Tuesday, February 16, 2010

Five myths about the big bad deficit

No/Nothing Republicans have been doing everything they can to scare Americans about the big bad deficit and how it is going to destroy the country. Now we finally have an honest analysis of the real deficit story from the Center for Economic and Policy Research. Dean Baker of the Center points out five myths about the deficit in his report.

1)The extraordinary level of current deficits is overwhelmingly the result of the economic crisis. There is little reality to the claim that Congress is out of control in its tax and spending policies. [In other words, the Tea Party people have it all wrong. Rather than blaming the Democrats for spending, they should be blaming the Republicans for running the economy into the ground during the Bush/Cheney years.]

2) The budget deficit does not pose an economic problem at present. If the budget deficit were smaller, we would simply be seeing higher unemployment. There would be no short-term or long-term benefit from reducing the current deficit. [Cutting the deficit now would result in just more unemployment. Again, all those Tea Party folks who are mad because they and members of their family were thrown out of work will just make matters worse for themselves and their families if they get their way. Talk about working against your own self-interest.]

3) The size of the longer-term deficit problem has been both exaggerated and misrepresented. Projections show that debt-to-GDP ratios will be well within manageable levels at least a decade into the future, even if there are no major changes from baseline scenarios. As a long-term issue, the United States must fix its broken health care system. [The report compares what would happen to the deficit under four health care cost scenarios: 1. We continue on the track we are on now or we bring health care spending more in line with health care spending in (2) the UK, (3) Canada, or (4) Germany. If we follow the course we are now on, the budge deficit will reach as much as 40% of GDP by 2080. However, if we adopt health reform and bring costs more in line with those in the UK, Canada, or Germany, we will have a 10% or better SURPLUS by then. Anyone who is seriously worried about the deficit should be demanding that Congress pass comprehensive health reform and do it now.]

4) The wealth of near-retirees has been devastated by the collapse of the housing bubble and the plunge in the stock market. Any substantial reduction in Social Security or Medicare benefits will likely leave large segments of middle-income workers with near-poverty level incomes in retirement. [The only way to really bring the deficit down is to make substantial cuts in Social Security and Medicare. If we do that the Americans who will be suffer the most will be the very people who are suffering from the recession now, middle-aged/middle income Americans.

5) Concerns about foreign ownership of the government debt are offensive jingoism. There is an issue about foreign indebtedness because this implies that an increased portion of future output will be paid out as interest and/or dividends to foreigners rather than being available for domestic consumption. However, this is driven by the trade deficit, not the budget deficit. The trade deficit, in turn, is attributable to the over-valuation of the dollar. [The authors note the "the issue about the foreign ownership of the government debt is ENTIRELY a political ploy."]

Do yourself a favor and read this honest analysis of the causes and consequences of the budget deficit. To get the full report, go to:

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