How You Say “Broke” in T-Bills

Don’t believe the hype: The U.S. can afford its welfare state

There’s something strange about the fact that a radical document like Rep. Paul D. Ryan’s budget—a budget that would cut taxes, primarily for high earners, by $4.6 trillion while taking health insurance away from 14 million Medicaid beneficiaries—has been welcomed by centrist elements in Washington as a sensible, hard-headed contribution to the public debate over spending. Maya C. MacGuineas, president of the Committee for a Responsible Federal Budget, declared that the budget “puts our nation on a fiscally sustainable path.” Robert L. Bixby, who runs the pro-deficit-reduction Concord Coalition, judged that the budget “fit the magnitude of the challenge.”

But then again, the budget was written in language that deficit hawks love. Ryan writes that, “At its core, this plan of action is about putting an end to empty promises from a bankrupt government.” The Ryans, MacGuineases, and Bixbys of the world say stuff like this all the time. We can’t afford the government we have. We’re going bankrupt. It’s unsustainable. And to this day, I have no idea what any of them are trying to say. That may sound like feigned incomprehension, but statements like theirs are truly vague, and none of the things they could mean make much sense.

Do the deficit hawks mean we’re going bankrupt now, or in the next decade? I certainly hope they don’t think either of those things, because that’s absurd. Take a look at interest rates for five- and 10-year Treasury bills. In both cases, the rates are negative. You should take two things away from this. The first is that if there were a significant risk that the US would default on its debts in the next five or 10 years, then, assuming at least a modicum of market rationality, those interest rates would be very, very high. For comparison, Greece, a country that actually is on the verge of default, has interest rates of above 20 percent on its 10-year bonds. When there’s a real risk a bond won’t be paid back, investors demand more interest to make it worthwhile. With Greece, investors are doing just that. With the U.S., they’re doing the opposite.

Which brings me to the second takeaway: Negative interest rates mean that bond-buyers are actually paying debtors for the opportunity to lend them money. This is extremely counterintuitive, so it’s worth driving home for a while. When Treasury interest rates are negative, it is cheaper for the federal government to pay for its programs by borrowing money than it is for it to pay for them with cash. In a situation like this, borrowing money not only doesn’t “bankrupt” the government, it makes its fiscal situation more secure than it would be without borrowing. In a situation like the current one, running a balanced budget would be positively irresponsible, a huge wasted opportunity.

So if Ryan and his centrist fans are saying that the debt is unsustainable in the near term, they’re just wrong. But maybe they don’t mean that. Maybe they mean that at some point, when interest rates are more normal, America’s welfare state just won’t be supportable anymore, and we’ll need to, say, privatize Medicare and gut Medicaid (and other aid to the poor) to survive. But that’s wrong, too. The U.S. is the richest country in the world, and yet dozens of poorer countries have been able to provide comprehensive health care to all their citizens for less than we currently spend on non-universal health care. Of course, they use systems—from single-payer in Canada to something like ObamaCare on steroids in the Netherlands—which the U.S. has yet to adopt, but that doesn’t mean we can’t afford good, cost-effective health care for everyone. It just means we’ve chosen not to provide it yet.


Note also that the fiscal crisis in Europe has nothing to do with the continent’s welfare states and everything to do with trying to use a single currency to meet the fiscal needs of seventeen different countries. If you don’t believe me, just look at Sweden, which has maybe the most generous welfare state in the world and has maintained its own currency, the krona, rather than adopting the Euro. As a result, it weathered the financial crisis better than just about any other rich nation, with the possible exception of Canada, which also does more redistributive spending than the U.S. So if you hear people citing Greece or Italy as evidence that social spending bankrupts nations, don’t believe it for a second.

Ryan is a smart guy, and at some level I think he knows that all this talk about “unsustainable” debt is kind of silly. But I also think that he’s serious when he identifies Ayn Rand as the most important influence on his political views (he apparently forces his staffers to read Atlas Shrugged). Ryan’s budget doesn’t make a lot of sense as a response to real national concerns, but it makes a lot of sense as the pursuit of someone who, like his idol Rand, thinks that aiding the poor is fundamentally immoral. The honest case for Ryan’s budget isn’t that we can’t afford to help the poor. It’s that Ryan and his allies just don’t think we should.

Dylan R. Matthews ’12, a Crimson editorial writer, is a social studies concentrator in Kirkland House. His column appears on alternate Wednesdays. Follow him on Twitter at @dylanmatt.