Posted here in its entirety for fair use and discussion purposes. My responses interlaced in bold.
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"Republicans only care about deficits when public money is being spent on liberal programs."
If right-wing deficit hawks get their way, they will eliminate an essential tool for fighting economic recessions and cripple our ability to make the crucial public investments in education, technology, and infrastructure that would lay the groundwork for future economic expansion. (There is no evidence whatsoever that deficit spending shortens or mitigates the severity of recessions. And I personally do hope that the government's ability to invest in education, technology, and infrastructure are crippled. One could easily make the case that federal involvement in education has decimated it.
Regarding technology, we can look at things the government does not involve itself in, like personal computers, cell phones, and the internet. Those things are getting faster, more efficient, and cheaper. Contrast that with healthcare, for example, which the government has increased its involvement in over the last 20 years. Things are less efficient, more expensive, and less available.
Regarding infrastructure, we have paid untold billions in highway taxes. And the stimuli, with "shovel ready jobs," remember? Where has all the money gone? Why do we need to invest even more, when obviously what we have already invested has been wasted?)
In recent years, a new and dangerous front has opened up in the conservative war on government: the battle over deficits and debt. The anti-government forces (Notice that "limited government" really means "anti-government." But conservatives are not anarchists.)
have tried to portray their position as merely one of fiscal common sense. They say that it is simply a matter of not spending more money than one earns. But make no mistake: this anti-debt crusade is a highly politicized effort to fundamentally undermine liberal programs and progressive government in this country. (He writes this as if it is a bad thing. But why does he find it noteworthy that the people who oppose leftist initiatives actually want to stop them? That's what opposition is, isn't it?
But in reality, the goal is not necessarily to undermine liberal programs and progressive government. The goal is to return the government to its constitutional boundaries. This may indeed have the effect the author fears, but pursuit of one's agenda necessarily demands the failure of other agendas.)
If the deficit hawks are successful, they will do major damage to society and the economy (The economy has already experienced major damage, mostly due to leftist initiatives. Our present situation is the expected result of activist, interventionist government attempting to direct the economic outcomes.).
They are promoting a deficit hysteria. (Hyperbole.)
in an effort to force the government to enact deep cuts in vital social programs like Social Security, Medicare, and Medicaid. This fiscal austerity movement (No one has proposed austerity, and there is no austerity "movement." Austerity is a loaded word chosen to attempt to push the conservative position out to the margins. Conservative discussion has largely focused on simply ending profligate government spending and wastefulness.)
would also prevent the government from using deficit spending to speed the recovery of the economy when it is in recession. (Which government has done with no real effect. It has not sped up the recovery, it has in fact extended it.)
And it would inhibit us from making the crucial public investments in education, technology, energy, and transportation that are necessary to improve society and lay the foundations for future economic growth (the author will repeat these claim multiple times, but never provide evidence that it is true).
The Anti-Deficit Campaign
First, let’s be clear on the terminology. The “deficit” is the yearly difference between the money the government takes in and what it spends, while the “national debt” is the accumulation of the yearly deficits. The debt is funded by the federal government selling Treasury securities like T-bills, notes, Treasury Inflation-Protected securities, and savings bonds to the public.
Since the election of President Obama, the Republicans have been working diligently to whip up public panic (Notice again how he portrays his ideological opponents.)
about growing deficits and the debt. Conservative commentators like Glenn Beck have been pushing this issue hard in their daily tirades against overspending “socialist” government. These ideologues (Of course, the author is not an ideologue)
maintain that deficits hurt economic growth and that the national debt is putting an unfair burden on the future generations. The only answer, they argue, is to reduce government, rein in public spending, and to move toward balanced budgets. (This indeed is what conservatives are seeking, thankfully presented without hyperbolic language. The author never actually gets around to negating the benefit of these objectives, however.)
Also leading the charge to alarm the public has been private-equity billionaire Peter G. Peterson. For 25 years he has been warning that the growing national debt would lead the economy into a disastrous collapse – even during the Clinton administration when many economists predicted many coming years of budget surpluses. In recent years he has pledged to spend a billion dollars to convince lawmakers that we must drastically curtail spending and reduce Social Security and Medicare benefits. He has funded a foundation dedicated to this cause, produced a documentary shown on PBS, and created an on-line newspaper, Fiscal Times, to spread his alarmist point of view (This is the first time I've heard of this guy. But he must be really influential, I guess).
Despite the fact that Peterson’s anti-deficit arguments rely on highly questionable predictions and fuzzy math (more on that later), he has been effective in his efforts to woo lawmakers to his cause, even some Democrats. And all these conservative propaganda efforts are having an effect on public opinion, with more Americans saying that deficits are one of the most serious problems facing our country.
Clearly this anti-deficit campaign is part of the larger “starving the beast” strategy that was discussed in another article. But deficits and debt are complicated topics that merit some analysis on their own. This article takes on the “deficit hawks” and critically examines their arguments. It will show that
(1) Republicans only care about deficits when the money is being spent on liberal programs; (Republicans are not synonymous with conservatives. The author continually conflates these two groups, but conservatives have consistently opposed big government and big spending for decades)
(2) our current large deficits have not been caused by overspending by the Obama administration; (Presidents do not have constitutional authority to spend. Congress does.)
(3) deficit spending is an essential tool for combating economic recessions and depressions; (This Keynesian perspective, though popular among the left, has never actually worked in real life)
(4) public debt can fuel vital public investments in education, technology, and infrastructure that lay the groundwork for future economic expansion; (this is the third time he has asserted this. Let's see if he actually makes the case for it.)
(5) the inflated and misleading right-wing rhetoric about deficits and debt is distracting from a more rational and helpful discussion of the financial problems that we do face as a nation. (Notice the hyperbolic use of the word "rational." The suggestion, of course, is that the author is rational, and to disagree with him is irrational. Typical rhetoric from the Left.)
Deficit Hypocrites
Before considering what exactly is wrong with the conservative critique of deficits, it is first useful to see just how hypocritical many of them are about this topic. In reality, most conservative politicians don’t care nearly as much about deficits as they claim. Consider the evidence: most Republicans in Congress (once again conflates Republicans with conservatives. Conservatives are very critical of republicans who do not act in conservative ways. In fact, the TEA party turned several of them out of office. So it is error to equate the two.)
did not become deficit hawks until after President Obama was elected. (This simply false. The deficit and the national debt have been major topics of concern among conservatives for as long as I've been aware of politics, which goes back to the Reagan era. They have long been critical of profligate spending, even during Republican administrations.)
During the previous administration they were busy helping President Bush turn the budget surpluses of the Clinton era into large deficits. (There were no Clinton surpluses. Clinton as president does not have the constitutional authority to appropriate money. There was a decrease in the deficit during that time, and tepid credit goes to the Republican majority elected in 1995.)
Most conservatives did not see this rapid increase in the national debt as a problem at all. (This is factually incorrect. A review of the positions of prominent conservatives like Ann Coulter, Michelle Malkin, Walter E. Williams, Thomas Sowell, Rush Limbaugh, Joseph Farah, Andrew Breitbart, Sean Hannity, Dennis Prager, Michael Massie, John Stossel, Pam Geller, Ron Paul, Matthew Sheffield, Brent Bozell, David Limbaugh, Mark Steyn, John Nolte, Cal Thomas, and Dana Loesch will clearly demonstrate that "deficit hawks" have been consistently anti-deficit no matter who has been in power.)
Vice-President Cheney blithely dismissed those issues at the time by saying, “Reagan proved deficits don’t matter.” (I researched this quote, which is plastered all over the internet on leftist websites. First, I could not locate the source, so it isn't clear that Cheney really said this. Here's a more complete quote and the cited reference:
So clearly many Republicans think (Notice he has switched back to Republicans.)
deficits are just fine when they are spending the public’s money on their own political priorities. It didn’t bother them to fund the wars in Iraq and Afghanistan by massive deficit spending. (This is a clever obfuscation of the situation. BEFORE there was spending on the wars, government was ALREADY engaging in deficit spending. Therefore, any additional spending was also deficit spending. And, it's not intellectually honest to pick out the programs you like and deem them funded, while the programs you don't like are "adding to the deficit.")
And they were all too glad to add hundreds of billions to the national debt by passing several enormous tax cuts – money that went largely to the wealthy. (There is no evidence that tax cuts add to the national debt. Quite the contrary, tax revenue increased substantially from 2004 to 2008. The deficit in 2008 was $196 billion, lower than the typical Clinton deficits.
And yes, of course the bulk of tax cuts went to the wealthy. It is the wealthy that pay a disproportionate amount of income tax. You can't cut taxes on those who do not pay them.)
The Center for Budget and Policy Priorities (a leftist thinktank)
has estimated that those wars and tax cuts will eventually contribute a whopping $7 trillion to federal deficits by 2019.1 (Only because the equation is defined by leftists as a zero sum game. That is, they assume an increase in tax does not change any other variable, like the behavior of taxpayers. But the equation is dynamic. Increasing taxes by say, 5% does not increase government revenue by 5%.
People respond to changes in tax by changing their economic and tax strategy. A business owner who plans to hire or purchase equipment may delay the decision. An investor may choose a different investment that either isn't taxed or delays taxation. Also, when the rules change, businesses will often sit on the sidelines until they're sure they can make an economic choice that will not hurt them later.
But more to the point, the only way that a decrease in taxes can increase the debt by a "whopping $7 trillion" is if government does not adjust its spending habits. In other words, only reckless people continue to spend even though they know the income won't be there.)
Many Republicans know – or should know – that almost all the projected deficits in the coming years have nothing to do with “out of control and irresponsible spending” by the Obama administration. (as we have noted, presidents do not spend money. Congress has that constitutional authority. Nevertheless, the claim is specious. The national debt has increased by $5 trillion since Obama was elected. There is no other way to interpret it. It is irresponsible to spend money like that when you don't have it.)
Consider, for example, the projected deficit for 2013 of $962 billion. A study has shown that 42% ($402 billion) of that deficit will be due to the Bush-era tax cuts. Costs of the Bush initiated wars in Iraq and Afghanistan will account for 16% ($153 billion). Another 41% ($395 billion) of the deficit will be caused by the economic downturn that began in 2008.2 This last figure includes lost tax revenues, money for the bailout that was necessary to prevent a complete economic meltdown, and money for an economic stimulus package to speed economic recovery (Speedy indeed. Blistering, in fact).
All these factors together will amount to 99% of the deficit in 2013! But this reality is being ignored by Republican politicians who continue to erroneously claim that Democrats and their policies are the main cause of our deficit problems. (I thought the bailout was a net gain? I thought the bailout saved the country? I thought the bailout had a payback that exceeded the amount spent? I thought the bailout was to get the country back on its feet? Are you telling me that the bailout added to the national debt?
And further, most conservatives do not specifically blame the Democrats, although we shouldn't be surprised that the Republicans do. Conservatives blame congress for wasting untold trillions on big government redistributive programs.)
Further evidence of Republican hypocrisy about deficits can be found in the way they ignore obvious ways of addressing this problem. (Now the deficit is a problem? I thought it was good? A useful tool?)
If they really cared about reducing deficits, they would be enthusiastic about letting the Bush tax cuts expire. This would be the single most immediate and effective way to help rein in deficit spending. (Of course this is false. Spending causes deficits by definition.)
But instead, in 2010 they refused to extend unemployment benefits to millions of Americans until the Democrats agreed to extend all of these tax cuts – thus adding hundreds of billions to the national debt. Apparently, preserving low taxes, especially for the rich, is the real number one priority for Republicans, not cutting the deficits (Notice that the problem in the eyes of the author is a revenue problem. If only the government could get enough tax money there would be no problem. Implicit in this is the idea that government spending should continue and even increase. But increasing taxes has never once reduced the national debt. Spending is, was and always will be the problem).
As their behavior indicates, many Republicans are not in principle against deficits, only deficit spending they don’t agree with.(Probably true about many Republicans. Not true about conservatives.)
It is only when the Democrats want to spend money on things like making health care more accessible, improving education, or extending unemployment benefits that suddenly deficits matter and we are “broke” and “can’t afford” these “irresponsible” expenditures (Notice how the author picks his examples. This is typical leftist strategy. The leftist isolates the issue in terms of emotional appeal ["It's for the children!] in order to create the perception that budget-cutting impacts crucial services and destroys lives. One might think from this that the only thing government does is fund education and take care of the poor.
But in a $2.8 trillion dollar budget, there isn't a single thing that can be reduced or eliminated? Every dollar spent is crucial and uncut-able? This is the false choice we are continually presented with. Cutting spending always means hurting or killing people, which makes conservatives evil and greedy. I'm continually surprised at how many people believe that this is true.).
The Real Reasons the Republicans are Pushing Deficit Reduction
If deficit reduction isn’t a matter of principle for many Republicans, what are the real reasons they are pushing this issue so hard? There are two. First, conservatives (Once again conflating Republicans and conservatives.)
believe that deficits make a good campaign issue. They need something to rile up people – something to fan their anger and resentment against government (That is, fiscal responsibility is a irrational thing, and apparently people are stupid and easily manipulated. They'll react in anti-intellectual ways because they are so ignorant. Thank goodness we have smart people like the author who can explain to us why it is a good thing to spend money until we can't pay it back. Which, incidently, he has yet to do. Up until now, all we have are his bare assertions.)
– and deficits fit the bill. Unfortunately, it seems to be working. Polls find increasing numbers of Americans are mentioning deficits and the national debt as one the most important problems facing our nation. (Deficits and the national debt ARE critical problems. We are teetering on the brink as a nation. Given the insolvency of SS and Medicare, as well as $16 trillion in debt, substantial adjustments are going to need to be made. The alternative is default.).
However, the main reason the Republicans have seized on this issue is that it is a good way to reduce government or at the very least prevent its expansion. Efforts to rein in the budget have long been a part of their “starving the beast” strategy that was described in another article. (Wait. I thought that deficits only became a problem after Obama became elected. Now we discover that this has long been a part of republican strategy. So which is it?)
That is why Republicans have no interest in one of the obvious ways to approach this problem: raising taxes so government does not have to borrow so much money to pay for necessary programs. (Except this been tried many times and has never worked...)
In their view, there is only one way to addresses deficits: cut spending. (Which has never been tried.)
Of course this could eventually necessitate cutting back on many of the established liberal programs – like Medicare and Medicaid – that Republicans have never liked. In fact, the Republican budget proposal in 2011 actually called for ending Medicare and Medicaid as we know them. In the end, this renewed conservative (Conflating Republicans with conservatives again.)
concern about deficits is simply a new way to pursue their real goal – reducing big bad government (I wonder if the author proof-read this statement. Is the author opposed to fixing bad government?).
Deficits Are Good During Recessions
But irrespective of their motivations, aren’t Republicans right that deficit spending is a terrible idea and we must stop doing it? Aren’t balanced budgets just a matter of common sense? The answer is “No.” In fact, a good case can be made that deficit spending is an indispensable government tool in addressing serious economic problems (If a "good case can be made," maybe he finally will attempt to make it. He has yet to do anything at all except make bare assertions.)
For example, most economists agree that deficit spending during a recession, especially a severe one, is a very good thing to do. (That is, most Keynesian economists. They are, unfortunately, quite wrong.)
Even though tax revenues are decreasing, the best thing for the economy is for the government to keep spending money, and even increase spending. When consumer and corporate spending are swooning, only the government is in the position to spend money and stimulate economic activity. (Except for the inconvenient fact that this has never worked in the history of the nation.)
The market will not take care of this problem, so the government must step in. (Again, we are offered nothing but bare assertions, with no evidence that this has or can work.)
Government spending has a multiplier effect that provides a large economic boost during recessions. (Wait. A few paragraphs ago the author said that the bailouts added to the deficit problem. So which is it?)
If it spends money on building schools and roads, for example, that money first helps constructions companies. These companies in turn will hire more workers who will then spend more money on goods and services, thus helping other businesses. The construction companies will also purchase more tools and materials from other businesses, who will then hire more workers, and so on. In this way, deficit spending spreads through the economy, lessening the impact of recessions and helping to speed economic recovery. And as the economy rebounds, this produces higher tax revenues, which eventually lessens the need for deficit spending. (Wow, now I am worried. This fellow teaches economics. I am astounded. Ok, let's try to briefly analyze this preposterous assertion. Government gets money two ways: Taxation and borrowing.
The first way, taxation, means the government takes the money out of the private sector to spend it on its priorities. So every dollar that the private sector does not have is a dollar it cannot spend to pay an employee, purchase capital needs, or invest in facilities. Government now has that dollar, which it in turn redistributes in a different part of the private sector.
Net gain - zero.
The other way government gets money is borrowing. The Federal Reserve notifies the Department of Treasury to print money. The Treasury does so, and delivers the newly-printed currency to the Fed for distribution. The Fed purchases government debt instruments (bonds, t-bills, etc.), and uses the money it received to purchase them. So the Fed holds more than 70% of the national debt, purchased with money printed by the Treasury. The increase in money supply devalues the dollar (inflation). therefore, bailout money that was borrowed devalued the existing dollars in circulation.
Net gain - zero.)
Contrary to the wildly erroneous claims of the political right, most economists agree that the deficit spending and economic stimulus programs of the Obama administration provided enormous benefits. (The author seems to like to repeat his claims over and over without substantiation.)
A 2010 study by Alan Blinder of Princeton and Mark Zandy of Moody’s Analytics found that the combined effect of the fiscal stimulus package, TARP, and the actions of the Federal Reserve Board raised real GDP 11% over where it would have been, saved an estimated 8 million jobs, and probably averted deflation and a depression. (Anyone willing bet me that these folks are Keynesians? But let's point out the obvious flaw here. It is impossible to know that GDP is 11% higher than where it would of been. We have nothing to compare it to. No placebo. No control group. Indeed, there is no possible way to know if 8 million jobs were saved. No one can count a "job saved."
I suppose it would be inconvenient to point out that economic downturns historically last 18 - 24 months. The spectacular exceptions are the Great Depression, which lasted all the way through WWII, and the current economic downturn, which is now nearly five years old. Both of these exceptions are characterized by substantial government intervention and deficit spending. A case can easily be made that government has, in both cased, PROLONGED the downturn and IMPEDED the recovery.)
They concluded: “It is clear that laissez faire was not an option; policymakers had to act. Not responding would have left both the economy and the government’s fiscal situation in far graver condition. We conclude that Ben Bernanke was probably right when he said that ‘We came very close in October [2008] to Depression 2.0.’”3 (Government ALWAYS has to act, according to the Left. Every problem is for government to solve. Leftists love to tell people what to do, what they can eat, what they can drive, what they can say, and what they must believe. They are all about control. That's why they need big government. They need the mechanism to make sure people do what they want them to do.
This is why conservatives are a threat. Conservatives want to limit and confine the agent by which leftists want to effect societal change. Conservatives think that people are capable of solving their own problems, making their own decisions, and leading their own lives. Leftists are deathly afraid of this, because they don't trust people to do the right thing. They believe people are not smart enough. They believe people need to be led to make the right choices. And powerful, interventionist, coercive government is needed for that.)
The worst thing the federal government could have done was to listen to the deficit hawks and curtailed spending in the face of a severe recession. To see why, you simply need to look at state governments that did this in recent years. As their economies were tanking, many state governments – which are constitutionally required to balance their budgets – had to lay off workers, cut benefits to individuals, and curtail purchases of goods from the private sector. This simply made a bad economic situation worse. (No, most states weathered the storm. Some better than others, but they all still are here and in operation.
But of course, states don't have the kind of fiscal power the feds have. And a lot of what they do is mandated by the feds.)
It created a kind of reverse multiplier effect, taking money and jobs out of the economy and lowering demand for goods and services in an already weak economy. Instead of speeding an economic recovery, this kind of frugal spending policy actually slows it down. It hardly makes sense to kick the economy when it is down, but this is what happens if governments are forced to balance their budgets every year. (Except this is not true. The states in the best budgetary condition are headed by Republican governors and/or legislatures. The states in the worst condition are democratic strongholds. The big difference here, though, is that states can't print money, they can only borrow it. And some states, like California, are so far in debt they may never get out. Several California cities have already declared bankruptcy.)
If the Republicans continue to be successful in blocking further stimulus spending, this will only hurt the economy. At best, it will delay recovery from the recession, and at worst, it might actually precipitate a dip back into more severe recession. (This is a CYA. Conservative economists have been predicting a double-dip downturn since the very beginning. The weak recovery we have experienced is not an indicator of policy success, it is the expected outcome of a profligate government. The second leg of the downturn is an inevitable result of the massive burden of government debt on the economy.
And we need to note that the stimulus was not a one-time thing. The budget didn't go up one year and back down the next. The budget stayed up every year. It never came back down, which means we are still spending hundreds of billions of dollars each year in stimulus-level funding.)
Either way, this will only add up to more suffering for millions of American workers. Chronic long term unemployment has reached heights not seen since the Great Depression of the 1930s. (Wait. I thought the stimulus has helped. Is the author now admitting that unemployment has not been helped by government recovery programs?)
This is the real crisis facing many Americans. They are out of a job, out of savings, and losing their house. Their American dream is fading fast. Only the government is in the position to help – to stimulate the economy to produce more jobs.(Only government? Sounds like he's talking about Jesus.)
And yet the Republicans keep insisting that budget balancing must be our first priority – thus leaving millions of jobless working class and middle class Americans hung out to dry (which they already are. Is this fellow clueless? All of the spending, all of the government solutions, all of the programs, have brought us to this point. How can the author say that people will be hung out to dry when they already are?).
Bogus Math and Questionable Estimates
Peterson and many other fiscal austerity zealots (Note the inflammatory rhetoric.)
rely primarily on highly questionable predictions that budget deficits and the debt will soar to unimaginable heights several decades from now. (Well, actually, that is the case now. The national debt just exceeded $16 trillion. I'd say that qualifies as "unimaginable.")
They predict economic doom as interest rates soar and investment grinds to a halt. But as numerous critics have pointed out, predictions that extend out several decades are extremely unreliable and depend entirely on the assumptions one uses. (Which is the same problem that Keynesians have with their projections, of course.)
For example, slight changes in his assumptions about the rate of economic growth or key tax rates would mean that none of his dire predictions about soaring debt would actually come about.
Robert Kuttner is particularly critical of the misleading calculations in Peterson’s analysis:
The Peterson Foundation’s central claim of over $50 trillion in unfunded liabilities is arrived at by miscounting apples and oranges. The only true figure for debt—that is, debt on which actual interest is paid by taxpayers—is the public debt held by the public, estimated as of January 12, 2009, according to the Treasury, is $7,781,352,915,790.80. ("Public debt" is an artificial distinction. Debt is debt, and debt includes not only what has been borrowed [including by the Fed], but money that is borrowed from the Social Security Trust Fund. The total obligations for which government will be responsible to pay is not $50 trillion, it could be twice that.)
The Treasury Department’s figure for public debt is about 54 percent of GDP, a far smaller portion of GDP than at any time during the quarter-century after World War II, a period of record economic boom. The rest of the Peterson Foundation’s fanciful arithmetic is derived by adding debt that one government agency owes to another (another roughly $4.5 trillion) as well as the projected seventy-five-year deficits for Social Security, Medicare, and Medicaid, using worst-case scenarios.4
Social Security is a good example of just how questionable Peterson’s alarmist analysis really is. There is clearly no immediate crisis and not a likely long-term problem either. The Social Security payroll tax was hiked in the 1980s to handle the increasing number of baby-boomers retiring now. As a result, the program's trust fund is projected to grow steadily, with a surplus lasting until at least 2027. (The SS trust fund contains no cash, only debt.)
After that, some very small modifications in income or payouts could return the system to surplus. Even if that wasn’t done, the program will still be able to pay 100 percent of benefits until 2041.5
The only way that Peterson can make Social Security look like a problem is if he projects the program out 75 years, and assumes very low rates of economic growth and wage increases. Slightly more optimistic economic assumptions would mean that Social Security would be quite viable for the foreseeable future. So to whip up public panic about the Social Security system, as Peterson and his allies have done, is simply irresponsible. (To claim that Social Security has assets is more than irresponsible, it is false.)
Deficits and Debt can Encourage Economic Growth
Conservatives are also wrong when they argue that deficit spending and a large national debt will inevitably undermine economic growth. To see why, we need to simply look back at times when we have run up large deficits and increased the national debt. The best example is World War II when the national debt soared to 120% of GDP – nearly twice the size of today’s debt. This spending not only got us out of the Great Depression but set the stage for a prolonged period of sustained economic growth in the 50s and 60s. (There is no evidence of this. Government burdened the economy to such a great degree that the length of the Depression can be measured in decades. Only when the war geared down and troops returned home to start lives for themselves did the economy begin to recover.)
Massive investments were made in science and technology, American workers were re-trained and re-employed, private investment was encouraged, and consumer purchasing power was increased. That 25-year post-war economic boom, with the most rapid increase in living standards in our history, would not have happened without the stimulus of all this deficit spending. (An unsupported assertion.)
History also shows that balancing the budget does not necessarily ensure a spurt of economic growth. In fact, in most periods when we have not had deficits, such as the 1990s, (There were no surpluses. But even so, there is no evidence that balanced budgets cause recessions.)
this was followed by an economic recession.6 So there is clearly little historical evidence to show that deficits and debt inevitably hurt economic growth. (The author cites one fallacious example and then makes a blanket statement. His conclusion is unscientific and unjustified.)
But what about the conservative argument that public spending “crowds out” private investment, to the detriment of economic growth? They maintain that if the government is borrowing a lot money, that is money that the private sector cannot invest to increase its production and productivity. This has to undermine economic growth, right? The answer is “No, not necessarily.” (The weasel phrase "not necessarily" admits that sometimes it's true.)
As most economists point out, ("Most economists" again, that are Keynesian.)
government spending also has a “crowding in” effect that actually encourages more private investment. That is because much of the money that the government borrows and spends goes to the private sector. Private industry must then prepare to provide the various goods and services demanded by the government – such as weapons systems, green energy systems, new roads and schools, etc. In order to do this, these businesses must invest in new production facilities and greater productivity. This “crowding in” effect thus helps to mitigate any negative effects that public borrowing has on the private sector by indirectly encouraging more private investment and business growth.(We've already dealt with this bizarre scenario. Government borrows by devaluing the currency. Everyone's dollars are worth less, therefore purchase less. Zero gain.)
Investing in America’s Future
But there is even a more important issue here – one often brought up by Joseph Stiglitz, a Nobel Prize winning economist. He argues that deficit spending, when it is done right, can be a major stimulus to economic growth and actually lower long term government debt.7 When economic growth is back on healthy terms, this leads to increased tax revenues, which eventually lessen the need for government to borrow money. (I thought borrowing money was good? Why does the author suggest that government might want to lessen the need for borrowing?)
For Stiglitz, the key is to spend that deficit money on things like education, technology, and infrastructure that lay the groundwork for future economic expansion. We will not remain competitive with other countries for long if we don’t have decent roads, efficient airports, adequate clean water supplies, and sufficient school facilities. (Why are these lacking with all the billions and trillions of dollars already spent? Where did the money go? Why isn't government acting prudently by budgeting for and engaging in appropriate maintenance of these valuable things?)
Recently the American Society of Civil Engineers estimated that over the next five years it would take at least $1.6 trillion to bring our national infrastructure into an acceptable state. These are huge investments that the private sector is unwilling to make. Going into debt to pay for these things is a good investment in our collective futures. (On what basis? Because previous assets have been mismanaged so that infrastructure is now failing? And by the way, there is no such thing as "our collective futures." Individuals may indeed have intersecting interests, but there is no collective.)
We also need government to invest in emerging technologies that are vital to our economic prospects. We are falling behind many other countries in our public investments in high-speed rail, modern telecommunications technology, and an advanced electricity grid. (This may be true, but first, we do not need to assume government is the one to do it, and second, it is irrelevant what other countries are doing and how they are doing it, and third, government rarely chooses correctly as far as which technology or which strategy will yield positive results.)
Another area that will drive economic expansion in the future is green technology and alternative energy. Left to itself, the market has not been leading us in that direction.(Because it makes no economic sense. The market perfectly allocates resources and effort according to what is viable. Green energy is not viable. The green energy market as far as is relates to government is not an economic issue, it is a political issue.)
Several other countries, including China and Germany, have been spending billions in public funds to encourage consumers and industry to jump on the green technology bandwagon, and they are already beginning to reap the economic rewards of this strategy. (Again, who cares what other countries do?) We are trailing badly in this vital economic area and we are unlikely to catch up without substantial investments by our government.
Who Really Cares about Our Children?
One of the most common Republican complaints about deficits is that they will ruin our children’s future. We are saddling them with this enormous debt that they will have to repay – presumably to their great detriment. So if we care about future generations, we must severely cut spending to rein in this increasing debt. “Do if for the kids,” say the deficit hawks.
The main problem with this argument is that it focuses only on the costs of deficit spending for future generations, and completely ignores how that spending would actually benefit them. Would you be a good parent if you considered only the costs of buying braces for your child and not the benefits they would enjoy for the rest of their lives? (Our first real-world example from the author, and a bad one. Parents may or may not borrow money to fix their kids' teeth, but the thing is, they make the decision based on what they can afford and premised on the idea that they will pay back what they borrow.
Parents make budget decisions based on greatest need vs. available resources every day. Government never does this, because it is spending other peoples' money. There is no thought given to affordability, the money will never be paid back, and the results, if achieved, will most likely be inefficient, filled with waste, fraud and abuse, and have a ripple effect throughout the economy)
Similarly, we must not just think about the national debt that we are handing down to our children, but consider also all of the valuable assets, projects, and programs that could be financed by that debt. Those benefits could make future generations much better off. (In other words, spend as much as you want "for the children." "Yes, little Johnny, we did this for you. I know that your standard of living will be lower than mine as the economy languishes under the burden of humongous government, but look at all the cool things you have.")
It all depends on what the deficits are spent on. If we are simply going into debt, as we did in the Bush era, to pay for tax cuts for the rich and wars like those in Iraq and Afghanistan, this will do little to help our descendants. (In other words, deficit spending can be categorized into "Good if it went to things I agree with" and "Bad if it went to things I disagree with.")
But what if some of that deficit spending goes to make higher education more affordable? A study by the National Center for Public Policy and Higher Education gave the public college and university systems in 43 states a grade of “F” for affordability. This means that many kids who do go to college end up saddled with enormous student loans that will detract from their standard of living for years. More importantly, many low and middle-income students simply cannot afford college anymore – hundreds of thousands of kids are being turned away every year for lack of money. In contrast, public investment by many countries in Europe has made higher education there low cost or free. Whose kids are better off? (The author apparently thinks that this is a zero sum game. Spend all we want to give children a garage full of ATVs and motorcycles because it's all free and without consequence. As long as we borrow and don't pay it back, well, no one has to pay the piper. It's a perpetual motion machine, isn't it?)
In addition, we are not doing our offspring any favors if they inherent a country whose infrastructure is in disastrous condition.(Again, why is it in disastrous condition if it is built and maintained and overseen by government? Why is that? And note that it is infrastructure we are passing on to our children, not funding for obscene art, not onerous regulations on business, not an unmanageable tax code, not the loss of freedom as government tells us how big a soft drink we can by or whether or not a restaurant can serve salt. Thank the Lord the government is going to give us infrastructure!)
They will not enjoy balanced budgets (Here it is again. I though balanced budgets were bad. How can we enjoy a bad thing?)
if that means living in a world of bad roads, dangerous bridges, failing sewer systems, questionable drinking water, and congested airports. Future generations might also be thankful if we spend some money now on lessening the potentially disastrous impacts of climate change. Global warming is already beginning to do enormous harm with unusually intense droughts and floods. If we do nothing now, the impacts on our children and grandchildren will be much more severe. (It's for the children! We must spend boatloads of money that isn't really there, so that our children can get to their flights on time. Can we ask, why can't we get to our flights on time now? Whose fault is that? We have big, deficit-causing government now, and all these problems? Why?)
Finally, as noted earlier, government spending can be crucial for ensuring a prosperous and growing economy. A large part of the economic growth in the last twenty years has been fueled by various kinds of private sector economic bubbles. This is hardly desirable or sustainable. In the 1990s, there was a large technology bubble that created billions in apparent investment profits. Later, it was the housing bubble which encouraged consumers to borrow and spend much more money because of the rapidly increasing value of their homes. When these bubbles burst, they took the economy down with them. Today, we need a more stable and reliable way of encouraging economic growth. Public investments in emerging technologies, like alternative energy, could prove to be a valuable part of that economic strategy. If we can leave our children a sustainable growing economy, this could be their greatest inheritance. (Wait. We have hundreds of government agencies, and all sort of financial regulation, much of which was installed after the Great Depression. How could these things be problems with all the government intervention and oversight? I thought government already solved the problem?
Oh, and regarding the housing bubble. The bubble did not cause anything. The bubble is a RESULT of government intervention. The Fed lowered interest rates to near zero, government legislation was implemented to encourage home ownership, banking regulations changed to force banks to make loans they otherwise would not make, etc..
There would have been no bubble had in not been the government intervening in the markets.)
Our Real Financial Concerns
All of this is not to say that there are not some serious financial concerns looming on the horizon. But they are all solvable. The challenge is to do so in a way that does not shred our social safety net or prevent us from engaging in the kind of public investment that we so crucially need.
The main problems we face are with Medicare and Medicaid. Without any reforms, Medicare will go into deficit by 2020, and benefits will have to be reduced. This is due to the fact that that health care costs in this country are already high and rising even further. Why are costs so high? Because we have one of the most inefficient health care systems in the world. We pay almost twice as much per person for health care compared to many other advanced countries, and we often provide worse care (and a lower life expectancy). The main culprit is the commercial domination of our health care system. (No, if there was commercial domination of our healthcare system, the free market would be in operation, competition would thrive, and costs would be coming down. We didn't have a problem 20 or 30 years ago. Health insurance was cheap and covered a lot.
Only after government began mandating coverages, limiting access, expanding government health programs which caused cost shifting, and manipulating the doctor-patient relationship did we see the beginnings of a crisis. Government caused the problem.)
We rely primarily on private, for profit, insurance companies and healthcare companies. Many other countries have more streamlined, government-run, single-payer systems that provide high quality care at much lower costs.
In the long run, then, solving the financial problems of Medicare and Medicaid require some basic reforms in our health care system. As Dean Baker, one of the most thoughtful economists analyzing government debt has explained it, the best way to address our debt is to “fix health care, fix health care, fix health care.” (How is our debt in any way caused by healthcare, unless government is involved in its procurement and funding? A moment ago the author told us that the problem was because of private insurance companies. But if the system was made up of only private insurance companies, there would be no impact on government.
So, it is clear now that government is heavily involved in healthcare and sways the market according to its dictates. Indeed, before obamacare the government was already spending $.47 out of every healthcare dollar. It is obvious that government is the 600 pound gorilla in healthcare, so the private sector can hardly be blamed for the problems.)
The health care reforms passed in 2010 have some promise to slow down growing costs. But the health care system remains the hostage of the private, profit-making, health care industry. Many analysts believe that additional major reforms must take place if we are truly to rein in rising medical costs. The crucial importance of doing so was made clear in a report by Our Fiscal Security, which concluded: “The rapidly rising cost of private health care—doctor’s visits, prescription drugs, procedures—is the only truly unsustainable part of the long-term budget. If U.S. health care costs were growing at the rate of other wealthy countries, we would have no long-term debt problem.”8
A Crucial Part of the Solution: Raising Government Revenue
Baker and other progressive economists have also been promoting another approach to long-term debt reduction: raising more revenue. (Now he wants to reduce the debt again. I wish he would make up his mind.)
For example, Robert Kuttner has proposed a series of tax changes that could bring in an addition $800 billion a year into the federal coffers.9 These include:
More importantly, they would enable us to stabilize and perhaps even expand our crucial safety net programs and also to pay for vital public investment projects, such as alternative energy and infrastructure improvements.
Other analysts have argued that much of the needed money for social programs and public investments could easily come out of the defense budget. If one considers how much countries spend on defense, the U.S. heads that list by a very wide margin. In fact, we spend more money on defense than the next nineteen countries on that list combined. Our navy alone has the capability of the next eight countries navies combined – many of which are our allies.(Ahh, so he does want to cut government. I thought that was a bad idea. You know, government spending stimulates the economy. Remember?
When you defend the world and involve yourself in questionable foreign wars, you spend a lot of money. Other countries do not spend a lot of money on defense because they have no need. They know the US will jump to their defense.)
So there is a lot of room to downsize without undermining our security. A bipartisan group, the Project on Defense Alternatives, has done an analysis that found we could cut a trillion dollars out the defense budget in the next ten years without compromising our military superiority.10 That kind of money would go a long ways toward solving our fiscal problems. (Except it won't. I actually support a smaller military, but the national debt is projected to increase by $7 trillion over the next four years. The military is only 19% of the budget. Eliminating it completely still doesn't solve the problem. The problem is, and remains, spending.)
The Real Battle
In the end, the political battle over deficits and the national debt is really just a proxy for the more basic ideological struggle over the proper role of government in a modern society. (true)
The Republicans want to use fear-mongering (Another emotionally-loaded word. It sure is easy to make one's case by marginalizing the opposition with an epithet.)
over these alleged financial problems to advance their political vision of the minimal state. They promise Americans a future of balanced budgets, reduced spending, and lower taxes. But what they don’t tell us is that this would also be a future in which most people would be on their own to try to deal with serious economic, social, medical, and environmental problems that face our country. (Because if government doesn't take care of you, no one will.)
The jobless would be left to fend for themselves during serious recessions. Basic safety net programs like Social Security and Medicare would be cut back and/or privatized, and scores of other unmet human needs would be neglected due to lack of sufficient taxes and public funds. (In other words, take the money from you so that the government spends it more wisely than you can.)
It would be a world where infrastructure would continue to crumble ( I ask again, why is it crumbling? Why is government neglecting these valuable things? Especially considering how much it takes in the form of highway and gas taxes. Where is the money going?)
and we could not afford to make the necessary investments in education and growth-producing technologies.
Of course there is another possible scenario: a much more positive one in which we all worked together through government to address our common problems. It would be a future in which active government used all of the tools at its disposal – including taxation and deficit spending – to improve the lives and security of average Americans. Where the government would step in vigorously to reduce the impact of recessions and to promote job creation. Where the government would make the necessary investments to shore up vital safety net programs, and to update and improve our educational and infrastructure systems. In this scenario, we would also have a society that was made more sustainable and livable by public spending to encourage alternative energy and other green technologies. (God, how many times has the author made this same point? Repeating an assertion over and over does not establish its veracity.)
But it is exactly this future that will be denied us if we fall prey to the deficit hysteria being manufactured by the anti-government (Anti-government? Only anarchists are anti-government. Conservatives are not anarchists.) forces in this country.
1. Kathy Ruffing and James Horney, “Critics Still Wrong on What’s Driving Deficits in Coming Years,” June 28, 2010, Center for Budget and Policy Priorities. http://www.cbpp.org/cms/index.cfm?fa=view&id=3036
2. Kathy Ruffing and James Horney, “Economic Downturn and Bush Policies Continue to Drive Projected Deficits,” May 10, 2011, Center for Budget and Policy Priorities. http://www.cbpp.org/cms/index.cfm?fa=view&id=3490
3. Alan Blinder and Mark Zandy, “How the Great Recession was Brought to an End,” July 27, 2010. http://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf
4. Robert Kuttner, “Progressive Revenue as the Alternative to Caps, Commissions, and Cuts,” February 25, 2010. http://www.scholarsstrategynetwork.org/pdfs/Progressive_Revenue_as_the_Alternative-Robert_Kuttner.pdf
5. David Knox, “Social Security More Solvent that Most American Realize,” August 24, 2008
http://www.ohio.com/news/american_dream/27325314.html
6. Ezra Klein, “Galbraith: The Danger Posed by the Deficit is Zero,” May 12, 2010, “http://voices.washingtonpost.com/ezra-klein/2010/05/galbraith_the_danger_posed_by.html
7. Joseph Stiglitz, “The Dangers of Deficit Reductions.” March 5, 2010. http://www.sfbg.com/bruce/2010/03/05/stiglitz-dangers-deficit-reduction
8.Our Fiscal Security, “The Budget Deficit and Debt: What You Need to Know,” September 2010, http://www.ourfiscalsecurity.org/deficit-101
9. Robert Kuttner, “Progressive Revenue as the Alternative to Caps, Commissions, and Cuts,” February 25, 2010. http://www.scholarsstrategynetwork.org/pdfs/Progressive_Revenue_as_the_Alternative-Robert_Kuttner.pdf
10. Project on Defense Alternatives, “Debt, Deficits, and Defense: A Way Forward,” June 11, 2010, http://www.comw.org/pda/
If right-wing deficit hawks get their way, they will eliminate an essential tool for fighting economic recessions and cripple our ability to make the crucial public investments in education, technology, and infrastructure that would lay the groundwork for future economic expansion. (There is no evidence whatsoever that deficit spending shortens or mitigates the severity of recessions. And I personally do hope that the government's ability to invest in education, technology, and infrastructure are crippled. One could easily make the case that federal involvement in education has decimated it.
Regarding technology, we can look at things the government does not involve itself in, like personal computers, cell phones, and the internet. Those things are getting faster, more efficient, and cheaper. Contrast that with healthcare, for example, which the government has increased its involvement in over the last 20 years. Things are less efficient, more expensive, and less available.
Regarding infrastructure, we have paid untold billions in highway taxes. And the stimuli, with "shovel ready jobs," remember? Where has all the money gone? Why do we need to invest even more, when obviously what we have already invested has been wasted?)
In recent years, a new and dangerous front has opened up in the conservative war on government: the battle over deficits and debt. The anti-government forces (Notice that "limited government" really means "anti-government." But conservatives are not anarchists.)
have tried to portray their position as merely one of fiscal common sense. They say that it is simply a matter of not spending more money than one earns. But make no mistake: this anti-debt crusade is a highly politicized effort to fundamentally undermine liberal programs and progressive government in this country. (He writes this as if it is a bad thing. But why does he find it noteworthy that the people who oppose leftist initiatives actually want to stop them? That's what opposition is, isn't it?
But in reality, the goal is not necessarily to undermine liberal programs and progressive government. The goal is to return the government to its constitutional boundaries. This may indeed have the effect the author fears, but pursuit of one's agenda necessarily demands the failure of other agendas.)
If the deficit hawks are successful, they will do major damage to society and the economy (The economy has already experienced major damage, mostly due to leftist initiatives. Our present situation is the expected result of activist, interventionist government attempting to direct the economic outcomes.).
They are promoting a deficit hysteria. (Hyperbole.)
in an effort to force the government to enact deep cuts in vital social programs like Social Security, Medicare, and Medicaid. This fiscal austerity movement (No one has proposed austerity, and there is no austerity "movement." Austerity is a loaded word chosen to attempt to push the conservative position out to the margins. Conservative discussion has largely focused on simply ending profligate government spending and wastefulness.)
would also prevent the government from using deficit spending to speed the recovery of the economy when it is in recession. (Which government has done with no real effect. It has not sped up the recovery, it has in fact extended it.)
And it would inhibit us from making the crucial public investments in education, technology, energy, and transportation that are necessary to improve society and lay the foundations for future economic growth (the author will repeat these claim multiple times, but never provide evidence that it is true).
The Anti-Deficit Campaign
First, let’s be clear on the terminology. The “deficit” is the yearly difference between the money the government takes in and what it spends, while the “national debt” is the accumulation of the yearly deficits. The debt is funded by the federal government selling Treasury securities like T-bills, notes, Treasury Inflation-Protected securities, and savings bonds to the public.
Since the election of President Obama, the Republicans have been working diligently to whip up public panic (Notice again how he portrays his ideological opponents.)
about growing deficits and the debt. Conservative commentators like Glenn Beck have been pushing this issue hard in their daily tirades against overspending “socialist” government. These ideologues (Of course, the author is not an ideologue)
maintain that deficits hurt economic growth and that the national debt is putting an unfair burden on the future generations. The only answer, they argue, is to reduce government, rein in public spending, and to move toward balanced budgets. (This indeed is what conservatives are seeking, thankfully presented without hyperbolic language. The author never actually gets around to negating the benefit of these objectives, however.)
Also leading the charge to alarm the public has been private-equity billionaire Peter G. Peterson. For 25 years he has been warning that the growing national debt would lead the economy into a disastrous collapse – even during the Clinton administration when many economists predicted many coming years of budget surpluses. In recent years he has pledged to spend a billion dollars to convince lawmakers that we must drastically curtail spending and reduce Social Security and Medicare benefits. He has funded a foundation dedicated to this cause, produced a documentary shown on PBS, and created an on-line newspaper, Fiscal Times, to spread his alarmist point of view (This is the first time I've heard of this guy. But he must be really influential, I guess).
Despite the fact that Peterson’s anti-deficit arguments rely on highly questionable predictions and fuzzy math (more on that later), he has been effective in his efforts to woo lawmakers to his cause, even some Democrats. And all these conservative propaganda efforts are having an effect on public opinion, with more Americans saying that deficits are one of the most serious problems facing our country.
Clearly this anti-deficit campaign is part of the larger “starving the beast” strategy that was discussed in another article. But deficits and debt are complicated topics that merit some analysis on their own. This article takes on the “deficit hawks” and critically examines their arguments. It will show that
(1) Republicans only care about deficits when the money is being spent on liberal programs; (Republicans are not synonymous with conservatives. The author continually conflates these two groups, but conservatives have consistently opposed big government and big spending for decades)
(2) our current large deficits have not been caused by overspending by the Obama administration; (Presidents do not have constitutional authority to spend. Congress does.)
(3) deficit spending is an essential tool for combating economic recessions and depressions; (This Keynesian perspective, though popular among the left, has never actually worked in real life)
(4) public debt can fuel vital public investments in education, technology, and infrastructure that lay the groundwork for future economic expansion; (this is the third time he has asserted this. Let's see if he actually makes the case for it.)
(5) the inflated and misleading right-wing rhetoric about deficits and debt is distracting from a more rational and helpful discussion of the financial problems that we do face as a nation. (Notice the hyperbolic use of the word "rational." The suggestion, of course, is that the author is rational, and to disagree with him is irrational. Typical rhetoric from the Left.)
Deficit Hypocrites
Before considering what exactly is wrong with the conservative critique of deficits, it is first useful to see just how hypocritical many of them are about this topic. In reality, most conservative politicians don’t care nearly as much about deficits as they claim. Consider the evidence: most Republicans in Congress (once again conflates Republicans with conservatives. Conservatives are very critical of republicans who do not act in conservative ways. In fact, the TEA party turned several of them out of office. So it is error to equate the two.)
did not become deficit hawks until after President Obama was elected. (This simply false. The deficit and the national debt have been major topics of concern among conservatives for as long as I've been aware of politics, which goes back to the Reagan era. They have long been critical of profligate spending, even during Republican administrations.)
During the previous administration they were busy helping President Bush turn the budget surpluses of the Clinton era into large deficits. (There were no Clinton surpluses. Clinton as president does not have the constitutional authority to appropriate money. There was a decrease in the deficit during that time, and tepid credit goes to the Republican majority elected in 1995.)
Most conservatives did not see this rapid increase in the national debt as a problem at all. (This is factually incorrect. A review of the positions of prominent conservatives like Ann Coulter, Michelle Malkin, Walter E. Williams, Thomas Sowell, Rush Limbaugh, Joseph Farah, Andrew Breitbart, Sean Hannity, Dennis Prager, Michael Massie, John Stossel, Pam Geller, Ron Paul, Matthew Sheffield, Brent Bozell, David Limbaugh, Mark Steyn, John Nolte, Cal Thomas, and Dana Loesch will clearly demonstrate that "deficit hawks" have been consistently anti-deficit no matter who has been in power.)
Vice-President Cheney blithely dismissed those issues at the time by saying, “Reagan proved deficits don’t matter.” (I researched this quote, which is plastered all over the internet on leftist websites. First, I could not locate the source, so it isn't clear that Cheney really said this. Here's a more complete quote and the cited reference:
"You know, Paul, Reagan proved deficits don’t matter. We won the midterms (congressional elections). This is our due.” (Source: [X-ref O'Neill] Adam Entous, Reuters, on AOL News Jan 11, 2004)A search of AOL and Reuters does not turn up the reference. I'll leave it to the reader to determine if Cheney actually said it. I will say, however, that even if Cheney said it, it is clear that Cheney did not say that deficits are unimportant. In the context of the remark, it is clear that he is referring to the results of the election, i.e., the voters returned Reagan to office despite the deficits, so in the eyes of the voters, the deficits didn't matter as they voted.)
So clearly many Republicans think (Notice he has switched back to Republicans.)
deficits are just fine when they are spending the public’s money on their own political priorities. It didn’t bother them to fund the wars in Iraq and Afghanistan by massive deficit spending. (This is a clever obfuscation of the situation. BEFORE there was spending on the wars, government was ALREADY engaging in deficit spending. Therefore, any additional spending was also deficit spending. And, it's not intellectually honest to pick out the programs you like and deem them funded, while the programs you don't like are "adding to the deficit.")
And they were all too glad to add hundreds of billions to the national debt by passing several enormous tax cuts – money that went largely to the wealthy. (There is no evidence that tax cuts add to the national debt. Quite the contrary, tax revenue increased substantially from 2004 to 2008. The deficit in 2008 was $196 billion, lower than the typical Clinton deficits.
And yes, of course the bulk of tax cuts went to the wealthy. It is the wealthy that pay a disproportionate amount of income tax. You can't cut taxes on those who do not pay them.)
The Center for Budget and Policy Priorities (a leftist thinktank)
has estimated that those wars and tax cuts will eventually contribute a whopping $7 trillion to federal deficits by 2019.1 (Only because the equation is defined by leftists as a zero sum game. That is, they assume an increase in tax does not change any other variable, like the behavior of taxpayers. But the equation is dynamic. Increasing taxes by say, 5% does not increase government revenue by 5%.
People respond to changes in tax by changing their economic and tax strategy. A business owner who plans to hire or purchase equipment may delay the decision. An investor may choose a different investment that either isn't taxed or delays taxation. Also, when the rules change, businesses will often sit on the sidelines until they're sure they can make an economic choice that will not hurt them later.
But more to the point, the only way that a decrease in taxes can increase the debt by a "whopping $7 trillion" is if government does not adjust its spending habits. In other words, only reckless people continue to spend even though they know the income won't be there.)
Many Republicans know – or should know – that almost all the projected deficits in the coming years have nothing to do with “out of control and irresponsible spending” by the Obama administration. (as we have noted, presidents do not spend money. Congress has that constitutional authority. Nevertheless, the claim is specious. The national debt has increased by $5 trillion since Obama was elected. There is no other way to interpret it. It is irresponsible to spend money like that when you don't have it.)
Consider, for example, the projected deficit for 2013 of $962 billion. A study has shown that 42% ($402 billion) of that deficit will be due to the Bush-era tax cuts. Costs of the Bush initiated wars in Iraq and Afghanistan will account for 16% ($153 billion). Another 41% ($395 billion) of the deficit will be caused by the economic downturn that began in 2008.2 This last figure includes lost tax revenues, money for the bailout that was necessary to prevent a complete economic meltdown, and money for an economic stimulus package to speed economic recovery (Speedy indeed. Blistering, in fact).
All these factors together will amount to 99% of the deficit in 2013! But this reality is being ignored by Republican politicians who continue to erroneously claim that Democrats and their policies are the main cause of our deficit problems. (I thought the bailout was a net gain? I thought the bailout saved the country? I thought the bailout had a payback that exceeded the amount spent? I thought the bailout was to get the country back on its feet? Are you telling me that the bailout added to the national debt?
And further, most conservatives do not specifically blame the Democrats, although we shouldn't be surprised that the Republicans do. Conservatives blame congress for wasting untold trillions on big government redistributive programs.)
Further evidence of Republican hypocrisy about deficits can be found in the way they ignore obvious ways of addressing this problem. (Now the deficit is a problem? I thought it was good? A useful tool?)
If they really cared about reducing deficits, they would be enthusiastic about letting the Bush tax cuts expire. This would be the single most immediate and effective way to help rein in deficit spending. (Of course this is false. Spending causes deficits by definition.)
But instead, in 2010 they refused to extend unemployment benefits to millions of Americans until the Democrats agreed to extend all of these tax cuts – thus adding hundreds of billions to the national debt. Apparently, preserving low taxes, especially for the rich, is the real number one priority for Republicans, not cutting the deficits (Notice that the problem in the eyes of the author is a revenue problem. If only the government could get enough tax money there would be no problem. Implicit in this is the idea that government spending should continue and even increase. But increasing taxes has never once reduced the national debt. Spending is, was and always will be the problem).
As their behavior indicates, many Republicans are not in principle against deficits, only deficit spending they don’t agree with.(Probably true about many Republicans. Not true about conservatives.)
It is only when the Democrats want to spend money on things like making health care more accessible, improving education, or extending unemployment benefits that suddenly deficits matter and we are “broke” and “can’t afford” these “irresponsible” expenditures (Notice how the author picks his examples. This is typical leftist strategy. The leftist isolates the issue in terms of emotional appeal ["It's for the children!] in order to create the perception that budget-cutting impacts crucial services and destroys lives. One might think from this that the only thing government does is fund education and take care of the poor.
But in a $2.8 trillion dollar budget, there isn't a single thing that can be reduced or eliminated? Every dollar spent is crucial and uncut-able? This is the false choice we are continually presented with. Cutting spending always means hurting or killing people, which makes conservatives evil and greedy. I'm continually surprised at how many people believe that this is true.).
The Real Reasons the Republicans are Pushing Deficit Reduction
If deficit reduction isn’t a matter of principle for many Republicans, what are the real reasons they are pushing this issue so hard? There are two. First, conservatives (Once again conflating Republicans and conservatives.)
believe that deficits make a good campaign issue. They need something to rile up people – something to fan their anger and resentment against government (That is, fiscal responsibility is a irrational thing, and apparently people are stupid and easily manipulated. They'll react in anti-intellectual ways because they are so ignorant. Thank goodness we have smart people like the author who can explain to us why it is a good thing to spend money until we can't pay it back. Which, incidently, he has yet to do. Up until now, all we have are his bare assertions.)
– and deficits fit the bill. Unfortunately, it seems to be working. Polls find increasing numbers of Americans are mentioning deficits and the national debt as one the most important problems facing our nation. (Deficits and the national debt ARE critical problems. We are teetering on the brink as a nation. Given the insolvency of SS and Medicare, as well as $16 trillion in debt, substantial adjustments are going to need to be made. The alternative is default.).
However, the main reason the Republicans have seized on this issue is that it is a good way to reduce government or at the very least prevent its expansion. Efforts to rein in the budget have long been a part of their “starving the beast” strategy that was described in another article. (Wait. I thought that deficits only became a problem after Obama became elected. Now we discover that this has long been a part of republican strategy. So which is it?)
That is why Republicans have no interest in one of the obvious ways to approach this problem: raising taxes so government does not have to borrow so much money to pay for necessary programs. (Except this been tried many times and has never worked...)
In their view, there is only one way to addresses deficits: cut spending. (Which has never been tried.)
Of course this could eventually necessitate cutting back on many of the established liberal programs – like Medicare and Medicaid – that Republicans have never liked. In fact, the Republican budget proposal in 2011 actually called for ending Medicare and Medicaid as we know them. In the end, this renewed conservative (Conflating Republicans with conservatives again.)
concern about deficits is simply a new way to pursue their real goal – reducing big bad government (I wonder if the author proof-read this statement. Is the author opposed to fixing bad government?).
Deficits Are Good During Recessions
But irrespective of their motivations, aren’t Republicans right that deficit spending is a terrible idea and we must stop doing it? Aren’t balanced budgets just a matter of common sense? The answer is “No.” In fact, a good case can be made that deficit spending is an indispensable government tool in addressing serious economic problems (If a "good case can be made," maybe he finally will attempt to make it. He has yet to do anything at all except make bare assertions.)
For example, most economists agree that deficit spending during a recession, especially a severe one, is a very good thing to do. (That is, most Keynesian economists. They are, unfortunately, quite wrong.)
Even though tax revenues are decreasing, the best thing for the economy is for the government to keep spending money, and even increase spending. When consumer and corporate spending are swooning, only the government is in the position to spend money and stimulate economic activity. (Except for the inconvenient fact that this has never worked in the history of the nation.)
The market will not take care of this problem, so the government must step in. (Again, we are offered nothing but bare assertions, with no evidence that this has or can work.)
Government spending has a multiplier effect that provides a large economic boost during recessions. (Wait. A few paragraphs ago the author said that the bailouts added to the deficit problem. So which is it?)
If it spends money on building schools and roads, for example, that money first helps constructions companies. These companies in turn will hire more workers who will then spend more money on goods and services, thus helping other businesses. The construction companies will also purchase more tools and materials from other businesses, who will then hire more workers, and so on. In this way, deficit spending spreads through the economy, lessening the impact of recessions and helping to speed economic recovery. And as the economy rebounds, this produces higher tax revenues, which eventually lessens the need for deficit spending. (Wow, now I am worried. This fellow teaches economics. I am astounded. Ok, let's try to briefly analyze this preposterous assertion. Government gets money two ways: Taxation and borrowing.
The first way, taxation, means the government takes the money out of the private sector to spend it on its priorities. So every dollar that the private sector does not have is a dollar it cannot spend to pay an employee, purchase capital needs, or invest in facilities. Government now has that dollar, which it in turn redistributes in a different part of the private sector.
Net gain - zero.
The other way government gets money is borrowing. The Federal Reserve notifies the Department of Treasury to print money. The Treasury does so, and delivers the newly-printed currency to the Fed for distribution. The Fed purchases government debt instruments (bonds, t-bills, etc.), and uses the money it received to purchase them. So the Fed holds more than 70% of the national debt, purchased with money printed by the Treasury. The increase in money supply devalues the dollar (inflation). therefore, bailout money that was borrowed devalued the existing dollars in circulation.
Net gain - zero.)
Contrary to the wildly erroneous claims of the political right, most economists agree that the deficit spending and economic stimulus programs of the Obama administration provided enormous benefits. (The author seems to like to repeat his claims over and over without substantiation.)
A 2010 study by Alan Blinder of Princeton and Mark Zandy of Moody’s Analytics found that the combined effect of the fiscal stimulus package, TARP, and the actions of the Federal Reserve Board raised real GDP 11% over where it would have been, saved an estimated 8 million jobs, and probably averted deflation and a depression. (Anyone willing bet me that these folks are Keynesians? But let's point out the obvious flaw here. It is impossible to know that GDP is 11% higher than where it would of been. We have nothing to compare it to. No placebo. No control group. Indeed, there is no possible way to know if 8 million jobs were saved. No one can count a "job saved."
I suppose it would be inconvenient to point out that economic downturns historically last 18 - 24 months. The spectacular exceptions are the Great Depression, which lasted all the way through WWII, and the current economic downturn, which is now nearly five years old. Both of these exceptions are characterized by substantial government intervention and deficit spending. A case can easily be made that government has, in both cased, PROLONGED the downturn and IMPEDED the recovery.)
They concluded: “It is clear that laissez faire was not an option; policymakers had to act. Not responding would have left both the economy and the government’s fiscal situation in far graver condition. We conclude that Ben Bernanke was probably right when he said that ‘We came very close in October [2008] to Depression 2.0.’”3 (Government ALWAYS has to act, according to the Left. Every problem is for government to solve. Leftists love to tell people what to do, what they can eat, what they can drive, what they can say, and what they must believe. They are all about control. That's why they need big government. They need the mechanism to make sure people do what they want them to do.
This is why conservatives are a threat. Conservatives want to limit and confine the agent by which leftists want to effect societal change. Conservatives think that people are capable of solving their own problems, making their own decisions, and leading their own lives. Leftists are deathly afraid of this, because they don't trust people to do the right thing. They believe people are not smart enough. They believe people need to be led to make the right choices. And powerful, interventionist, coercive government is needed for that.)
The worst thing the federal government could have done was to listen to the deficit hawks and curtailed spending in the face of a severe recession. To see why, you simply need to look at state governments that did this in recent years. As their economies were tanking, many state governments – which are constitutionally required to balance their budgets – had to lay off workers, cut benefits to individuals, and curtail purchases of goods from the private sector. This simply made a bad economic situation worse. (No, most states weathered the storm. Some better than others, but they all still are here and in operation.
But of course, states don't have the kind of fiscal power the feds have. And a lot of what they do is mandated by the feds.)
It created a kind of reverse multiplier effect, taking money and jobs out of the economy and lowering demand for goods and services in an already weak economy. Instead of speeding an economic recovery, this kind of frugal spending policy actually slows it down. It hardly makes sense to kick the economy when it is down, but this is what happens if governments are forced to balance their budgets every year. (Except this is not true. The states in the best budgetary condition are headed by Republican governors and/or legislatures. The states in the worst condition are democratic strongholds. The big difference here, though, is that states can't print money, they can only borrow it. And some states, like California, are so far in debt they may never get out. Several California cities have already declared bankruptcy.)
If the Republicans continue to be successful in blocking further stimulus spending, this will only hurt the economy. At best, it will delay recovery from the recession, and at worst, it might actually precipitate a dip back into more severe recession. (This is a CYA. Conservative economists have been predicting a double-dip downturn since the very beginning. The weak recovery we have experienced is not an indicator of policy success, it is the expected outcome of a profligate government. The second leg of the downturn is an inevitable result of the massive burden of government debt on the economy.
And we need to note that the stimulus was not a one-time thing. The budget didn't go up one year and back down the next. The budget stayed up every year. It never came back down, which means we are still spending hundreds of billions of dollars each year in stimulus-level funding.)
Either way, this will only add up to more suffering for millions of American workers. Chronic long term unemployment has reached heights not seen since the Great Depression of the 1930s. (Wait. I thought the stimulus has helped. Is the author now admitting that unemployment has not been helped by government recovery programs?)
This is the real crisis facing many Americans. They are out of a job, out of savings, and losing their house. Their American dream is fading fast. Only the government is in the position to help – to stimulate the economy to produce more jobs.(Only government? Sounds like he's talking about Jesus.)
And yet the Republicans keep insisting that budget balancing must be our first priority – thus leaving millions of jobless working class and middle class Americans hung out to dry (which they already are. Is this fellow clueless? All of the spending, all of the government solutions, all of the programs, have brought us to this point. How can the author say that people will be hung out to dry when they already are?).
Bogus Math and Questionable Estimates
Peterson and many other fiscal austerity zealots (Note the inflammatory rhetoric.)
rely primarily on highly questionable predictions that budget deficits and the debt will soar to unimaginable heights several decades from now. (Well, actually, that is the case now. The national debt just exceeded $16 trillion. I'd say that qualifies as "unimaginable.")
They predict economic doom as interest rates soar and investment grinds to a halt. But as numerous critics have pointed out, predictions that extend out several decades are extremely unreliable and depend entirely on the assumptions one uses. (Which is the same problem that Keynesians have with their projections, of course.)
For example, slight changes in his assumptions about the rate of economic growth or key tax rates would mean that none of his dire predictions about soaring debt would actually come about.
Robert Kuttner is particularly critical of the misleading calculations in Peterson’s analysis:
The Peterson Foundation’s central claim of over $50 trillion in unfunded liabilities is arrived at by miscounting apples and oranges. The only true figure for debt—that is, debt on which actual interest is paid by taxpayers—is the public debt held by the public, estimated as of January 12, 2009, according to the Treasury, is $7,781,352,915,790.80. ("Public debt" is an artificial distinction. Debt is debt, and debt includes not only what has been borrowed [including by the Fed], but money that is borrowed from the Social Security Trust Fund. The total obligations for which government will be responsible to pay is not $50 trillion, it could be twice that.)
The Treasury Department’s figure for public debt is about 54 percent of GDP, a far smaller portion of GDP than at any time during the quarter-century after World War II, a period of record economic boom. The rest of the Peterson Foundation’s fanciful arithmetic is derived by adding debt that one government agency owes to another (another roughly $4.5 trillion) as well as the projected seventy-five-year deficits for Social Security, Medicare, and Medicaid, using worst-case scenarios.4
Social Security is a good example of just how questionable Peterson’s alarmist analysis really is. There is clearly no immediate crisis and not a likely long-term problem either. The Social Security payroll tax was hiked in the 1980s to handle the increasing number of baby-boomers retiring now. As a result, the program's trust fund is projected to grow steadily, with a surplus lasting until at least 2027. (The SS trust fund contains no cash, only debt.)
After that, some very small modifications in income or payouts could return the system to surplus. Even if that wasn’t done, the program will still be able to pay 100 percent of benefits until 2041.5
The only way that Peterson can make Social Security look like a problem is if he projects the program out 75 years, and assumes very low rates of economic growth and wage increases. Slightly more optimistic economic assumptions would mean that Social Security would be quite viable for the foreseeable future. So to whip up public panic about the Social Security system, as Peterson and his allies have done, is simply irresponsible. (To claim that Social Security has assets is more than irresponsible, it is false.)
Deficits and Debt can Encourage Economic Growth
Conservatives are also wrong when they argue that deficit spending and a large national debt will inevitably undermine economic growth. To see why, we need to simply look back at times when we have run up large deficits and increased the national debt. The best example is World War II when the national debt soared to 120% of GDP – nearly twice the size of today’s debt. This spending not only got us out of the Great Depression but set the stage for a prolonged period of sustained economic growth in the 50s and 60s. (There is no evidence of this. Government burdened the economy to such a great degree that the length of the Depression can be measured in decades. Only when the war geared down and troops returned home to start lives for themselves did the economy begin to recover.)
Massive investments were made in science and technology, American workers were re-trained and re-employed, private investment was encouraged, and consumer purchasing power was increased. That 25-year post-war economic boom, with the most rapid increase in living standards in our history, would not have happened without the stimulus of all this deficit spending. (An unsupported assertion.)
History also shows that balancing the budget does not necessarily ensure a spurt of economic growth. In fact, in most periods when we have not had deficits, such as the 1990s, (There were no surpluses. But even so, there is no evidence that balanced budgets cause recessions.)
this was followed by an economic recession.6 So there is clearly little historical evidence to show that deficits and debt inevitably hurt economic growth. (The author cites one fallacious example and then makes a blanket statement. His conclusion is unscientific and unjustified.)
But what about the conservative argument that public spending “crowds out” private investment, to the detriment of economic growth? They maintain that if the government is borrowing a lot money, that is money that the private sector cannot invest to increase its production and productivity. This has to undermine economic growth, right? The answer is “No, not necessarily.” (The weasel phrase "not necessarily" admits that sometimes it's true.)
As most economists point out, ("Most economists" again, that are Keynesian.)
government spending also has a “crowding in” effect that actually encourages more private investment. That is because much of the money that the government borrows and spends goes to the private sector. Private industry must then prepare to provide the various goods and services demanded by the government – such as weapons systems, green energy systems, new roads and schools, etc. In order to do this, these businesses must invest in new production facilities and greater productivity. This “crowding in” effect thus helps to mitigate any negative effects that public borrowing has on the private sector by indirectly encouraging more private investment and business growth.(We've already dealt with this bizarre scenario. Government borrows by devaluing the currency. Everyone's dollars are worth less, therefore purchase less. Zero gain.)
Investing in America’s Future
But there is even a more important issue here – one often brought up by Joseph Stiglitz, a Nobel Prize winning economist. He argues that deficit spending, when it is done right, can be a major stimulus to economic growth and actually lower long term government debt.7 When economic growth is back on healthy terms, this leads to increased tax revenues, which eventually lessen the need for government to borrow money. (I thought borrowing money was good? Why does the author suggest that government might want to lessen the need for borrowing?)
For Stiglitz, the key is to spend that deficit money on things like education, technology, and infrastructure that lay the groundwork for future economic expansion. We will not remain competitive with other countries for long if we don’t have decent roads, efficient airports, adequate clean water supplies, and sufficient school facilities. (Why are these lacking with all the billions and trillions of dollars already spent? Where did the money go? Why isn't government acting prudently by budgeting for and engaging in appropriate maintenance of these valuable things?)
Recently the American Society of Civil Engineers estimated that over the next five years it would take at least $1.6 trillion to bring our national infrastructure into an acceptable state. These are huge investments that the private sector is unwilling to make. Going into debt to pay for these things is a good investment in our collective futures. (On what basis? Because previous assets have been mismanaged so that infrastructure is now failing? And by the way, there is no such thing as "our collective futures." Individuals may indeed have intersecting interests, but there is no collective.)
We also need government to invest in emerging technologies that are vital to our economic prospects. We are falling behind many other countries in our public investments in high-speed rail, modern telecommunications technology, and an advanced electricity grid. (This may be true, but first, we do not need to assume government is the one to do it, and second, it is irrelevant what other countries are doing and how they are doing it, and third, government rarely chooses correctly as far as which technology or which strategy will yield positive results.)
Another area that will drive economic expansion in the future is green technology and alternative energy. Left to itself, the market has not been leading us in that direction.(Because it makes no economic sense. The market perfectly allocates resources and effort according to what is viable. Green energy is not viable. The green energy market as far as is relates to government is not an economic issue, it is a political issue.)
Several other countries, including China and Germany, have been spending billions in public funds to encourage consumers and industry to jump on the green technology bandwagon, and they are already beginning to reap the economic rewards of this strategy. (Again, who cares what other countries do?) We are trailing badly in this vital economic area and we are unlikely to catch up without substantial investments by our government.
Who Really Cares about Our Children?
One of the most common Republican complaints about deficits is that they will ruin our children’s future. We are saddling them with this enormous debt that they will have to repay – presumably to their great detriment. So if we care about future generations, we must severely cut spending to rein in this increasing debt. “Do if for the kids,” say the deficit hawks.
The main problem with this argument is that it focuses only on the costs of deficit spending for future generations, and completely ignores how that spending would actually benefit them. Would you be a good parent if you considered only the costs of buying braces for your child and not the benefits they would enjoy for the rest of their lives? (Our first real-world example from the author, and a bad one. Parents may or may not borrow money to fix their kids' teeth, but the thing is, they make the decision based on what they can afford and premised on the idea that they will pay back what they borrow.
Parents make budget decisions based on greatest need vs. available resources every day. Government never does this, because it is spending other peoples' money. There is no thought given to affordability, the money will never be paid back, and the results, if achieved, will most likely be inefficient, filled with waste, fraud and abuse, and have a ripple effect throughout the economy)
Similarly, we must not just think about the national debt that we are handing down to our children, but consider also all of the valuable assets, projects, and programs that could be financed by that debt. Those benefits could make future generations much better off. (In other words, spend as much as you want "for the children." "Yes, little Johnny, we did this for you. I know that your standard of living will be lower than mine as the economy languishes under the burden of humongous government, but look at all the cool things you have.")
It all depends on what the deficits are spent on. If we are simply going into debt, as we did in the Bush era, to pay for tax cuts for the rich and wars like those in Iraq and Afghanistan, this will do little to help our descendants. (In other words, deficit spending can be categorized into "Good if it went to things I agree with" and "Bad if it went to things I disagree with.")
But what if some of that deficit spending goes to make higher education more affordable? A study by the National Center for Public Policy and Higher Education gave the public college and university systems in 43 states a grade of “F” for affordability. This means that many kids who do go to college end up saddled with enormous student loans that will detract from their standard of living for years. More importantly, many low and middle-income students simply cannot afford college anymore – hundreds of thousands of kids are being turned away every year for lack of money. In contrast, public investment by many countries in Europe has made higher education there low cost or free. Whose kids are better off? (The author apparently thinks that this is a zero sum game. Spend all we want to give children a garage full of ATVs and motorcycles because it's all free and without consequence. As long as we borrow and don't pay it back, well, no one has to pay the piper. It's a perpetual motion machine, isn't it?)
In addition, we are not doing our offspring any favors if they inherent a country whose infrastructure is in disastrous condition.(Again, why is it in disastrous condition if it is built and maintained and overseen by government? Why is that? And note that it is infrastructure we are passing on to our children, not funding for obscene art, not onerous regulations on business, not an unmanageable tax code, not the loss of freedom as government tells us how big a soft drink we can by or whether or not a restaurant can serve salt. Thank the Lord the government is going to give us infrastructure!)
They will not enjoy balanced budgets (Here it is again. I though balanced budgets were bad. How can we enjoy a bad thing?)
if that means living in a world of bad roads, dangerous bridges, failing sewer systems, questionable drinking water, and congested airports. Future generations might also be thankful if we spend some money now on lessening the potentially disastrous impacts of climate change. Global warming is already beginning to do enormous harm with unusually intense droughts and floods. If we do nothing now, the impacts on our children and grandchildren will be much more severe. (It's for the children! We must spend boatloads of money that isn't really there, so that our children can get to their flights on time. Can we ask, why can't we get to our flights on time now? Whose fault is that? We have big, deficit-causing government now, and all these problems? Why?)
Finally, as noted earlier, government spending can be crucial for ensuring a prosperous and growing economy. A large part of the economic growth in the last twenty years has been fueled by various kinds of private sector economic bubbles. This is hardly desirable or sustainable. In the 1990s, there was a large technology bubble that created billions in apparent investment profits. Later, it was the housing bubble which encouraged consumers to borrow and spend much more money because of the rapidly increasing value of their homes. When these bubbles burst, they took the economy down with them. Today, we need a more stable and reliable way of encouraging economic growth. Public investments in emerging technologies, like alternative energy, could prove to be a valuable part of that economic strategy. If we can leave our children a sustainable growing economy, this could be their greatest inheritance. (Wait. We have hundreds of government agencies, and all sort of financial regulation, much of which was installed after the Great Depression. How could these things be problems with all the government intervention and oversight? I thought government already solved the problem?
Oh, and regarding the housing bubble. The bubble did not cause anything. The bubble is a RESULT of government intervention. The Fed lowered interest rates to near zero, government legislation was implemented to encourage home ownership, banking regulations changed to force banks to make loans they otherwise would not make, etc..
There would have been no bubble had in not been the government intervening in the markets.)
Our Real Financial Concerns
All of this is not to say that there are not some serious financial concerns looming on the horizon. But they are all solvable. The challenge is to do so in a way that does not shred our social safety net or prevent us from engaging in the kind of public investment that we so crucially need.
The main problems we face are with Medicare and Medicaid. Without any reforms, Medicare will go into deficit by 2020, and benefits will have to be reduced. This is due to the fact that that health care costs in this country are already high and rising even further. Why are costs so high? Because we have one of the most inefficient health care systems in the world. We pay almost twice as much per person for health care compared to many other advanced countries, and we often provide worse care (and a lower life expectancy). The main culprit is the commercial domination of our health care system. (No, if there was commercial domination of our healthcare system, the free market would be in operation, competition would thrive, and costs would be coming down. We didn't have a problem 20 or 30 years ago. Health insurance was cheap and covered a lot.
Only after government began mandating coverages, limiting access, expanding government health programs which caused cost shifting, and manipulating the doctor-patient relationship did we see the beginnings of a crisis. Government caused the problem.)
We rely primarily on private, for profit, insurance companies and healthcare companies. Many other countries have more streamlined, government-run, single-payer systems that provide high quality care at much lower costs.
In the long run, then, solving the financial problems of Medicare and Medicaid require some basic reforms in our health care system. As Dean Baker, one of the most thoughtful economists analyzing government debt has explained it, the best way to address our debt is to “fix health care, fix health care, fix health care.” (How is our debt in any way caused by healthcare, unless government is involved in its procurement and funding? A moment ago the author told us that the problem was because of private insurance companies. But if the system was made up of only private insurance companies, there would be no impact on government.
So, it is clear now that government is heavily involved in healthcare and sways the market according to its dictates. Indeed, before obamacare the government was already spending $.47 out of every healthcare dollar. It is obvious that government is the 600 pound gorilla in healthcare, so the private sector can hardly be blamed for the problems.)
The health care reforms passed in 2010 have some promise to slow down growing costs. But the health care system remains the hostage of the private, profit-making, health care industry. Many analysts believe that additional major reforms must take place if we are truly to rein in rising medical costs. The crucial importance of doing so was made clear in a report by Our Fiscal Security, which concluded: “The rapidly rising cost of private health care—doctor’s visits, prescription drugs, procedures—is the only truly unsustainable part of the long-term budget. If U.S. health care costs were growing at the rate of other wealthy countries, we would have no long-term debt problem.”8
A Crucial Part of the Solution: Raising Government Revenue
Baker and other progressive economists have also been promoting another approach to long-term debt reduction: raising more revenue. (Now he wants to reduce the debt again. I wish he would make up his mind.)
For example, Robert Kuttner has proposed a series of tax changes that could bring in an addition $800 billion a year into the federal coffers.9 These include:
A tax on Wall Street financial transactions. This would have the added benefit of discouraging short term speculative trading and encouraging more stable longer term investments.None of these additional revenue sources would have much of an effect on 90% of Americans. (Nor would they raise anywhere close to the amount of money needed to close the deficit. But of course it is worth noting that every dollar of tax is paid by private citizens. Corporate taxes are built into the price of products and services as a part of overhead expenses. Raising taxes will trickle down to the end user.)
Crack down on off-shore tax havens. Estimated to bring in at least $100 billion a year.
End the deferral on foreign source dividend income. Obama promised to close this loophole, which also would discourage shifting jobs overseas.
Eliminate deductibility of interest payments on corporate mergers. Should bring in at least $50 billion a year and discourage abusive takeover attempts.
Raise taxes on short term capital gains. These gains should be treated as ordinary income, as they were before the Reagan era.
More importantly, they would enable us to stabilize and perhaps even expand our crucial safety net programs and also to pay for vital public investment projects, such as alternative energy and infrastructure improvements.
Other analysts have argued that much of the needed money for social programs and public investments could easily come out of the defense budget. If one considers how much countries spend on defense, the U.S. heads that list by a very wide margin. In fact, we spend more money on defense than the next nineteen countries on that list combined. Our navy alone has the capability of the next eight countries navies combined – many of which are our allies.(Ahh, so he does want to cut government. I thought that was a bad idea. You know, government spending stimulates the economy. Remember?
When you defend the world and involve yourself in questionable foreign wars, you spend a lot of money. Other countries do not spend a lot of money on defense because they have no need. They know the US will jump to their defense.)
So there is a lot of room to downsize without undermining our security. A bipartisan group, the Project on Defense Alternatives, has done an analysis that found we could cut a trillion dollars out the defense budget in the next ten years without compromising our military superiority.10 That kind of money would go a long ways toward solving our fiscal problems. (Except it won't. I actually support a smaller military, but the national debt is projected to increase by $7 trillion over the next four years. The military is only 19% of the budget. Eliminating it completely still doesn't solve the problem. The problem is, and remains, spending.)
The Real Battle
In the end, the political battle over deficits and the national debt is really just a proxy for the more basic ideological struggle over the proper role of government in a modern society. (true)
The Republicans want to use fear-mongering (Another emotionally-loaded word. It sure is easy to make one's case by marginalizing the opposition with an epithet.)
over these alleged financial problems to advance their political vision of the minimal state. They promise Americans a future of balanced budgets, reduced spending, and lower taxes. But what they don’t tell us is that this would also be a future in which most people would be on their own to try to deal with serious economic, social, medical, and environmental problems that face our country. (Because if government doesn't take care of you, no one will.)
The jobless would be left to fend for themselves during serious recessions. Basic safety net programs like Social Security and Medicare would be cut back and/or privatized, and scores of other unmet human needs would be neglected due to lack of sufficient taxes and public funds. (In other words, take the money from you so that the government spends it more wisely than you can.)
It would be a world where infrastructure would continue to crumble ( I ask again, why is it crumbling? Why is government neglecting these valuable things? Especially considering how much it takes in the form of highway and gas taxes. Where is the money going?)
and we could not afford to make the necessary investments in education and growth-producing technologies.
Of course there is another possible scenario: a much more positive one in which we all worked together through government to address our common problems. It would be a future in which active government used all of the tools at its disposal – including taxation and deficit spending – to improve the lives and security of average Americans. Where the government would step in vigorously to reduce the impact of recessions and to promote job creation. Where the government would make the necessary investments to shore up vital safety net programs, and to update and improve our educational and infrastructure systems. In this scenario, we would also have a society that was made more sustainable and livable by public spending to encourage alternative energy and other green technologies. (God, how many times has the author made this same point? Repeating an assertion over and over does not establish its veracity.)
But it is exactly this future that will be denied us if we fall prey to the deficit hysteria being manufactured by the anti-government (Anti-government? Only anarchists are anti-government. Conservatives are not anarchists.) forces in this country.
1. Kathy Ruffing and James Horney, “Critics Still Wrong on What’s Driving Deficits in Coming Years,” June 28, 2010, Center for Budget and Policy Priorities. http://www.cbpp.org/cms/index.cfm?fa=view&id=3036
2. Kathy Ruffing and James Horney, “Economic Downturn and Bush Policies Continue to Drive Projected Deficits,” May 10, 2011, Center for Budget and Policy Priorities. http://www.cbpp.org/cms/index.cfm?fa=view&id=3490
3. Alan Blinder and Mark Zandy, “How the Great Recession was Brought to an End,” July 27, 2010. http://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf
4. Robert Kuttner, “Progressive Revenue as the Alternative to Caps, Commissions, and Cuts,” February 25, 2010. http://www.scholarsstrategynetwork.org/pdfs/Progressive_Revenue_as_the_Alternative-Robert_Kuttner.pdf
5. David Knox, “Social Security More Solvent that Most American Realize,” August 24, 2008
http://www.ohio.com/news/american_dream/27325314.html
6. Ezra Klein, “Galbraith: The Danger Posed by the Deficit is Zero,” May 12, 2010, “http://voices.washingtonpost.com/ezra-klein/2010/05/galbraith_the_danger_posed_by.html
7. Joseph Stiglitz, “The Dangers of Deficit Reductions.” March 5, 2010. http://www.sfbg.com/bruce/2010/03/05/stiglitz-dangers-deficit-reduction
8.Our Fiscal Security, “The Budget Deficit and Debt: What You Need to Know,” September 2010, http://www.ourfiscalsecurity.org/deficit-101
9. Robert Kuttner, “Progressive Revenue as the Alternative to Caps, Commissions, and Cuts,” February 25, 2010. http://www.scholarsstrategynetwork.org/pdfs/Progressive_Revenue_as_the_Alternative-Robert_Kuttner.pdf
10. Project on Defense Alternatives, “Debt, Deficits, and Defense: A Way Forward,” June 11, 2010, http://www.comw.org/pda/
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