Thursday, July 28, 2011

Deficit Crisis—The cruel lie

Obama and most of the Democratic leadership seems to have bought into the Republican nonsense that we have some kind of immediate and crushing deficit problem, which we don't. I've done several posts pointing out that the current debt of the U.S., while higher than we would like, is really not a problem right now given the ability of the Treasury to borrow at very, very low rates. Of course, that may end soon if the Republicans are able to destroy our credit rating which seems likely. Additionally, the real horror story about the debt reaching 150% or 200% of GDP has to do with where it would be in 2030 or 2050 AND assuming that the Bush tax cuts--that contributed greatly to the deficit-are made permanent--AND that the economy grows at an anemic level. If the Bush tax cuts expire, we close some tax loopholes, raise taxes just a little on millionaires and corporations, eliminate some discretionary programs that are a waste or aren't working, and go ahead with the health reform, then the deficit will stop rising and settle to a very manageable level.

Additionally, the deficit could actually be wiped out within 10 years or less, if we get the economy back on track. The real economic problem we have is LOW DEMAND and uncertainty about future demand. Businesses will not hire unless there is demand for their products or services. After all, why would you put more people on the payroll if you don't have customers or expect to have them? If we increase demand for products and services, businesses will start hiring again, people who have jobs will start spending again and thereby create more demand.  Demand, supply, demand, supply, demand, supply--that's how the economic wheel goes around. It's not rocket science even though Republicans can't seem to understand it. The federal government could CREATE demand easily with a second stimulus (twice the size of the previous one) and with a federal jobs WPA kind of program to have the unemployed work half day and train half day. There are plenty of ideas about how to create demand. But, Republicans don't want to do that. Their real concern is defeating Obama next year. They believe an economy in crisis will help them do that. They believe a default will help to send the economy into crisis. They want a default. Think about it. If they cared one bit about the deficit, they would have taken Obama up on his $4 trillion deficit reduction proposal. Instead, they walked away.  It’s all a cruel and cynical lie.

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