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Dean Baker
Published: Friday 22 February 2013
The range of acceptable debate goes from yelling that the sky is falling because of the deficit to the more moderate perspective shown by President Obama and Democratic congressional leaders in favor of a gradual and balanced approach to deficit reduction.

Fix the Debt’s Fuzzy Math

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Believers in arithmetic are in full retreat in the national budget debate, thanks in large part to Pete Peterson’s Fix the Debt gang. The range of acceptable debate goes from yelling that the sky is falling because of the deficit to the more moderate perspective shown by President Obama and Democratic congressional leaders in favor of a gradual and balanced approach to deficit reduction. But stating the simple and obvious truth—that we have a large deficit because the economy collapsed—makes one an extremely nonserious person in Washington.

For all the debate, the facts on the deficit are not really debatable. We had a very modest deficit in 2007, before the collapse of the housing bubble sank the economy. The deficit that year was 1.2 percent of GDP, and it was projected to stay near 1.5 percent well into the current decade, even if the Bush tax cuts were not allowed to expire. The debt-to-GDP ratio was actually falling; we could run deficits of this size forever.

The deficit expanded enormously in 2008 and peaked in 2009 at 11.1 percent of GDP. But this wasn’t caused by some extravagant spending spree or an orgy of permanent tax cuts. It was caused by the fall in tax collections that occurs every time the economy goes into a downturn, coupled with the increase in spending for countercyclical programs such as unemployment insurance and food stamps. There were additional spending and tax cuts associated with President Obama’s stimulus plan. But the overwhelming majority of them were explicitly temporary, and the impact on the deficit would be negligible by 2011.

The large deficits of recent years are not an accident caused by recklessness or irresponsibility; they’re a deliberate policy aimed at supporting the economy. We designed a tax code that collects less revenue when the economy shrinks. And we have programs like unemployment insurance that pay out more benefits when a shrinking economy causes people to lose their jobs. The resulting deficits are meant to fill the gap in demand created by the collapse of the housing bubble, which caused residential construction to fall by more than four percentage points of GDP. This is more than $600 billion a year in today’s economy.

Similarly, the $8 trillion in bubble-generated housing equity led to a consumption boom, with the savings rate pushed down to nearly zero. Now that this equity has disappeared, the savings rate has risen to a more normal level of close to 4 percent of disposable income. This higher level of saving has cost the economy more than $400 billion in annual consumption demand. In addition, the loss of tax revenue from the collapse of the housing bubble and resulting downturn has forced well over $100 billion in state and local government cutbacks. 

It is this gap in demand of more than $1 trillion that we are trying to fill. We can love the private sector to death, but people will not consume more just because happy Republicans are smiling at them. Nor will firms invest more when they see no demand for their products. In fact, investment in equipment and software is almost back to its pre-recession share of GDP, which is impressive given the large amount of excess capacity in the economy. 

There is no plausible story whereby private demand would increase if the deficit were to shrink. Over a longer term, we can look to have net exports fill this hole in demand as the trade deficit moves closer to balance. But that will not happen tomorrow, and the process will not be hastened to any substantial degree by a lower budget deficit.

This means the people who want to reduce current deficits want slower growth and higher unemployment. They may not know it, but that is the implication of their position taken to its logical conclusion. This makes it indefensible; if someone spreads gasoline all over a barn and tosses a lit match on it without understanding the implications, it hardly affects the outcome.

There are more grounds for concern over projected budget deficits in the longer term, but these are the product of our broken health care system. We pay more than twice as much per person for health care as other wealthy countries, with little to show for it. If our health care costs were at all comparable, we would be looking at long-term projections of massive budget surpluses, not deficits. This is why truly serious people talk about fixing our health care system, not budget deficits and “entitlements.”

But the agenda of Fix the Debt is not really about the deficit and the economy. It’s about gutting Social Security, Medicare and other essential social programs. Pete Peterson and his fellow deficit hawks want to provoke irrational fears of large numbers. The good news is that the sky is not falling. The bad news is that, with the help of a massive PR budget and a compliant media, they could succeed in making people believe it is.



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ABOUT Dean Baker
Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He is the author of several books, including Plunder & Blunder: The Rise and Fall of the Bubble Economy, The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer and The United States Since 1980. He was the editor of Getting Prices Right: The Debate Over the Consumer Price Index, which was a winner of a Choice Book Award as one of the outstanding academic books of the year. He appears frequently on TV and radio programs, including CNN, CBS News, PBS NewsHour, and National Public Radio. His blog, Beat the Press, features commentary on economic reporting. He received his B.A. from Swarthmore College and his Ph.D. in economics from the University of Michigan.

Fix the debt by cutting

Fix the debt by cutting obscene and unnecessary military spending and by making the rich pay their taxes.

History tells the tale. The

History tells the tale. The federal government has achieved fiscal balance (even surpluses) in just seven periods since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, 1920-30 and 1998-2001. We have also experienced six depressions. They began in 1819, 1837, 1857, 1873, 1893 and 1929.
Do you see the correlation? The one exception to this pattern occurred in the late 1990s and early 2000s, when the dot-com and housing bubbles fueled a consumption binge that delayed the harmful effects of the Clinton surpluses until the Great Recession of 2007-09.
Why does something that sounds like good economics — balancing the budget and paying down debt — end up harming the economy? The answers may surprise you.
Go to http://neweconomicperspectives.org to learn how a fiat money system really works. Help me to get Dr. Stephanie Kelton on the Rachel Maddow show to explain. Please send an email to rachel@msnbc.com

Jesus proved to us with the

Jesus proved to us with the loaves and fishes that there is more than enough to go around. That there is no need for any one to go with out the necessities of life, such as food water, shelter, clothing and healing. But in order for the 'Beast' to rise to power and economically control the world the people must be deceived into believing that there will not be enough.
The ultimate goal of 'capitalism' is to control the peoples of the world monetarily. The 'Beast' is ultimately a man-made, controlled supply side, capitalist construct where-in fewer and fewer control more and more of the world's resource, mainly food, energy, water and health care. If they could sell, buy and trade the air on wall st, the moneychangers would do that too. The miracles of healing are already commoditized for profit and exploitation and in nations where healing was socialized to benefit the patients, the moneychangers are already using the power of the wealth to decay those systems into exploitive commoditized ones to the benefit of the moneychangers.
Biblically, Petersen, and the likes are the servants of the 'Beast' out to deceive mankind into eventual economic enslavement. Ultimately if they win, all people will be required to have a personal identification "Mark of the Beast" such as a tattooed bar code to receive food, water, energy, clothing, shelter and health care and in order to receive your 'mark' you will be required to think, act, speak and behave in an approved manner. The 'Beast' essentially represents the ultimate commodification of the human being.
Revelations is not a prophecy about future events but rather an insight into then and now contemporary human behavior and probable natural courses of events based upon the constructs of civilization. That's why it fits so many examples of humanity's downfalls such as Hitler's rise to power. But here-in it seems the goal is to convince people to hate themselves.
Then as now wealth is power and desires to be the dictatorial power, the controller of the lives of all peoples.. But when the inevitable battle between humanity and the moneychangers ends and the smoke clears, Truth, Love and Justice will, as always, have prevailed because no matter how well they tell the lie, the lie eventually collapses under it's own weight.
But the World may have to go thru hell again to get to there from here.

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