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How to Misinterpret the Deficit

February 6, 2012   ·   1 Comments

Source: NYTX

Deficit

By Marie Burns:

Thomas Edsall, a distinguished professor of journalism at Columbia University and now a regular online columnist for the New York Times, covered national politics for the Washington Post for 25 years. He is no doubt a very fine journalist. He is not an economist, but that has not stopped him from sticking his toe into the economic waters today to comment on “the sheer size of the national debt, the accelerating pace at which it accumulates and the caliber of those on the left who consider the problem to have reached crisis proportions.” Perhaps his vision is colored by his fondness for his old newspaper and its long-running campaign to make the Common White Deficit Hawk the national bird.

Edsall roughly outlines what some leading economists say about the deficit. He begins with conservative John Taylor, whom he describes as “a favorite of Speaker John Boehner and a leading adviser to Republican presidential candidates.” When Paul Krugman mentions Taylor, the mention usually includes a sentence or phrase like, “You have to wonder why Taylor thinks he can get away with this.” Or “a mind is a terrible thing to lose.” Or “intellectual barbarian.” Even serious credentials do not a serious scholar make.

Edsall then moves on to economists whom he describes as coming from the

influential centrist faction within the Democratic establishment that dominated during the Clinton administration is made up of relatively progressive economists and professional budget experts. This faction believes that the national debt poses a serious threat which demands austerity policies. Such policies can be delayed until the economy stabilizes, these economists argue, but they must be implemented in the not-too-distant future. [Emphasis added.]

After repeating the views of three of these “centrist” economists, all of whom say that a fiscal austerity program should not be implemented during a recession, Edsall moves on to a few economists whom he describes as “closer to the left end of the Democratic spectrum.” What is important to note – and that’s why I highlighted it – is that none of these “centrist” or “left-leaning” economists favors deficit reduction now. So in the near run, what you have is a distinction without a difference. All of these economists agree – in a broad sense – on what politicians should do about the deficit reduction in the near term: nothing.

The most fundamental concept that Edsall misses is that the national debt is not all that out of control. What I mean by “national debt” is public-plus-private debt. As Paul Krugman pointed out in a blogpost a few weeks ago, “there was an explosion of total debt during the Bush years; since then debt has stabilized relative to potential output. But there has been a redistribution, with private debt falling while public debt rises.” Krugman includes a graph of public- and private-sector debt trends. He writes,

… this is exactly what needs to happen: the federal deficit is sustaining the economy while balance-sheet constrained private actors deleverage [that is, “reduce their debt”]…. Once balance sheets are sufficiently repaired, private demand should recover, and the federal government will no longer need deficit spending to keep the economy afloat…. This is a picture not of runaway borrowing, but of progress being made in dealing with an excessive level of private debt.

Here’s something else of which Edsall seems unaware: though federal spending is up, state spending is down. Edsall quotes Jared Bernstein in his article, but he does not mention one point Bernstein has been harping on: the 50 “states have to balance their budgets,” and they have largely been doing so by cutting back on expenditures rather than by raising taxes. “In a very real sense, what you have here is a microcosm of austerity measures at work in cities and towns across the country.” The result, as Paul Krugman writes, is that “… we’re sacrificing the future as well as the present. Oh, and the cuts that aren’t falling on investment in physical capital are largely falling on human capital, that is, education. It’s hard to overstate just how wrong all this is.” One place that a good chunk of the deficit-growing stimulus money went was to shore up state and local economies and keep teachers in our schools. That is, the money was transferred to the states for good cause. If our children and grandchildren have to pay it back, so what? As schoolchildren, they were among the primary beneficiaries of the deficit expenditures.

The main point Edsall makes in his post is that the deficit is a terrific campaign bludgeon for Republican candidates. He correctly demonstrates that the GOP uses it to claim Democrats are taking from responsible, white middle-class people to give to lazy, undeserving minorities. He thinks the ploy is working. His evidence: “The Pew Research Center has found public concern over the deficit continues to grow,” Strangely, Edsall ignores another number in the very Pew chart he reproduces: while 69 percent of those polled said they were concerned about the deficit, 86 percent said they were concerned about the economy. That is, Americans are more concerned about the state of the economy than they are about the deficit. Since the entire raison d’être of the increases in the deficit during Obama’s presidency (as opposed to the reasons for the increases during Dubya’s tenure) is to improve the economy, the deficit is “doing its job” to meet the major concern of the American people: the economy.

Edsall writes that “the presence of budget deficits and the national debt as campaign issues give Republicans a strategic advantage.” What he does not seem to grasp is that posts like his feed into that GOP strategy. They are threads in the cord that makes up what Greg Sargent of the Washington Post aptly called “’the Beltway Deficit Feedback Loop.’ The relentless bipartisan focus on the deficit convinces voters to be worried about it, which in turn leads lawmakers to spend still more time talking about it and less time talking about the economy.” John Sides of the Monkey Cage points to two academic studies which show “that as media coverage increased, the public saw the deficit as a more important problem.” Let me add that politicians of both parties were guilty of threading the loop, the most egregious examples coming from President Obama with his “belt-tightening” rhetoric and his inappropriate “kitchen table” analogy. (As this Gallup poll conducted last May shows, a majority of Americans also have no earthly idea why the deficit is so high – they think it’s because of “wasteful government spending.” Only seven percent of self-identified Republicans thought the deficit was the result of low revenues.) The major benefit of the initial wave of Occupy protests (oh, there will be more) was to fray the Beltway Deficit Feedback Loop and turn attention back to the real economic problems Americans face.

Edsall argues that Democrats cannot defend the deficit against Republican charges: “The only serious alternative strategy for the Democrats is to shift the attention of the electorate to issues like inequality, the declining fortunes of the middle class, corporate greed and diminishing social and economic mobility.” I say, “Yes, they can.” A Democratic politician cannot sweep $15.4 trillion under the rug when Mitt Romney, et al., are falsely claiming the U.S. is descending into a “European-style welfare state.” What a Democratic politician can and should do, using simple terminology, is what I – with a little help from my expert friends – have done: explain why, in the short term, the federal deficit is a good thing and why during the Obama years deficit spending has not been “wasteful.” It is true that there is a whole segment of the population who would not accept a simple, straightforward explanation, but this is the same segment who won’t hear it anyway because Fox “News” and the leading lights of right-wing talk radio won’t be airing it. There is not one positive thing a Democratic candidate can say about anything that will penetrate a tinfoil hat. Right Wing World is not a fact-based planet. Its inhabitants think that we have a foreign-born president, that alligators and electrocution make for good immigration policy, and that the United Nations is plotting to steal their private property and convert it to bike paths and solar energy farms.

When Edsall claims the deficit is a GOP gift, he does not take into account how the GOP looked the deficit dragon in its fire-breathing mouth last summer and got burned. Edsall must have forgot the Super Committee fiasco, during which Republicans lost their political advantage by revealing their true aims. If Democrats show the least deftness, they will remind the voting public of what the demise of the Super Committee showed: that Republicans not only don’t care about the deficit, they have become ossified by their fidelity to the rich and to a strange little man named Grover Norquist whom most of us would not recognize if we saw him. The GOP’s “alarm” over the deficit is a political con, not an ideological imperative. What most Americans – including Edsall – don’t know is that Republicans’ cry to reduce the deficit is a ploy to effect their actual ideological imperative: cutting the social safety net, a safety net from which all but the wealthiest Americans substantially benefit at some time in their lives.

Edsall’s column confirms one thing, though: Edsall does not understand the economics of the deficit. Since he is a well-educated person who follows the news, obviously Democrats have a debilitating message problem. In the three years they have had to develop a cogent message, Democrats have instead allowed Republicans not just to define the deficit as a giant malevolent dragon but also to set the agenda for slaying that dragon. Besides explaining the reason for the deficit, Democrats must continually remind Americans what they learned during the debt ceiling crisis and the Super Committee standoff: that a party committed to reducing taxes on the rich is callously indifferent to the needs of the poor and middle class.

Edsall concludes his column by asserting that it is likely “neither party will be able to plausibly guarantee the maintenance of the beneficent state Americans are used to.” Anyone even vaguely familiar with the right’s warning about Obama’s plot to turn the U.S. into a “European-style” socialist state – as Edsall is – should be aware that the country is not now, nor has it ever been, a “beneficent state.” In fact, as I pointed out in an earlier column, “Derek Bok, the former president of Harvard University, argued in 2001 that the reason Americans were dissatisfied with the federal government was “that the American government simply did not perform as well as other large welfare states.” Edsall is fundamentally wrong. The nation can maintain and even improve upon a social safety net which taxpayers funded for decades.

If Edsall ends his column on a false premise, he begins it by asking the wrong question, “Does the national debt … pose a serious threat to the financial viability of the United States?” The question Edsall should have asked was this: “Has federal deficit spending improved the financial viability of the United States?” Honorable economists and the nonpartisan Congressional Budget Office all agree: yes, it has.

Paul Krugman wrote in a blogpost on another subject, “it’s perfectly OK for lay writers to take on economic issues – as long as they’re willing to do some homework.” The lay writer Thomas Edsall has done some of his homework – but, like a typical journalist – he has left the reader with little more than a he said/she said/he said recounting of opinions, with no hint as to who might be right. Edsall does not posit an answer, most likely because Edsall himself does not to know the answer. I hope I’ve helped.


Marie Burns blogs at RealityChex.com

 

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Readers Comments (1)

  1. PD Pepe says:

    For someone who once said she was not schooled in economics you do a splendid job of grappling with the complexities therein. And I thank you for your effort. I think you are so right about Democrats allowing Republicans to define the deficit as they do. We need to take their message and redefine it in plain simple language so everyone understands its implications. “Talk to me like I was a four year old” says the lawyer in “The Philadelphia Story”––––with lots of graphs and pictures of dragons being slaughtered.

     Reply





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