Several months ago I wrote:
Now the deficit guys (cleverly described as “deficit peacocks,” since they’re really not hawks) are out in force. They have America worried about how to pay for all of this red ink. Remember when President Clinton handed over the keys to the White House to President Bush? He handed Bush a budget surplus that was projected to be approximately $800 billion per year from 2009 to 2012. Instead, it looks as if we’re spending $1.2 trillion more than we’re taking in during this same time frame. What happened? About 33% of this $2 trillion deficit (the difference between $800 billion in the black and $1.2 trillion in the red) comes from George Bush’s tax cuts and his Medicare prescription benefit. About 20% of the deficit comes from Obama’s extension of Bush policies like the war in Iraq and tax cuts for households making less than $250,000. Only 7% comes from the stimulus bill passed in February 2009. The downturn in the business cycle accounts for approximately 37%.
The Center for Budget and Policy Priorities has noticed that conservatives continue to harp on the deficit. Even the conservative think tank the Heritage Foundation has been screaming about the deficit. In my opinion, screaming about the deficit now is like trying to fix faulty wiring while the house is on fire. We need to put out the fire first then fix the wiring. This should be obvious to any congressperson on Capitol Hill. Unfortunately, it is not. These same deficit peacocks are trying to point to Obama and his policies as if they were the problem. It’s almost laughable. From CBPP:
Some commentators blame recent legislation — the stimulus bill and the financial rescues — for today’s record deficits. Yet those costs pale next to other policies enacted since 2001 that have swollen the deficit. Those other policies may be less conspicuous now, because many were enacted years ago and they have long since been absorbed into CBO’s and other organizations’ budget projections.
Just two policies dating from the Bush Administration — tax cuts and the wars in Iraq and Afghanistan — accounted for over $500 billion of the deficit in 2009 and will account for almost $7 trillion in deficits in 2009 through 2019, including the associated debt-service costs. (The prescription drug benefit enacted in 2003 accounts for further substantial increases in deficits and debt, which we are unable to quantify due to data limitations.) These impacts easily dwarf the stimulus and financial rescues. Furthermore, unlike those temporary costs, these inherited policies (especially the tax cuts and the drug benefit) do not fade away as the economy recovers (see Figure 1).
Without the economic downturn and the fiscal policies of the previous Administration, the budget would be roughly in balance over the next decade. That would have put the nation on a much sounder footing to address the demographic challenges and the cost pressures in health care that darken the long-run fiscal outlook.
Fix the economy first then fix the deficits. We need a strong jobs package now. Failure is not an option. At least, it is not an option that most Americans would want to live through. Economist Paul Krugman follows up on a point that is all too simple.
In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today’s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: the recession brought on by the financial crisis arguably ended last summer.
But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.
In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.
As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn’t doing much better. The Fed seems aware of the deflationary risks — but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity — but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.
Why are our politicians so tone deaf? Could it be that conservative Republicans just don’t want a Democratic administration to turn around the economy?
Tags: Economy by ecthompson md
2 Comments »
Remember just a couple months ago when we were in the middle of the healthcare debate and it became clear we were arguing for nothing versus a mediocre piece of legislation? Senators Ben Nelson, Joe Lieberman and Blanche Lincoln left us with that choice. We could have mediocre legislation with no public option or we could have nothing. We chose something over nothing. Currently, we’re looking at the same kind of story in the financial world. We have Wall Street reform legislation that has been stripped of anything meaningful, like “too big to fail” legislation. I’m sure that in the coming days and weeks the progressive community will be asked to hold their collective nose and support something that is not to prevent big financial institutions from holding us hostage once again. So, my question is where are our lobbyists?
