creators' have quit spending themselves, don't pay livable wages and yet they think the economy is going to grow. Do they really think that "saving" is going to spur growth?
Unfortunately the only growth these policies will spur is in the wealth gap, the stuff of revolutions.
Mr. Salmon has to be the dumbest person you've ever had on Marketplace. I recognize that NPR is a left-leaning station and that is fine. However this guy is just plain stupid. Debt DOES decrease our stability, no different than only putting 20% down on a house decreases a family's stability. American individuals and businesses realize this, that is why we are decreasing our 'debt risk'. However our federal government doesn't understand this and they just keep spending.
To put our debt in perspective. If you started paying $20 million/day toward the debt when Christ was born, it still would not be paid off. And that doesn't even include interest, which anyone with an ounce of intelligence knows that that is the larger cost of debt when looking over the long term.
Please, for the sake of all things holy, NEVER have Mr. Salmon on your show again. He is truly the dumbest guest ever.
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