NDN Blog

So, the National Broadband Plan arrived in its full, 376-page glory yesterday, and the reception has been largely positive.  I got my hard copy (see enthusiastic photo at left), and am just beginning to make my way through it, but my first impression is that Chairman Genachowski and his team succeeded in offering ambitious but achievable objectives in expanding high-speed access to all Americans at reasonable prices.

The overall theme of the report-- as I understand it-- seems to be the right one: the FCC is setting an agenda for clearing the underbrush and clarifying the rules of the road to allow innovation, investment and competition to do exactly what they've been doing for the past 15 years.  As Blair Levin said at Brookings today, "Crises are caused by failing to act in the interstices," and the FCC is showing admirable leadership in anticipating the crises of tomorrow, and beginning to figure them out today. Many of the Plan's recommendations are dedicated to gathering data, clarifying rules, and creating policies and mechanisms that foster healthy competition and experimentation.  It's this kind of "brush clearing" that will allow the world's innovators to work in concert to maintain our progress.

In the coming days and weeks, I'll be commenting more on the Plan, particularly its recommendations for the seven "national purposes"-- health, education, energy & environment, economic opportunity, government performance, civic engagement, and public safety-- as this is a blog (and blogger) that likes to focus on the intersection of technology and the world.  For now, here are a few early reactions that have come in from around town:

- POTUS can't get enough.

- FAQ&A with Post Tech.

- Tim Karr at Free Press points out some unanswered questions.

- Jonathan Spalter of Mobile Future has his own take on the unanswered questions.

- Last, Chairman Julius sits down with YouTube and its constituents:

With joblessness still rising despite our historically easy fiscal and monetary policies, the political chatter is full of charges that globalization, especially the role of multinational companies, is costing America millions of jobs. The facts are less clear-cut, and the impact on job creation depends substantially on whether the multinationals are American or based abroad.  

For several years, for instance, Boeing and the European multinational Airbus have been competing for a $35 billion contract to develop and build the next generation of tanker aircraft that refuel other planes in-flight. Boeing is as close to a domestic U.S. company as a large U.S. manufacturer can be these days, with 96 percent of its physical assets located here while maintaining a far-flung global network of suppliers and vendors. The face-off with Airbus pits Boeing against a division of the European Aeronautic Defense and Space Company (EADS), which maintains 96 percent of its physical assets in Germany and France while also depending on global suppliers and vendors. For years, PR flacks for both companies have claimed that each would create many more jobs than the other, if it won the DoD contract.  In practice, Boeing and Airbus will each need roughly the same number of workers, worldwide, to develop and build the new tanker; and in order to be cost-competitive, most of this work would occur at each company’s existing facilities. For an economist or a business person, this suggests that a U.S. based company would create most of those jobs here, where its physical plant is; while a European-based firm would have to produce most of the new jobs in Europe.  

Recently, I tested these assumptions when Boeing asked if my advisory group Sonecon could conduct an impartial analysis of jobs and the tanker contract. I agreed, with certain conditions. First, our study would ignore the PR claims from both sides. Second, we would focus on the new investments in plant, property and equipment provided under the contract, and construct an objective jobs estimate using historical data tracking the relationship for aircraft makers between these new investments and job creation. Finally, we would use only verified, publicly-available data, plus the two firms’ formal proposals to the Pentagon. 

In its formal submission, Airbus proposed to partner with the U.S.-based Northrop Grumman, a common arrangement for foreign multinationals competing for Pentagon contracts. Airbus’s plans also showed, as expected, that it planned to develop and produce most of the new planes at its existing facilities in Europe, with Northrop-Grumman mainly assembling it here. Furthermore, reams of government data established that U.S. subsidiaries of foreign aircraft makers are not only much less invested here than their U.S. counterparts. Those subsidiaries also generate substantially fewer new U.S. jobs for every dollar of new investment here, which means they do the more labor-intensive tasks back home.  

Whichever firm ultimately wins this contract will use a substantial share of the funds to pay outside vendors and suppliers, as suggested earlier, and these payments will also create thousands more jobs, indirectly. But there are no public data on where the myriad parts of each company’s global supply chain are located, so no one can say how many new U.S. jobs will be created indirectly by either rival in this way. We might plausibly assume that the supply chain of a U.S.-based firm is more concentrated here than the supply-chain of a European-based firm; but since we don’t have the data to test that assumption, we set it aside.

These facts and factors produced some definitive results: We found that over the 18-year life of the contract, we should expect Boeing to produce 10 times as many U.S. jobs – roughly 3,500 to 4,000 jobs per-year – as Airbus-Northrop-Grumman. In fact, since the study was completed, Northrop-Grumman pulled out of the competition, leaving Airbus to face Boeing alone.  

These findings throw additional light on other common concerns about multinational companies. Perhaps most important, as Airbus’s case suggests, new investments and job creation by a multinational in its home economy are often accompanied by new investments and jobs by its foreign subsidiaries. That’s just the way that multinationals do business. For example, when Ford or Dell build a new plant abroad, the operations of that facility will generate new business back home, including investment and jobs, because the headquarters will continue to provide its subsidiaries with more advanced services and produce the most advanced parts. That makes the economic impact of multinationals here largely “distributional.” The worldwide networks of multinational companies shift many thousands of basic service and basic production jobs abroad, while creating a smaller number of more highly-paid, more advanced service and production jobs here.

The Pentagon should award its contracts to those firms that can most credibly and efficiently produce the new systems required for American national security. That said, the impact of those contracts on job creation cannot be considered a matter of indifference, especially in a period when American businesses are capable of producing new jobs only at much lower rates than previously.

Millennials (young Americans born 1982-2003) rate the quality of education and the cost of college near the top of the list of issues about which they are most concerned, just behind jobs and the economy. This week, President Barack Obama responded to those concerns with the release of his plan to fix the No Child Left Behind Law and focus the federal government's efforts even more on ensuring school's deliver the results and outcomes that Millennials and their parents expect from America's institutions.  The announcement capped a remarkable series of events that saw  Democrats joining  parents and educators across  the country in taking important steps to address  those educational needs,  providing Millennials new hope that their investments in politics and civic engagement will finally pay off.

NDN's newest survey research indicates that Millennials, unlike all other generations, rate education generally, and the cost of a college education specifically, as two of the top four critical problems  they believe government must address and fix.   Clearly, Millennials, like older generations, see a need to improve public education in America. And, in fact, Millennials perceive this need from a very personal perspective. While the Millennial Generation is  slightly more positive about the overall quality of education in the United States (41% positive/50% negative) than older generations (32%/62%), they give significantly lower grades to the education they have personally received than older generations.  Seventy percent of Millennials believe that the poor quality of public education stems from a  lack of money and the way schools  are managed and organized. Unlike the majority of older generations, Millennials are about evenly split on whether or not unions and work rules are a major problem in our system of public education. In response to attitudes like these, an  increasing number of urban school districts are beginning to abandon the strategy  of incremental reform and adopting more radical and dramatic changes to address the concerns of Millennials  and their  parents.

In Rhode Island, the Central Falls school board fired all the teachers, the principle and the administrators in an underperforming high school where half the 800 students were failing every subject and only seven percent were proficient in math. Unable to reach agreement with the teachers on how to pay for the changes needed to break this cycle of mediocrity, the board invoked the "turnaround option" sanctioned by the Obama administration's school reform initiative, which allows school boards to start over at failing schools with a brand new set of teachers and administrators. Given the President's unwavering support for systemic reform of schools that fail to educate children embodied in his Race to the Top initiative, the White House's support of the school board's actions should not have come as a surprise to those still trying to protect the status quo.

In Kansas City, Missouri the school board, that  previously had stood in the vanguard of those believing primarily in racial integration and increased per pupil spending as the solution to the problems of education in urban environments, decided to try a completely different approach. Less than third of Kansas City  elementary school students are now reading at or above grade level and no more than a quarter of most of their schools' students  have achieved the levels of proficiency required for   the skills they will need in life. Faced with these results, and the prospect of running out of money by next year, the board voted to close about half of the district's  schools in order to "dramatically enhance education for each of our students by combining our very best teachers and very best resources in fewer schools," as Kansas City's School Superintendent put it.

But perhaps the most dramatic news of the week came from Detroit where a coalition of nonprofit organizations, Excellent Schools Detroit, announced its plan to replace Detroit's failing public schools with 70 new ones and make a $200-million  investment over the next ten years in order to achieve its  goal of graduating 90% of Detroit kids from high school by 2020 and having 90% of graduates go on to college.  Currently, about 58% of students in Detroit's school system and 78% of those enrolled in charter schools in the city graduate from high school, while fewer than 25% enroll in college.

The plan includes a push for mayoral control of Detroit Public Schools, but more importantly the establishment of an independent commission to grade every school in the city, including charters, every year against a uniform set of standards and outcomes focused on achieving educational excellence. The new Standards and Accountability Commission will establish a competitive public education marketplace complete with report cards grading each school's progress against an agreed upon set of standards that will enable parents to become smart shoppers for their child's education. The commission will also  suggest closures in order to weed out failing schools, half of which, under the plan, would be closed or replaced with schools under new management by 2015. Like the Kansas City solution, the plan does not rely on increased funding from the state but rather the commitment of Detroiters to the future of their children. The idea was greeted with cheers from everyone except the members of the current school board.  

Meanwhile, back in the U.S. Senate, a flurry of phone calls and emails from Millennials across the nation, convinced a majority of Democratic Senators to join in an effort to rescue Pell grants for students attending college from dramatic cuts that would have reduced payments by 60% for eight million students and eliminated the money altogether for another half a million. The House had already passed the Student Aid and Fiscal Responsibility Act, which would reform the student loan program by eliminating the current subsidies to private lenders who make student loans guaranteed by the federal government and invest the money saved in increasing the size and availability of Pell Grants. But six Democratic Senators, who should know better, had argued that the nation couldn't afford to continue to make these investments in its future and should instead continue to underwrite the bank's profits, even as students on campuses across the nation demonstrated to protest increases in tuition at cash strapped state universities.

 Since Republicans were united in defending the interests of banks over Millennials, the only way to enact President Obama's student aid reform proposal was to include the concept in the budget reconciliation package, central to efforts to finally pass health care reform, which  only requires a simple majority in the Senate for passage. After hearing from their House colleagues on the political benefits and policy importance of the concept, even budget hawks like North Dakota Senator Kent Conrad,  chairman of the Budget Committee, agreed to find a way to bundle the two items by adjusting the education portion  to account for a revised Congressional Budget Office cost analysis. The principle driver of the increased costs of the program is the popularity of this type of college financial aid among Millennials struggling to stay out of debt and still get the education they need to get a good paying job. By combining ways to reduce the cost of college with a major expansion of health care in the reconciliation package,   Democrats  have taken a major step forward in solidifying the support of all elements of the Democratic Party's  21st Century majority coalition-from young voters to minorities.

This new coalition presents the best opportunity for Democrats to solidify a dominant majority coalition since FDR and the New Deal. But key members of the coalition, especially Millennials, are currently not convinced that voting in 2010 will make much of a difference, given the results they have seen from Congress in the first year of the Obama administration in the election of which they played such a significant role.  But these recent events   suggest the country is finally beginning to listen to the voice of this new generation and address its concerns. As educators and parents at the grass roots of this revolution begin to have an  impact in cities across the nation, the best thing that Democrats in Congress could do before this week  is out is pass both health care and student aid reform as part of their budget reconciliation process. Doing so would finally begin to align the nation's budgetary priorities with its future and bring hope for Millennials that changes they can  believe in will continue to flow from their investment in the country's political process. 

The internet is a very disorganized place. I think our children and grandchildren will laugh at us for (among many other things) even trying to bushwhack our way through this chirping, hissing, dripping jungle of data, media, networks-within-networks, and kittens doing adorable things. The next truly killer app will be the one that is able to organize content, suss out what matters and what matters to you, and deliver it to you on a silver platter (or on a lunch tray, or in the Stanley Cup, or however you want it served).

The big question that follows is how, exactly, will content-- written, visual, audio, etc.-- be sorted and organized? Who will be the decider? Will the New York Times editorial board bestow the label of true and important? Will Google's algorithms sort items based on myriad criteria to allow the relevant to rise to the top? Will billions of netizens vote and decide? Who knows.

Here's what I do think is true: In dealing with the oceans of media and content, perhaps the most valuable validators will be our friends. They'll share links, photos, videos, blog posts, quotes, quips, and other stuff they like with you, their friend, and you will share back with them. We already do this of course, through e-mail and IM, status message and Tweet, RSS, Blog, Buzz, YouTube, Flickr and Facebook. But it's fragmented, it's disorganized, and it's not very well integrated.

A recent article by Marisa Meltzer at the American Prospect wrote about blogging/sharing platform Tumblr, which gives users a slick, easy way to share content-- original or not.  She aptly describes it as a tool for "curating" the web-- for picking out and sharing what matters to you, and ignoring the rest. I've experimented with a number of blogging platforms over the years, and Tumblr is the one that feels most relevant to the moment we're in now: distilling simplicity from the pandemonium.

So is Tumblr the future of content sharing on the web?  Well, no, not exactly. I think we're gravitating toward something that melds Tumblr's simplicity, ease of use and customizability with much of Google Reader's functionality, and then ties it together with Facebook's network. Google and Facebook are both working hard to develop the killer content-sharing platform, but Facebook still feels clunky, and Google Buzz is the worst of all worlds.

But it was just 25 years ago that the first .com was registered.  Fifteen years ago, Netscape changed the internet.  And five years ago, nobody had heard of a Twitter.  So I won't go any further in my speculation about how we'll be sharing-- or even what we'll be sharing-- five years from now.

The New York Times this morning covers China’s suppression of the renminbi to encourage exports and active use of the World Trade Organization’s rules to prevent protectionism by its trading partners. 

To maximize its advantage, Beijing is exploiting a fundamental difference between two major international bodies: the World Trade Organization, which wields strict, enforceable penalties for countries that impede trade, and the International Monetary Fund, which acts as a kind of watchdog for global economic policy but has no power over countries like China that do not borrow money from it.

China had a $198 billion trade surplus with the rest of the world last year, with its exports to the United States outpacing imports by more than four to one. Despite that, in the last 12 months, Beijing has filed more cases with the W.T.O.’s powerful trade tribunals in Geneva than any other country complaining about another’s trade practices.

In addition, Beijing has worked to suppress a series of I.M.F. reports since 2007 documenting how the country has substantially undervalued its currency, the renminbi, said three people with detailed knowledge of China’s actions.

China buys dollars and other foreign currencies — worth several hundred billion dollars a year — by selling more of its own currency, which then depresses its value. That intervention helped Chinese exports to surge 46 percent in February compared with a year earlier.

Paul Krugman, in his column today, calls on the Treasury Department to declare China a currency manipulator, I, like Krugman, believe that the common conception of China’s "ownership" of the U.S. is a bit backwards. (Think: When you owe the bank $1 million, the bank owns you, but when you owe the bank $100 billion, you own the bank.) Having said that, Krugman’s solution – "playing policy hardball" by imposing a 25 percent surcharge on imports – seems to approach dangerous levels of protectionism while the global economy remains unstable and could turn out to be ineffective, backfire, or start a trade war. 

Fundamentally, there seems to be a question of domestic Chinese politics at hand – the global economy would be helped by China floating the renminbi sooner rather than later, but that action cannot appear to come as a result of foreign, especially American, pressure. There is, of course, another calculation in play – China’s currency policies hurt America less than they hurt others, namely developing nations. Since public American pressure on this issue is likely to backfire and other countries should care about this a lot, we are left with the less-exciting (and less fun for economic pundits) avenue of behind-the-scenes diplomacy and multilateral action.

Two other stories worth following on global and domestic finance:

• European Monetary Policy remains in flux, as the French are displeased with German labor-cost practices. This follows calls to create a European Monetary Fund, which follow the Greek financial crisis.

• Senate Banking Committee Chair Chris Dodd releases financial reform legislation today. The need and appetite for such reform has only been fueled in recent weeks by an absolutely awful report about what went wrong at Lehman. 

A new Telegraph (conservative) poll is the latest showing Tory slippages, Labour gains. If these numbers hold the election will end in a "hung Parliament," with no party able to form a government on their own (will talk more about this later). 

The general election is expected to start soon and wind up with election day on May 6th.  This election will be the first in British history to feature three televised debates, adding a wild card into this race which no one can predict.  The 3rd major British party, and 2nd left of center one, the Liberal Democrats, will be getting equal time to the big two in these debates, and no one really knows what that means.  So it is really a very fluid environment here.   

This spring general election is shaping up to be among the most competiive the UK has seen in many years.  And it also feels like a great deal could happen to tip this thing in a different direction, including towards an outright Labour victory.  

More soon. 

Great day wandering through London today.   Busy couple of days ahead. 

As a part of our ongoing series of events on the power of connective technology and the role of the global network in our world, NDN and the New Policy Institute are proud to host Tom Tauke, Executive Vice President of Public Affairs, Policy and Communications for Verizon. Tauke will deliver a major policy address on the future of the internet, which will be followed by a robust Q&A session.

The Internet has become the most important communications platform for America and around the globe. Media of all kinds – voice, video and data – can and are transmitted via the Internet. Increasingly the old policy framework that defined and in many ways enabled the communications and Internet technologies is eroding and becoming less relevant to today’s world. Policy adjustments and “fixes” have been adopted over time, but they are increasingly outmoded.

Tom Tauke has long been involved with communications policy, first as a Member of Congress and now as Executive Vice President of Public Affairs, Policy and Communications for Verizon. In his remarks and the ensuing discussion, he will lay out what he sees as a new policy framework for the Internet Ecosystem and why it is important to do the hard work of getting it adopted.

The event will be held at our offices on Wednesday, March 24, at 10 a.m. We hope you'll be able to join us-- either here at our offices or via live webcast-- for this speech. Please RSVP, as we expect this event to fill up quickly!

London - Am over in London to check in on the latest in politics here, and give some talks on American politics.  I will be offering up a few reports from here over the next few days, and will start with this one now:

- Recent polls show the Tory leader David Cameron dropping, and Labour leader Gordon Brown gaining.  With the general election campaign likely to start in the next few weeks, there is a growing chance that Labour might hold on and repel the Cameron and Tory assault of recent years.   This is going to be an incredible campaign, featuring among other things, the first set of televised debates between the major party candidates in British electoral history.  

- Excited that the White House held a series of meetings on immigration reform yesterday, and continue to show interest in moving it despite a very crowded agenda.  An upcoming march for immigration reform is forcing DC political leaders to not forget about the need to deal with our broken immigration system as soon as possible. 

One troubling rhetorical change we've picked up in recent months from some involved in this debate is the changing language around undocumented immigrants.  What we've all fought for in recent years is granting immediate legal status and a path to citizenship for undocumented immigrants, once they have paid a fine, gone to the back of the line, commit to learn English and undergo a background check.  But what we've seen from some leaders recently is an argument that we must offer a "change in status" to the undocumenteds, or to "legalize them," dropping the rhetorical commitment to citizenship.

Language matters in politics.  You need to say what you mean, and mean what you say.   If we are going to offer citizenship then it is better to say it, build the case for it, for if it is in the bill it is going to be vigerously debated.  And it is better to start the debate making the case for your ideas then somehow believing you can duck a tough part or part you don't like, or come to the proposal defensively late in the game.

Additionally, right now a set of strong voices are challenging the idea of keeping a provision of the old McCain-Kennedy bill which would allow for 200,000 visas a year for low-end workers.  The argument behind their opposition is that by creating a pool of "guest workers" we will be driving down wages of people at the low end of the workforce, and create a pool of workers capable of unfair exploitation.   Their argument is, essentially, that there should be no guest worker programs in the US, it is inconsistent with good economics and American values, and that this provision needs to be dropped from a final bill.

If I were among those who agreed with this argument then I would be very concerned that the strategic drop of the phrase "path to citizenship" is leaving open the possibility that the 11 mllion undocumenteds could during the course of the legislative compromises ahead become legal without citizenship, creating a guest worker pool of not 200,000 but 11 mlllion people. And for those who have fought hard for CIR for many years - as we at NDN have - the idea that there is rhetorical retreat on this core provision should be greeted with much greater outrage than it has.

Dropping the phrase "path to citizenship" is both bad politics and bad economics.  Advocates for reform will have to make their case to the American people why we want to do more than offer legalization.  The public will be with the reformers on this one, as polling data and coming sense dictate that the American people would never accept a guest worker program of 11 million people.  It is inconsistent with our values and terribly economics.  Those advocating for a path to citizenship are on very strong economic and political ground, and should not in any way retreat from this part of this important debate even before it has begun in earnest.

There simply is no constituency in America for a "path to legalization" and it should be rhetorically scrapped as soon as possible.

Immigration took center stage today as President Obama met with Senators Schumer and Graham about their legislation, and with Comprehensive Immigration Reform Advocates. You can read about it here, here and here.

Katie Connolly at Newsweek does a good job of summing up the political realities, especially as it relates to our 21st Century Electorate findings:

The political strategy of attempting immigration reform this year is curious, especially after the epic health-care-reform drama of the past year. Why would Democrats want to pursue such a hot-button, culturally divisive issue this year? They're already looking like they'll have a pretty depressing performance in the polls this November. Surely they'd want to shy away from championing an issue so easily demagogued by Fox News? Do they really want to get into the inevitable fight with organized labor over guest workers in an election year, especially when, after the Citizens United ruling, union dollars will be more valuable than ever? Surely they're not that self-sabotaging.

But maybe there is strategic political wisdom in bringing immigration to the fore. It's the sort of issue that could energize two key demographics for Democrats: young people and Hispanics. Both groups played important roles in propelling Obama to victory in 2008, and both are showing signs that they're not motivated to turn out this fall. Putting immigration reform in the headlines could change that.

Today's meetings are an important indicator that President Obama and his administration remain committed to Comprehensive Reform - even if the legislative timeline is uncertain.

Politicians always on the lookout for ways to stir up voters recently have lit upon the fast-growing size of America’s national debt, whether the context is health reform, unemployment benefits or the war in Afghanistan. Their concerns are usually just easy excuses for opposing basic health coverage for working people, or assistance for out-of-work families, or standing up to Al Qaeda. But if we take them at their word, we’ll find that these concerns are largely misplaced – but not entirely so.  

Moreover, ironically, progressives may have more compelling reasons to control this debt than the current crop of conservative Republicans. Since the time of Ronald Reagan, most Republican conservatives have understood well that the large deficits that pile up the national debt deny Democrats the resources to carry out new initiatives. Bill Clinton and his followers understood this dynamic when they pressed to balance the budget – and, in the process, both create the political space to expand government’s role and deny conservatives the excuse that we can’t afford it. 

Let’s go to the numbers. The total U.S. national debt today is about $12.4 trillion, and CBO expects us to add another $1 trillion a year for another decade. The combination of a high national debt that’s growing very quickly can drive up interest rates. But in strictly economic terms, our debt numbers aren’t as high as they seem. The federal government itself holds $4.5 trillion of the debt, with nearly 60 percent of it sitting in the Social Security Trust Fund – and these securities can’t be sold or traded on financial markets. That brings down the publicly-held, economically-relevant debt to $7.9 trillion. In fact, another $780 billion of that is held by the Federal Reserve, which uses its portfolio of government securities to expand or contact the money supply, and then turns back to the Treasury most of the interest it earns. 

So, the debt most worth worrying about comes to about $7.1 trillion, equivalent to a little less than half of our 2009 GDP of $14.46 trillion. Looking at the national debt as a share of GDP, as economists do, makes sense, because when that share goes up, it usually means that government deficits are growing faster than the economy that finances them. Stated a little differently, when the debt’s share of GDP rises, it usually means that the government is allocating more of the economy. To many economists, this portends slower long-term growth, because government is rarely as efficient as markets in making those allocations.  

That’s just what’s happening now. The share of GDP represented by all of our publically-held debt has risen from 40 percent just a few years ago to about 50 percent today, and it’s headed for 65 percent by 2015. But, the share is also expected to plateau from 2015 to 2020, even without Congress taking new steps to reduce the deficits. The same goes for the total or gross national debt: It comes in at about 80 percent of GDP today and is projected to reach 95 percent of GDP in 2015, where again it will roughly remain from 2015 to 2020. Such a fast-rising national debt, at least for the next five years, does suggest a less efficient economy – but maybe not, because you don’t have to also assume that no other technological or organizational advances emerge over the next few years to make us more efficient. 

Other economists have different worries: They note that historically, when a country’s debt reaches some fairly high level of GDP, investors begin to lose confidence. And when that happens, investors may demand much higher interest rates to keep buying the debt or, in extreme cases, refuse to buy any more of the country’s debt at any price. Across many countries and many years, this no-confidence trigger-level appears to lie at debt equal to 90 to 100 percent of a country’s GDP. But that’s certainly not a hard rule: Japan passed that level without experiencing a debt or currency crisis, and investors almost certainly would grant the United States and the dollar greater slack than Japan and its yen.

Others worry about the interest costs to service the government’s debt. Since, in a roundabout way, the federal government uses bookkeeping notations to “pay” the interest it owes itself, and the Fed gives back most of the interest it earns, what’s at issue here is the interest on the remaining, publically-held debt. In 2009, this debt came to about $7 trillion. Since interest rates have been low, the interest payments came to $187 billion last year, or less than 1.3 percent of GDP. 

That wouldn’t matter much economically, but for one catch: Nearly half of it was paid out to foreign investors, especially foreign governments. If Americans owned all of our national debt, the cost of servicing it would be a wash, since one set of Americans (the taxpayers) would pay another set of Americans (the bondholders). But foreigners now own 47 percent of all publically held U.S. debt – including nearly $900 billion owned by the Chinese Government (that’s more than the Federal reserve holds), $770 billion held by the Japanese Government and that nation’s investors, and another $210 billion by Middle Eastern governments and their reigning families. All of those interest payments are just deadweight losses for the U.S. economy that leave us poorer.

These foreign payments also highlight the domestic political costs of a very large national debt. For instance, the interest paid last year to foreign governments dwarfs the annual cost of the President’s health care reforms. And over the next few years, those costs will increase sharply, because the debt will go up quickly and interest rates almost certainly will be considerably higher. In 2015, for example, the Treasury expects to pay out more than $400 billion in net interest – at least half of it to foreign investors – and those payments should reach more than $650 billion by 2020. These increases in interest payments sent abroad would dwarf the cost of virtually any new social program that progressives might imagine.

Our fast-growing national debt also contains another potential trap. While a prosperous America can handle a national debt of $12 trillion or even $20 trillion a decade from now, another financial or economic meltdown on top of such debt could sink us all. America entered the 2008-2009 financial crisis and recession with an unusually small national debt, as a share of our GDP. That’s why the upcoming decade of trillion-dollar annual deficits (driven mainly by the costs of tens of millions of retiring boomers) will still leave us with a national debt smaller than our GDP. But imagine that a second meltdown requires new bailouts and new stimulus at least as great as the recent ones, but coming this time on top of existing, trillion dollar deficits. Global investors may well balk at those financing demands, producing a downward economic spiral for us all that would be very hard to stop.

This scenario isn’t hard to imagine, given Washington’s inability to agree to the financial market reforms required to avert another crisis. That leaves us with controlling the rising national debt. If the two parties don’t have the stomach to regulate Wall Street, perhaps they eventually will find their way, as Bill Clinton did, to reducing the underlying deficits.