“Cheating Our Children”: The Deficit Scolds Are Actually The Bad Guys In This Story
So, about that fiscal crisis — the one that would, any day now, turn us into Greece. Greece, I tell you: Never mind.
Over the past few weeks, there has been a remarkable change of position among the deficit scolds who have dominated economic policy debate for more than three years. It’s as if someone sent out a memo saying that the Chicken Little act, with its repeated warnings of a U.S. debt crisis that keeps not happening, has outlived its usefulness. Suddenly, the argument has changed: It’s not about the crisis next month; it’s about the long run, about not cheating our children. The deficit, we’re told, is really a moral issue.
There’s just one problem: The new argument is as bad as the old one. Yes, we are cheating our children, but the deficit has nothing to do with it.
Before I get there, a few words about the sudden switch in arguments.
There has, of course, been no explicit announcement of a change in position. But the signs are everywhere. Pundits who spent years trying to foster a sense of panic over the deficit have begun writing pieces lamenting the likelihood that there won’t be a crisis, after all. Maybe it wasn’t that significant when President Obama declared that we don’t face any “immediate” debt crisis, but it did represent a change in tone from his previous deficit-hawk rhetoric. And it was startling, indeed, when John Boehner, the speaker of the House, said exactly the same thing a few days later.
What happened? Basically, the numbers refuse to cooperate: Interest rates remain stubbornly low, deficits are declining and even 10-year budget projections basically show a stable fiscal outlook rather than exploding debt.
So talk of a fiscal crisis has subsided. Yet the deficit scolds haven’t given up on their determination to bully the nation into slashing Social Security and Medicare. So they have a new line: We must bring down the deficit right away because it’s “generational warfare,” imposing a crippling burden on the next generation.
What’s wrong with this argument? For one thing, it involves a fundamental misunderstanding of what debt does to the economy.
Contrary to almost everything you read in the papers or see on TV, debt doesn’t directly make our nation poorer; it’s essentially money we owe to ourselves. Deficits would indirectly be making us poorer if they were either leading to big trade deficits, increasing our overseas borrowing, or crowding out investment, reducing future productive capacity. But they aren’t: Trade deficits are down, not up, while business investment has actually recovered fairly strongly from the slump. And the main reason businesses aren’t investing more is inadequate demand. They’re sitting on lots of cash, despite soaring profits, because there’s no reason to expand capacity when you aren’t selling enough to use the capacity you have. In fact, you can think of deficits mainly as a way to put some of that idle cash to use.
Yet there is, as I said, a lot of truth to the charge that we’re cheating our children. How? By neglecting public investment and failing to provide jobs.
You don’t have to be a civil engineer to realize that America needs more and better infrastructure, but the latest “report card” from the American Society of Civil Engineers — with its tally of deficient dams, bridges, and more, and its overall grade of D+ — still makes startling and depressing reading. And right now — with vast numbers of unemployed construction workers and vast amounts of cash sitting idle — would be a great time to rebuild our infrastructure. Yet public investment has actually plunged since the slump began.
Or what about investing in our young? We’re cutting back there, too, having laid off hundreds of thousands of school teachers and slashed the aid that used to make college affordable for children of less-affluent families.
Last but not least, think of the waste of human potential caused by high unemployment among younger Americans — for example, among recent college graduates who can’t start their careers and will probably never make up the lost ground.
And why are we shortchanging the future so dramatically and inexcusably? Blame the deficit scolds, who weep crocodile tears over the supposed burden of debt on the next generation, but whose constant inveighing against the risks of government borrowing, by undercutting political support for public investment and job creation, has done far more to cheat our children than deficits ever did.
Fiscal policy is, indeed, a moral issue, and we should be ashamed of what we’re doing to the next generation’s economic prospects. But our sin involves investing too little, not borrowing too much — and the deficit scolds, for all their claims to have our children’s interests at heart, are actually the bad guys in this story.
By: Paul Krugman, Op-Ed Columnist, The New York Times, March 28, 2013
“Reasonable Defense And Adaptive Security”: Yes, We Have A Defense Spending Problem
Last year, in 2012, the U.S. government spent about $841 billion on security—a figure that includes defense, intelligence, war appropriations, and foreign aid. At the same time, the government collected about $1.1 trillion in individual income taxes. (And about $2.4 trillion in revenues overall if you include payroll, corporate, estate, and excise taxes.)
In other words, about 80 cents of every dollar collected in traditional federal income taxes went for security.
That’s an astonishing statistic, and it captures the most underappreciated aspect of today’s fiscal challenges: We have a security spending problem. Such spending is significantly higher than all non-defense discretionary domestic spending.
Worse yet, almost nobody in Washington seems interested in seriously curtailing defense spending that is greater in real terms than what the U.S. spent in the Cold War—despite the fact that the U.S. will be officially at peace when we withdraw from Aghanistan next year and the U.S. faces no major global adversaries.
While the Simpson-Bowles Commission advocated over a trillion dollars in defense cuts, President Obama’s budget would only reduce spending modestly, and even that’s a hard sell on Capitol Hill. Both parties happily suspended planned defense cuts under sequestration as part of the fiscal cliff deal.
Given all this, it was great to read a new report by the Project on Defense Alternatives entitled “Reasonable Defense: A Sustainable Approach to Securing the Nation” and written by Carl Conetta. PDA has long been a leading voice for responsible defense spending. But today, with the fiscal heat on, their work is more timely and important than ever.
The new report sets the defense challenge in it’s proper context: Which is that the United States is operating in a much more competitive global economy and needs to rethink its ideas of national strength, along with its budgetary priorities:
Today, the challenge that will most affect America’s future prospects lies in the economic sphere, not the military one. In this respect the current era is distinct from the period of the Second World War and the Cold War. How America handles current fiscal challenges and reorders government priorities should reflect this fact. . . . In all areas of policy, new economic realities compel national leaders to adopt a longer view, set clearer priorities, seek new efficiencies, and attend more closely to the ratio of costs, risks, and benefits when allocating resources.
A centerpiece of the report’s strategic framework is the idea of Adaptive Security. This approach focuses:
America’s armed forces on deterring and containing current threats, while working principally by other means to reduce future conflict potentials and strengthen the foundation for cooperative action. This would move America toward a future in which threat potentials are lower and security cooperation greater. While the United States uses its military power to check real and present threats of violence, it would employ non-military instruments to impede the emergence of new threats and reduce future conflict potentials.
This strategy makes a whole lot of sense in a world where America’s real enemies, like Iran and Al-Qaeda, are quite weak while our main potential enemy, China, is very strong.
While many in the Pentagon—with their worst-case mindsets—may be inclined to maintain a military that could deal with all potential enemies, the Adaptive Security formula suggests that the U.S. focus other kinds of resources on making sure such enemies never materialize. If money were limitless, one could argue the merits of either approach. But in today’s fiscal climate, Adaptive Security is the only affordable path.
In any case, the rise of China in particular underscores how economic challenges are the biggest challenges facing the United States, as Conetta argues. If we’re really worried about being dominated by China, we should be focused on training more engineers not more fighter pilots.
Beyond its big picture contributions, “Reasonable Defense” makes many smart points about how to create a more cost-efficient defense sector and a leaner military—and reduce defense spending by a half trillion over the next decade.
Let’s hope this report gets widely read in Washington.
By: David Callahan, The American Prospect, January 7, 2013
“Unbridled Hypocisy”: Laura Ingraham Has the World’s Worst Imagination
Conservative radio host Laura Ingraham is outraged — outraaaged! — that President Obama met with some MSNBC anchors at the White House on Tuesday, according to her daily newsletter:
“Rachel Maddow, Al Sharpton, Lawrence O’Donnell, and Ed Schultz all stopped by the White House to discuss the President’s fiscal cliff proposal. Can anyone even imagine how the press would have reacted if Fox News hosts and conservative personalities had stopped by the Bush White House to discuss policy? They would have been rightly outraged.”
Yes, let’s all put on our imagination hats and try as hard as we can to imagine what that meeting would look like. George W. Bush would be seated in an Oval Office chair, doing jazz hands in front of a bust of Winston Churchill. On his left, Fox News host Sean Hannity would be pensively smelling his hand on a couch with conservative personality Michael Medved. On his right, conservative personalities Neil Boortz and Mike Gallagher would be sharing another couch. And, just for imagination’s sake, let’s put conservative personality Laura Ingraham in there, too, right next to the president. Now, obviously, such a scene never actually transpired, but — wait, what? Oh. It did.
After Media Matters revealed Ingraham’s hypocrisy to the world, a producer responded with the classic “Ingraham didn’t actually write the newsletter, and also, the two things are totally different because I said so” defense.
During Laura’s brief radio hiatus, the Daily Fix is written by staff. Although I didn’t know Laura had visited the Bush White House with other conservative radio hosts, the circumstances of her meeting the president were quite different. Laura did not go to the White House to advise the president, but was simply briefed on policy for perhaps an hour.
For what it’s worth, the MSNBC hosts didn’t “advise” Obama. They were, uh, briefed on policy:
“This afternoon at the White House, the President met with influential progressives to talk about the importance of preventing a tax increase on middle class families, strengthening our economy and adopting a balanced approach to deficit reduction,” Earnest said in a statement Tuesday.
As embarrassing as this whole episode is for Team Ingraham, they’re not the only ones who should have done a little research before going into full fauxtrage mode about the MSNBC meeting. Take the hosts of Fox & Friends (please!), for example, who overreacted in typical fashion. “I’m shocked by that,” Brian Kilmeade said. “To invite five talk show hosts in, all from the same channel? That’s outrageous.” Mike Huckabee, who has a show on Fox News, claimed yesterday that the sit-down with Obama destroyed any “illusion whatsoever that there’s objectivity going on at MSNBC.”
By: Dan Amira, Daily Intel, December 6, 2012
“Snake Oil Salesmen”: ALEC’s Worthless Recommendations For Prosperity In The States
For most of its history ALEC has operated in the background, but its influence recently drew the spotlight when its promotion of “Stand Your Ground” laws came to light in the wake of the killing of Trayvon Martin in Florida. Faced with the potential of consumer boycotts, corporate sponsors such as McDonald’s and Pepsi withdrew their support. Henceforth, the organization announced, it would concentrate on state economic policy.
State legislators who might look to the organization for leadership on economic policies should be wary of following ALEC’s lead in this arena. A startlingly candid report, “Selling Snake Oil to the States,” just released by the Iowa Policy Project and the Washington-based Good Jobs First, shows that ALEC’s recommendations for producing economic growth in the states are essentially worthless.
This is a strong claim, but the researchers support their conclusion neatly by putting under the microscope the implicit predictions in the 2007 edition of Rich States, Poor States, the volume written by economist Arthur Laffer and the source of the ALEC-Laffer State Economic Competitiveness Index.
In brief, the authors take ALEC’s 2007 ranking of states based upon the states’ adherence to its recommendations, and seeing whether indeed the states that were predicted to prosper were doing so five years later.
None of ALEC’s predictors of economic growth—elimination or reduction of progressive taxation, reduced commitments to public services, tightening of social safety net programs, or reduced union influence—showed any relationship to economic prosperity.
In fact, if anything the ALEC formula for prosperity had an inverse relationship. As the authors put it:
…states that were rated higher on ALEC’s Economic Outlook Ranking in 2007…have actually been doing worse economically in the years since, while the less a state conformed with ALEC’s policies the better off it was.
Looking at median family income specifically:
Once again, actual results are the opposite of the ALEC claim. The more a state’s policies mirrored the ALEC low-tax/regressive taxation/limited government agenda, the lower the median family income; this is true for every year from 2007 through 2011; Figure 5 below shows the results just for 2011. The relationship is not only negative each year, it also became worse over time: the better a state did on the ALEC Outlook Ranking, the more family income declined from 2007 to 2011. The correlation, -.30, is statistically significant.
The authors of the report remind us that the only way to accelerate economic growth is to pursue policies that increase or maintain productivity, such as investing in roads, bridges and schools, and insuring an educated workforce and a healthy population.
One report can hardly be expected fully to turn back the simplistic analysis that ALEC has been promoting for understanding state economic development. But this one should provide a strong counter-weight to the notion that states can prosper by following the low road of tax cuts and limited support for the public sector.
By: Michael Lipsky, The American Prospect, December 3, 2012
