Debunking the deficit “crisis”

Posted in Around The Nation, Media, Poverty, The Budget at 2:55 pm by wcnews

In his column today Paul Krugman does his usual excellent job of showing whey the deficit is such a non issue, The Dwindling Deficit.

It’s hard to turn on your TV or read an editorial page these days without encountering someone declaring, with an air of great seriousness, that excessive spending and the resulting budget deficit is our biggest problem. Such declarations are rarely accompanied by any argument about why we should believe this; it’s supposed to be part of what everyone knows.

This is, however, a case in which what everyone knows just ain’t so. The budget deficit isn’t our biggest problem, by a long shot. Furthermore, it’s a problem that is already, to a large degree, solved. The medium-term budget outlook isn’t great, but it’s not terrible either — and the long-term outlook gets much more attention than it should.

It’s true that right now we have a large federal budget deficit. But that deficit is mainly the result of a depressed economy — and you’re actually supposed to run deficits in a depressed economy to help support overall demand. The deficit will come down as the economy recovers: Revenue will rise while some categories of spending, such as unemployment benefits, will fall. Indeed, that’s already happening. (And similar things are happening at the state and local levels — for example, California appears to be back in budget surplus.)

Still, will economic recovery be enough to stabilize the fiscal outlook? The answer is, pretty much.


The deficit scolds dominating policy debate will, of course, fiercely resist any attempt to downgrade their favorite issue. They love living in an atmosphere of fiscal crisis: It lets them stroke their chins and sound serious, and it also provides an excuse for slashing social programs, which often seems to be their real objective.

But neither the current deficit nor projected future spending deserve to be anywhere near the top of our political agenda. It’s time to focus on other stuff — like the still-depressed state of the economy and the still-terrible problem of long-term unemployment.

There’s is a reason why such a non issue dominates the discussion of our economic politics. And this article from Remapping the Debate shows why, Journalists in the service of Pete Peterson.

anuary 16, 2013 — Each spring since 2010, some of Washington’s A-list politicians assemble in the capital to submit to questions from some of the media’s A-list journalists on the future of the federal fiscal policy.

These interviews, though, aren’t conducted on the steps of Congress, in the Washington bureaus of the nation’s newspapers, or in the television studios of major networks, but rather at private “Fiscal Summits” convened by Peter G. Peterson, the billionaire former commerce secretary and co-founder of the Blackstone private equity group.

Peterson, however, is hardly a disinterested and dispassionate observer of such discussions. In fact, he is now beginning his fourth decade of arguing that there is no alternative to enacting “entitlement reform” (read: cut Social Security and Medicare) and “tax reform” (read: raise regressive taxes and lower progressive ones) in the name of curbing the country’s “unsustainable” debt and deficits.

An essential and successful element of the Peterson strategy is to create an environment where it is widely if not universally believed that there is no alternative to his vision. In this view, it’s “not realistic” to believe the country can afford the same programs it once did. Those who are prepared to be “adults” will look at these “hard truths” without flinching and recognize that it is time to take citizens-have-to-do-with-less medicine.

The conceit is that those with “courage” will see past narrow, partisan concerns and embrace an ideal: a bipartisan consensus that has the strength to demand “shared sacrifice” from a childish and selfish populace.

A review of the proceedings of the Fiscal Summits of the last three years makes agonizingly clear that most of the journalists who conducted interviews or moderated panel discussions both reflected and amplified the Peterson worldview — entirely unselfconsciously, it would seem.

So, for example, Lesley Stahl, the CBS “60 Minutes” reporter, was fully a part of the Erskine Bowles and Alan Simpson deficit-cutting team during her interview with both men: “You are going to have to raise taxes and cut things, big things, put restrictions on Social Security. Everybody knows that.”

Virtually none of the reporters thought to ask about or suggest an alternative path, such as preserving Social Security benefits and bolstering the system’s reserve by raising the cap of wages subject to Social Security taxes (currently annual wages above approximately $110,000 are not subject to any Social Security tax).

And most questioning proceeded either on the false assumption that deficits were derived from excessive spending on entitlements or as though they had mysteriously, but inevitably, come to pass.

Click the link above where specific journalist’s service to Peterson are pointed out. But to Krugman’s point about wondering why everyone believes the deficit is such a problem, is because almost everyone is telling theme it is a problem.

And as David Cay Johnston points we’re not even talking about attacking the things that are creating so much debt, Deficits, Schmeficits.

Senate Minority Leader Mitch McConnell, R-Ky., put the situation into perspective on the first Sunday of the year. On ABC’s This Week, he told us that any thought of further tax increases is over. Put another way, tax reform is dead, at least in the 113th Congress. That means we are in an Alice-in-Wonderland debate about taxes and federal debt — reality be damned.

President Obama and congressional Republicans have announced that the first stop in this fiscal twilight zone will be an assault on Social Security.

Policymakers seem determined to ignore the fact that Social Security does not contribute to the deficit or federal debt. The vast majority of the public loves Social Security, according to polls. So if they can’t kill it, Social Security’s enemies plan to wound it, and Obama is happy to oblige them in his quest to go down in history as a post-partisan peacemaker.

Two areas that do increase the debt will get less attention.

One is national security spending, now larger than all the revenue from individual income taxes. Because of a World War II-era doctrine that America must be prepared to fight two full-scale wars simultaneously against traditional enemy states, we employ a vast standing army overseas and pay for 71 nuclear submarines and 10 aircraft carriers with their multiship support fleets.

Of all military spending worldwide, measured in purchasing power parity dollars, the Pentagon alone spends 44 percent. Much of that money is spent overseas, a greenback spigot that drains the domestic economy.

Republicans are not happy with the idea of cutting defense spending. They say the Pentagon needs more. So much for their rhetoric about government spending too much.

The second debt contributor is healthcare. Solving the healthcare cost problem would put the federal budget in balance. So why is this not the issue Congress puts the most time and effort into, especially since we are endlessly told that the growing federal debt is our biggest economic problem?

The answer is that Dick Cheney was right, at least as a political matter — deficits don’t matter. What we will see is an assault on Medicare. Polls show that the public does not want Medicare cut, but Congress is sure to do just that because Obama has said cuts are required. That is true, assuming you do not reform healthcare overall.

There will also be cuts to Medicaid, which serves the poor. Numerous Republican congressional leaders have said that America cannot afford to spend as much as it does on Medicaid.

How is it that Portugal, with less than half the per-capita income of America, can afford universal healthcare and America cannot?

The reason is that we spend too much on healthcare through tax expenditures like fringe benefits for health insurance premiums and through private spending. However, universal care on a public service model would reduce costs and burdens on business — especially small business.

America cannot afford to continue denying all but emergency room care to 50 million people, some of whom move from working taxpayers to disabled tax-eaters because they lack proper medical care for injuries or chronic conditions. A healthy and productive worker is a terrible thing to waste.

Reducing defense spending and single-payer health care would do wonders and getting rid of the deficit. The other is to put people back to work, and then it’s all gone.

Of course the best thing we could do for our country is end poverty.

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