Friday, December 04, 2009
Martyrs To The Deficit
Obama on the deficit yesterday:
ROBERT KUTTNER: You know, most of the things that have been proposed today cost money, and there is this concern about the federal deficit.I hope that your administration will recognize, as I know you will, that it's possible, first of all, to reduce the deficit over time and sometimes in the short run realize that you need to increase the deficit. And I hope the concern about the deficit in the long run doesn't crowd out the need for additional spending in the short run. And I also think that some of these programs that increase jobs and increase GDP are probably the fastest way to get the economy back on a track that will reduce the deficit over time. It's certainly a better way to reduce the deficit than putting ourselves into a -- into a debtor's prison and assume we can deflate our way to recovery.
OBAMA: Well, I think this is an important point. You know, we've been talking a lot about specific initiatives. There is a macroeconomic element to this whole thing. And so let me just amplify what was just said. We have a structural deficit that is real and growing, apart from the financial crisis.
We inherited it. We're spending about 23 percent of GDP and we take in 18 percent of GDP and that gap is growing because health care costs, Medicare and Medicaid in particular, are growing. And we've got to do something about that.
You then layer on top of that the huge loss of tax revenue as a consequence of the financial crisis and the greater demands for unemployment insurance and so forth. That's another layer. Probably the smallest layer is actually what we did in terms of the Recovery Act. I mean, I think there's a misperception out there that somehow the Recovery Act caused these deficits.
No, I mean, we had -- we've got a 9-point-something trillion- dollar deficit, maybe a trillion dollars of it can be attributed to both the Recovery Act as well as the cleanup work that we had to do in terms of the banks. In turns out actually TARP, as wildly unpopular as it has been, has been much cheaper than any of us anticipated.
So that's not what's contributing to the deficit. We've got a long- term structural deficit that is primarily being driven by health care costs, and our long-term entitlement programs. All right? So that's the baseline.
Now, if we can't grow our economy, then it is going to be that much harder for us to reduce the deficit. The single most important thing we could do right now for deficit reduction is to spark strong economic growth, which means that people who've got jobs are paying taxes and businesses that are making profits have taxes -- are paying taxes. That's the most important thing we can do. We understand that in this administration. That's not always the dialogue that's going on out there in public and we're going to have to do a better job of educating the public on that.
The last thing we would want to do in the midst of what is a weak recovery is us to essentially take more money out of the system either by raising taxes or by drastically slashing spending. And frankly, because state and local governments generally don't have the capacity to engage in deficit spending, some of that obligation falls on the federal government.
Having said that, what is also true is that unless businesses and global capital markets have some sense that we've got a plan, medium and long term, to get the deficit down, it's hard for us to be credible, and that also could be counterproductive. So we've got about as difficult a economic play as is possible, which is to press the accelerator in terms of job growth, but then know when to apply the brakes in the out-years and do that credibly. And you know, we are trying to strike that balance, but we're going to need help from all of you who oftentimes are more credible than politicians in delivering that message.
Because we want to leverage whatever public dollars are spent, and we are under no illusion that somehow the federal government can spend its way out of this recession. But it is absolutely true that any of the ideas that have been -- been mentioned here are still going to require some public dollars, and those are actually good investments to make right now.
That makes sense to people who understand these things like those at that jobs summit. But unfortunately, most people don't and the president needs to start talking in terms that are comprehensible to the layman on this subject because they are not getting it.
Two things are happening. The economy feels terrible and whatever green shoots are growing have not yet penetrated the general consciousness and aren't likely to for quite a while. And in the meantime you have the deficit fetishists taking the opportunity to pimp debt as the cause of the economic crisis and shock doctrine their way into the destruction of entitlements. They are doing that by conflating the short term need for stimulus etc with the Wall Street bailouts and the deficit. And now they think that those are the things that caused the recession. Now, whether the Democratic congress will allow the deficit scolds to push through a cat food commission is unknown, although there's plenty of reason to believe that the political establishment sees this as a "go to China" moment that needs to be done under a Democratic president.
The problem with that is that the right wing isn't going to play along and be good soldiers. They've shown with their rank mediscare hypocrisy that they are going to use these issues to build a new coalition with seniors as their backbone. "Change" is the last thing those folks want. They are scared to death that this fast paced, new century with all its challenges is going to leave them vulnerable at the end of their lives when they are no longer able to compete in the workforce. They are a powerful and easily mobilized constituency and since the Republicans have little hope of gaining with other growing constituencies, it's a pretty smart play. It's a huge demographic and it's actually going to grow substantially in the next few years as the baby boomers hit retirement.
The president's Wall Street advisors are telling him that US "credibility" and all that flows from that is at stake. And maybe he actually believes that he should sacrifice his presidency and the Democratic Party's future for the greater good on this one. Or maybe he's just playing Russian Roulette.
Either way, this discussion of deficits is not being waged on the up and up and it's going to be extremely destructive politically. Republicans have proven time and again that "deficits don't matter" to them. Cheney said it outright. It was proven when they spent the surplus Clinton so assiduously gathered to save social security the last time. So all that will happen is that Democrats will be good little soldiers by doing something drastic about "entitlements" --- after which the Republicans will take power and spend us into deficits all over again. The only difference will be that the safety net will have been shredded. And the Democrats will be blamed.
It's a very bad political play in both the short and the long term. If the Republicans want to lower the deficit, let them put some skin in the game.
digby 12/04/2009 10:30:00 AM