“Debt Crisis”: The Myth Behind the Myth

Image via Shutterstock.

While the two major parties plot strategy for the next battle in the federal debt-reduction war, another war rages among economists over the question, “Is debt really the federal government's biggest problem?” Some insist that unless Washington cuts spending substantially to reduce the debt quickly, we are headed for disaster. Others insist with equal fervor that growth is the number one priority: Aggressive pro-growth policies will reduce the debt in the long run with far less pain.

If the pro-growth economists could gain public support they would give liberal Democrats a powerful weapon to resist the Republican’s budget-slashing ax. But the pro-growth faction makes little headway in the public arena because the political wind is blowing so strongly against it. Why should the wind blow that way?

It’s not because voters have studied the competing theories carefully and concluded that the debt-crisis faction has the stronger case. When it comes to economic theory, few of us draw any conclusions at all. We get lost in the esoteric arguments so quickly that we give up trying to understand. Politicians know this; most of them are probably just as lost as the rest of us amidst the esoteric arguments.

But the best politicians know something else: Few voters care much about theories at all. Few of us make up our minds through careful logical analysis of the facts. Instead we rely on myths to organize of the vast barrage of information constantly bombarding us.

The two economic theories represent two myths, deeply rooted in American political culture, that have competed for dominance throughout our history. The debt-crisis theory is so powerful now because it evokes the more compelling myth. 

(Again, to clarify: when I speak of myth, I don’t mean an outright lie. Like most historians of religion, I take myths to be the stories -- compounded of fact and fiction -- that we take for granted, stories we use, often unconsciously, to make sense out of life and turn it into meaningful experience.)

The pro-growth view is summed up by its most prominent spokesman, Paul Krugman: The size and danger of the debt are overstated. And the best way to reduce the debt we do have is to spend more government money now to stimulate growth. Yes, it will raise the federal debt for a while. But soon the expanded economy will be putting enough back in the government coffers to erase that increased debt. 

Here we have the cherished American myth of progress, or, as Barack Obama rechristened it, the myth of hope and change: America’s mission is to make a better life for all its people and, in the process, for the whole world. Head out to a new frontier. Believe in your vision of the future. Invest in it. When that future arrives, things are bound to be better than they are now. So take some risk. Show some courage. That’s what America is all about.

But the debt-crisis party won’t buy it. The heart of their economic theory is fear, especially of federal debt. As Republican economic guru Bruce Bartlett put it, “The debt limit is the real fiscal cliff.” Like individuals or families who spend beyond their means, the party can continue just so long, they say. Then comes the day of reckoning, when it’s impossible to pay back the borrowed money: Bankrupt!

No one can predict when that tipping point will come, the prominent columnist Robert Samuelson has written. Like any cliff, it can remain unseen until we go over it, suddenly and unexpectedly.

He quotes economist Barry Eichengreen, “a leading scholar of the Great Depression,” who warns that if the U.S. debt grows large enough bond traders will stop funding it: “This scenario will develop not gradually but abruptly. Previously gullible investors will wake up one morning and conclude that the situation is beyond salvation. They will scramble to get out. … The United States will suffer the kind of crisis that Europe experienced in 2010, but magnified.”

Americans are very familiar with such warnings of a surprise attack, though not from bond traders but from foreign evildoers, be they fascists, communists, or terrorists. To draw on the current parlance, it’s our myth of homeland insecurity: America is constantly at risk. Its chief mission is to protect itself from forces that would destroy it.  

So let’s arm ourselves well, circle the wagons, and proceed with utmost caution. Any morning we may wake up and find our nation under attack. Any misstep might plunge us over the cliff into the abyss of national catastrophe.

Economists like Krugman can argue with the most compelling logic that a nation is not like a family. Governments don’t have to repay all their debts. They need only “ensure that debt grows more slowly than their tax base.” And a nation’s debt is largely “money we owe to ourselves.” They can point out that the current federal debt is no higher (perhaps lower) that it was in the post-World War II years, when the U.S. was beginning its greatest economic boom ever. 

But the myth of homeland insecurity is a formidable foe. Like any deep-seated myth, it’s largely impervious to logic.

Most historians agree that Franklin D. Roosevelt’s warnings about German bombers attacking Kansas City were exaggerated, to say the least. So were the warnings about a Soviet nuclear “bolt out of the blue” from Eisenhower, Kennedy, and Reagan. Nevertheless, the sense of permanent insecurity they created has become a firm pillar -- perhaps the central pillar -- of American political culture.

It’s the foundation on which the Republicans build virtually all their rhetoric and policies. And they can tie the rising federal debt to traditional fears of foreign foes by citing warnings that the debt is “the most significant threat to our national security” (Admiral Mike Mullen) and puts the U.S. “at risk of squandering its global influence” (New York Times analyst David Sanger).

Of course even the most conservative Republicans still pay lip service to the American faith in progress. But even most Democrats agree that, when it comes to making policy, national security trumps every other concern. There’s a bipartisan consensus that we must always be on the alert for threats, old and new, and ready to resist them by any means necessary. That consensus is bound to keep us insecure, constantly ready to see every new development as a potential crisis, which gives a clear edge to “homeland insecurity” in the war of the myths. 

Barack Obama has paid homage to the myth of homeland insecurity ever since he first won the presidency by promising to stave off an impending financial collapse. He has promoted his major policies not only in the name of hope and change but, even more often, as ways to prevent things from getting worse. Now he constantly reassures the public that he takes the idea of an impending debt crisis very seriously and is dedicated to resolving it.

Most Democrats follow the president’s lead, insisting that debt reduction is at the top of their agenda, just as Republicans insist it must be. This bipartisan consensus is a testament to the enduring dominance of the myth of homeland insecurity. It’s the power of this mythology, not any facts or logic, that deprives the pro-growth view of any serious public hearing. Every day that the debate over debt reduction dominates the headlines cements America more deeply into its long-standing dominant mythology.

Every society has the right to choose its myths. But every right has a correlated responsibility. As we grow more self-conscious about the role of mythology in political life, we also have a growing responsibility to recognize the consequences of our choices. America’s obsession with homeland security has already had grave consequences. The debate between debt-crisis and pro-growth economists gives us a chance, from an unexpected quarter, to consider whether we want to dig ourselves deeper into that hole.