Deficits, deficit hysteria, Bush tax cuts and other pressing economic issues – 2010

Updates:
Baseline scenario enlightens us on the deficit raising sins of deficit hawk hypocrites.

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Deficit hysteria seems to be all the rage lately. Tea bags are talking it up as are regular Republicans (if there is such a thing) and President Obama doffs his hat at it, naming a supposed bipartisan deficit commission to look into the manner.

This page will try to frame the issue by looking at what a few noted economists and commentators are saying. Obviously LSW has chosen people who make the most sense to LSW which may not be to the taste of everyone. You can send comments if you disagree or agree or otherwise wish to spit in your two cents worth.

LSW allows Robert Reich to start things off here. He writes on his blog, Robert Reich’s Blog at the Christian Science Monitor:

“The size of the budget deficit (and cumulative debt) is meaningless without reference to the size of the economy. What looks like a big debt 10 or 20 years from now may turn out to be small if growth has been rapid in the intervening years. By the same token, a seemingly small future debt can become unmanageable if the economy tanks, or barely grows at all.

In 1945, the nation’s debt was 120 percent of GDP. That proved to be no problem in later years, not because the debt shrank but because the U.S. economy soared.

Our biggest problem isn’t the size of pending federal budget deficits or debt but an anemic recovery that may drag on for years. And unless we’re careful, budget-deficit mania may further slow economic growth – thereby making future debts even less manageable”

He also writes that rising health care costs are 70% of the problem and receive 3% of space in the draft issued by the co-chairs of the deficit commission.

To the point quote:

“If Congress and the President started right now to cut the federal deficit – slashing spending and raising taxes on the middle class – our anemic economy would quickly become comatose.

That’s because consumers still aren’t spending much. They’re overburdened by personal debt and don’t qualify for new bank loans. And absent enough consumers, businesses still aren’t spending on new factories, equipment, additional hiring. Instead, they’re expanding capacity abroad, buying back their own shares of stock, and gobbling up other companies. Exports can’t possibly make up the slack.

That leaves government. Until we get out of the gravitational pull of the Great Recession, government is the only remaining booster rocket. If anything, we need more government spending and lower taxes on the middle class. This means bigger deficits, at least for the time being.”

Rob Johnson at new deal 2.0, a project at the Franklin and Eleanor Roosevelt Institute, said on Kris Welch’s Saturday Morning Talkies program on KPFA, of the deficit commission chairmen’s draft, “I think it’s class war from above.” See more of this particular interview at this LSW post or his new deal 2.0 page.

Robert Kuttner writes and talks on KPFK about the deficit and the Bush tax cuts with Ian Masters. Of the many points made during the conversation and in his HuffPo piece, a distillation would include: the draft released by the Deficit Commission co-chairmen does not include allowing the Bush tax cuts (which have cost over 4 trillion during last decade) to ride off into the sundown; no mention is made of taxing financial speculation which would allow rich speculators to contribute to the nation’s well-being and maybe act as brake on dangerous system threatening speculation; does not fess up to the notion that belt-tightening maneuvers are not well suited to an economy in the toilet with several hundred thousand home foreclosures every month and a job creation rate too low to bring down unemployment.

For a more extended look at Kuttner’s recent comments look at this LSW post.