The Common Sense Primer on the Deficit and the Economy – Part 1
(Reader Bruce Schmiechen, who has the blog The Titanic Sails at Dawn, has put together a great primer on the conservative causes of and progressive solutions to the budget deficit called A “Common Sense” Guide to the Great Deficit Debate & The Future of Our Economy. You can download the entire document here, but Bruce has kindly agreed to allow us to post the primer in sections here at Winning Progressive over the next couple of weeks. Thanks, Bruce!)
The Common Sense Primer on the Deficit and the Economy
In the wake of a deep financial crisis and continuing high unemployment, we are confronted with a contentious, often angry argument over our future as a nation: How best to expand economic productivity and resources, and to “grow” jobs? What programs and social policies do we value as citizens? What public goods will we invest in? How do we pay for government at a scale that we can agree we need? These vital concerns are increasingly reduced – problematically – to the sole issue of deficit spending.
For most people, economic issues boil down to the need for jobs at decent wages. Beyond that, we worry about affordable health care, good education for our children and security when we can no longer work.
A parade of analysts and business leaders offer their “expertise” – despite the fact that most professional experts and insiders were as shocked as the rest of us when the financial system collapsed in 2008. As a disastrous meltdown erased the presumed savings of millions of homeowners and investors nearly overnight, the crisis raised lingering questions of credibility on the part of economists in academia, business and government. It further called into question the motives and methods of powerfully positioned managerial elites who reap unprecedented wealth from control of the nation’s central financial institutions. Now these are the circles where the focus is most often fixed on “the deficit.”
Whenever a politician or pundit raises the subject of government debt and deficits, numerous related issues follow almost immediately – the future of Social Security and Medicare (framed as “entitlements”); identifying various programs – often including safety nets and infrastructure – as “waste, pork and earmarks”; extending tax cuts…and perhaps a nod toward paring back some of our large military expenditures. Critical issues are heating up at the state level as well, where governments are facing decreased local revenues – primarily due to the economic downturn.
These are complex problems, but much of our confusion as citizens at ground level is rooted in the fact that the very terms of this debate as posed in the media are muddied. Half-truths are often allowed to pass as fact and “conventional wisdom” is colored by special interests and partisan ideology.
This “average citizen’s primer” is intended to promote informed dialogue among Americans concerned about their economy and seeking to shape the political debate driving key economic policy. It is an effort to help “the rest of us” become better equipped both to participate and to evaluate what we’re hearing in a critical debate that is certain to profoundly affect our future and that of generations to come.
Debts and Deficits – Reagan’s Folly
“Tea Partiers,” anti-government ideologues, economic elites and opportunistic media hucksters began organizing themselves around the perils of deficit spending shortly after the current Democratic President took office in January, 2009. What is behind this insistent focus on deficits by the organized Right and elite opinion triggered by Barack Obama’s election, after decades of growing debt under Republican Presidents?
The backdrop to this recent near-frenzy over deficits and national debt is that President Obama – governing for just two years – has, in the midst of inheriting the worst economic meltdown since 1929, essentially returned the country to a traditionally centrist, “Clinton-era” economic agenda. But he is being blamed for a fiscal predicament that was set in motion three decades ago by “conservative” adherence to simplistic, “feel-good” doctrines inspired by Ronald Reagan.
Any honest accounting of the nation’s fiscal history is beyond ironic. Contrary to a calculated “Blame Obama” noise machine, the root of government debt and deficits was revealed by the man who had served as President Reagan’s own budget director, David Stockman, in a New York Times commentary published in July, 2010: “This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party’s embrace, about three decades ago, of the insidious doctrine that deficits don’t matter if they result from tax cuts.”
In summary of over a half-century’s trajectory of federal deficits, the accumulated national debt had declined from over 100% of Gross Domestic Product (GDP) in the wake of the Great Depression and WWII to less than 33% throughout the succession of post-war administrations – prior to Reagan. Under Reagan and his successor, the first President Bush, government debt doubled to more than 66% of GDP. Then it turned around dramatically. In just a few years, with modest tax increases, it declined to 56% during Democrat Bill Clinton’s term. But again, during the second Bush presidency – with a GOP Congress, more tax cuts, unfunded expansion of Medicare, wars that weren’t funded and a disastrous financial collapse-national debt climbed to well over 80% of GDP.
In any deep recession, increased government spending is an important stimulus to keeping the economy from spiraling even further downward, nor is a recession the time to raise taxes on reluctant consumers. As part of a short-term attempt at jump-starting economic activity, the Obama administration actually lowered taxes on average taxpayers – hoping to increase consumer demand for goods and services. They also added tax incentives for small businesses, to encourage their hiring more jobseekers currently unemployed. In fact, combined average taxes under Obama are lower than at any time since 1950.
(Part 2 of the Common Sense Primer – focusing on why conservatives created the deficit and how it grew under the George W. Bush presidencey – will be posted on Thursday, March 24)
Tags: budget, common sense primer, deficit, economy, national debt, President Obama, President Reagan, Schmiechen
