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Robert Reich
NationofChange / Op-Ed
Published: Monday 19 November 2012
“Recall the 1990s when the Clinton administration balanced the budget ahead of the schedule it had set with Congress because of faster job growth than anyone expected.”

Why We Should Stop Obsessing About the Federal Budget Deficit

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I wish President Obama and the Democrats would explain to the nation that the federal budget deficit isn’t the nation’s major economic problem and deficit reduction shouldn’t be our major goal. Our problem is lack of good jobs and sufficient growth, and our goal must be to revive both.

Deficit reduction leads us in the opposite direction — away from jobs and growth. The reason the “fiscal cliff” is dangerous (and, yes, I know – it’s not really a “cliff” but more like a hill) is because it’s too much deficit reduction, too quickly. It would suck too much demand out of the economy.

But more jobs and growth will help reduce the deficit. With more jobs and faster growth, the deficit will shrink as a proportion of the overall economy. Recall the 1990s when the Clinton administration balanced the budget ahead of the schedule it had set with Congress because of faster job growth than anyone expected — bringing in more tax revenues than anyone had forecast. Europe offers the same lesson in reverse: Their deficits are ballooning because their austerity policies have caused their economies to sink.

The best way to generate jobs and growth is for the government to spend more, not less. And for taxes to stay low – or become even lower – on the middle class.

(Higher taxes on the rich won’t slow the economy because the rich will keep spending anyway. After all, being rich means spending whatever you want to spend. By the same token, higher taxes won’t reduce their incentive to save and invest because they’re already doing as much saving and investing as they want. Remember: they’re taking home a near record share of the nation’s total income and have a record share of total wealth.)

Why don’t our politicians and media get this? Because an entire deficit-cutting political industry has grown up in recent years – starting with Ross Perot’s third party in the 1992 election, extending through Peter Petersen’s Institute and other think-tanks funded by Wall Street and big business, embracing the eat-your-spinach deficit hawk crowd in the Democratic Party, and culminating in the Simpson-Bowles Commission that President Obama created in order to appease the hawks but which only legitimized them further.

Most of the media have bought into the narrative that our economic problems stem from an out-of-control budget deficit. They’re repeating this hokum even now, when we’re staring at a fiscal cliff that illustrates just how dangerous deficit reduction can be.

Deficit hawks routinely warn unless the deficit is trimmed we’ll fall prey to inflation and rising interest rates. But there’s no sign of inflation anywhere. The world is awash in underutilized capacity As for interest rates, the yield on the ten-year Treasury bill is now around 1.26 percent – lower than it’s been in living memory.

In fact, if there was ever a time for America to borrow more in order to put our people back to work repairing our crumbling infrastructure and rebuilding our schools, it’s now.

Public investments that spur future job-growth and productivity shouldn’t even be included in measures of government spending to begin with. They’re justifiable as long as the return on those investments – a more educated and productive workforce, and a more efficient infrastructure, both generating more and better goods and services with fewer scarce resources – is higher than the cost of those investments.

In fact, we’d be nuts not to make these investments under these circumstances. No sane family equates spending on vacations with investing in their kids’ education. Yet that’s what we do in our federal budget.

Finally, the biggest driver of future deficits is overstated — rising health-care costs that underlie projections for Medicare and Medicaid spending. The rate of growth of health-care costs is slowing because of the Affordable Care Act and increasing pressures on health providers to hold down costs. Yet projections of future budget deficits haven’t yet factored in this slowdown.

So can we please stop obsessing about future budget deficits? They’re distracting our attention from what we should be obsessing about — jobs and growth.

This article was originally posted on Robert Reich's blog.

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ABOUT Robert Reich


ROBERT B. REICH, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including his latest best-seller, “Aftershock: The Next Economy and America’s Future;” “The Work of Nations,” which has been translated into 22 languages; and his newest, an e-book, “Beyond Outrage.” His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at Robert Reich's new film, "Inequality for All" is available on DVD
and blu-ray, and on Netflix in February.

Why is it that we always

Why is it that we always hear, "You have to spend Money to make Money" from Corporate American and the Republicans, except when there is a Democrat in the White House? Things are never cheaper down the road. The time is now to put this nation back to work and back to doing what we used to do best, invent and innovate. This means improving higher education and making it more accessible. The expansion in the workforce will drive down the deficit with much needed revenues and in very little time if we start today.

I agree. Money will never be

I agree. Money will never be cheaper than it is right now. Better to get massive infrastructure projects, rail, highway, bridges, underway now when money can be borrowed long-term at less than 3%, than to wait until we are forced to pay 5% or 6%, or more for the use of the money. The workers hired will pay taxes as well as buy food, clothes, shelter and other goods and services... thus stimulating the economy. With millions put back to work we broaden our tax base. Republicans are simply jealous that they aren't in the White House and so they whine, moan, and complain all the time. They had their chance but took us to hell.

John Maynard Keynes and FDR

John Maynard Keynes and FDR established this principle back in the 1930s-40s and the wealthiest people and businesses paid for it with a 91% tax on excessive income over a certain level, not enough to alter their lavish life styles. In fact, the business boom created by WWII and the post war private manufacturing sector that had a monopoly supplying the U.S., and the rest of the planet that lay in ruins from the wars, with all the necessities of life made these same people insanely rich even with such a large tax burden that quickly diminished over the 1950s-60s. Since then, the wealthy have shipped all the living wage jobs out of the country and locked up the money supply with massive government bailouts to themselves and excessive military spending for non-existent wars to dry up any possibility of massive government financed social programs. Time for them to kick in again but nobody in Washington has the backbone to push this issue and Congress is now fixated on a so called Fiscal Cliff based on a deficit in relation to GDP that has been much worse in earlier periods of our history. In short, Obama is no FDR and nothing meaningful will ever happen in this country until we get all the private money out of our political system ! PBS's released Ken Burn's film "The Dust Bowl" this week and it is a must see by young Americans who will see real American History and the potential that government has to resolve social issues if good people are in charge !

yes bobby just print more

yes bobby just print more $$$$$$$$$$$$ and all will be great

Robert's entire argument is

Robert's entire argument is predicated on: "Our problem is lack of good jobs and sufficient growth, and our goal must be to revive both."

One problem: We cannot grow economically to infinity because we do not have infinite resources. Thus, growing out of our problems isn't possible any longer, as it was before, such as after WWII. We're out of land, water, and natural resources in the degree that it would take to grow out of our problems and support 9 billion humans. If we continue to grow, we're killing ourselves and any hope of future prosperity.

Population decrease is a viable solution. the fewer people we have the more resources each individual has. Imagine a world with 2 billion or less people. Our entire food source could be organic, for example, without the use of chemical fertilizers.

You are right on!! The

You are right on!! The emphasis on short term deficit reduction is ridiculous.
Now is the time to borrow more to " put people back to work."
The 11/15/12 auction of 52 week Treasury bills carried an interest rate of 0.18% - that's 18 cents interest on an investment of $100. The demand for these Treasury securities equated to over $127 billion - we accepted only $25 billion.
Austerity is not a short term option for recovery.

Mr. Reich asks, "Why don't

Mr. Reich asks, "Why don't our politicians and media get this?" I know he meant this to be a rhetorical question but I think it is a valid question in and of itself. I am not as erudite as Mr. Reich but I put forth the following answer to the question.

The politicians do get it. Media gets it but does not publish it because media is owned and controlled by the same plutocrats who control the politicians. Since Reagan the Republican Party (and increasingly the Democrats too) have used deficits and costs as an exuse to cut social programs for the poor and lower midde classes. The Republicans have done this to keep their Redneck, racist base in the south. If you say you are going to take something from the "Poor" the Rednecks of the South will suport it even if they themselves are benefitting from it (To wit: the Affordable Care Act) because they believe it will hurt Balcks and other minorities.

I truly believe the racists of the South would cut off their noses to spite their faces.

By pandering to the worst elements in our country the politicians, without opposition in the corporate media, enjoy a power base that they use to further enrich thealready wealthy beyond reason. The wealthy, in turn, keep the politicians in office. How many wealthy donors spent more in their futile attempt to elect Mr. Etch-a-Sketch than they will pay when President Obama succeeds in getting the modest tax hike that he daare ask for?

Reich doesn't just write

Reich doesn't just write about borrowing, but taxing the rich, too. Nobel Laureate Krugman has written about a time when we did a lot of both, post-WWII, and the result was an economic boom of historic proportions. Truman ran deficits exceeding 100% of GDP(!) just to prime the pump, and Ike continued much of Truman's policies. It depends on what that $$ is spent, hopefully on highest multiplier effect projects like infrastructure growth and development, research, and worker health and education.

"Above all, the success of the postwar American economy demonstrates that, contrary to today’s conservative orthodoxy, you can have prosperity without demeaning workers and coddling the rich.

... The modern American right, and much of the alleged center, is obsessed with the notion that low tax rates at the top are essential to growth. ...

Yet in the 1950s incomes in the top bracket faced a marginal tax rate of 91, that’s right, 91 percent, while taxes on corporate profits were twice as large, relative to national income, as in recent years. The best estimates suggest that circa 1960 the top 0.01 percent of Americans paid an effective federal tax rate of more than 70 percent, twice what they pay today. ...

Today, of course, the mansions, armies of servants and yachts are back, bigger than ever — and any hint of policies that might crimp plutocrats’ style is met with cries of “socialism.” Indeed, the whole Romney campaign was based on the premise that President Obama’s threat to modestly raise taxes on top incomes, plus his temerity in suggesting that some bankers had behaved badly, were crippling the economy. Surely, then, the far less plutocrat-friendly environment of the 1950s must have been an economic disaster, right?

...the high-tax, strong-union decades after World War II were in fact marked by spectacular, widely shared economic growth: nothing before or since has matched the doubling of median family income between 1947 and 1973. ...

Along the way, however, we’ve forgotten something important — namely, that economic justice and economic growth aren’t incompatible. America in the 1950s made the rich pay their fair share; it gave workers the power to bargain for decent wages and benefits; yet contrary to right-wing propaganda then and now, it prospered. And we can do that again."

Paul Krugman, "The Twinkie Manifesto", NYT, November 18, 2012.

On October 13, 2008, it was announced that Mr. Krugman would receive the Nobel Prize in Economics.

Spending on infrastructure,

Spending on infrastructure, energy conservation and renewable production, public transportation, education, research, and sustainable food production can all stimulate the economy, thus helping it to grow without consuming, destroying, or extracting large amounts of resources from the planet. These just need to be our goals and conscious effort.

Reich presumes (wrongly) that

Reich presumes (wrongly) that we should BORROW to create jobs and rebuild infrastructure. But it is this mistaken view which is the cause of most of our economic woes. If the currency is fiat, then why should a sovereign ever borrow from anyone? It is the law which makes the money; the money has no intrinsic value. Therefore the state regulates the creation of the currency. Why should the US government borrow from the Federal Reserve? That scam has been going on for nearly a hundred years, and it has bankrupted our nation. The Fed is creating that money and loaning it out. Why shouldn't the people just create the money and hang the interest? Fractional Reserve lending is a fraud. Interest is a fiction. When the money is loaned out, the interest is not created at the same time; the interest must come from somewhere. The debt grows and more debt must be created to pay the interest. Etc... Ad infinitum, or bankruptcy....
Why can't Reich understand this? Because, at some level, Reich KNOWS that if he said this on TV, or wrote about it in books, he would not get on TV, and he would not get published. And Berkley or whatever university wouldn't let him pretend to enlighten us.
The moneylenders are the problem.

@Christopher Marlowe I hear a

@Christopher Marlowe

I hear a lot of invalid arguments coming from you. Your premises do not lead directly to your conclusions. I think it's more complicated than you have stated it.

I'm not saying you aren't right, and I think what you're getting at is that our system of lending, actually the entire system of capitalism, eventually eats itself because at some point, someone needs to work for virtually nothing in order for the system to break even, or, rather, to profit.

This is an interesting idea one I have though much about myself. I still cannot get my head around it. While I was at university, I and a few of my classmates ran this same question by several professors, none of which had an answer.

I've tried to break it down several times by starting with ancient social structures, such as those first coming to the New World. How did they create capital?

First I take out the equation of the Old World paying for new world resources, since I'm trying to figure out how capitalism sustains itself. So several hundred people show up, and no one has anything except the skills he or she brought with them. How is capital generated when no one has capital, nor slavery?

I believe that it must start and rely on either slave labor or virtual slave labor (minimum wages). Consider one person in our new community who works really hard, amasses three times the firewood he will use over the next winter, and the same for food stocks. How does that create capital for him? Someone must buy that product, but since none of his community members has any capital or spendable income, how does it start?

We know how capital got started several hundred years ago. The feudal system needed explorers to find new resources to exploit. The kings of the feudal systems made their wealth off the backs of peasants--the virtual slave labor. Thus the system of monetary exchange, gold, silver, spices, etc.

So the middle class was created by giving some of this wealth to the people who worked for the Rulers in order to find new exploitable resources, including human slave labor and land (e.g., Conquistadors) who themselves exploited the new resources in order to build their own wealth.

It's a mystery to me how else the system can function. Exchanging skills for skills alone doesn't get it started.

Robert Reich incorrectly

Robert Reich incorrectly believes growth is on the way. Due to ecological collapse, growth is gone and never coming back. What we need is prosperity without growth. That means healing ecosystems, reducing the inequality in the economy (tax the rich a lot), and producing locally for local needs, especially growing more food in cities.

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