Burnard: The deficit ‘problem’Written by Don Burnard | | email@example.com
I recently promised we would take a look at the so-called “deficit problem” that the GOP has chosen as its latest and biggest scare tactic. You may remember back in the days of W. and Co., no less than Dick Cheney pooh-poohed deficits and even said they were a good thing. Of course, this was before they pushed through their tax cuts for the wealthy and the Medicare drug program and before the real cost of the two wars they started became apparent, and oh yeah, before they crashed the economy.
Now the Republicans would have you believe that only they can fix the “problem” that they created! They, of course, blame President Barack Obama’s policies and the Democrats, and everyone but themselves for this, and believe that through their careful cherry-picking of various prognostications, they believe it is more important to fix the economy of 25-30 years from now than to try to fix the problems we face today. Of course, most people who have given any time to subjects germane to the guessing what the future holds will tell you that’s not so easy to do. In 1995, the CBO predicted that in 2000, we would run a deficit of $200 billion. Instead, we ran a surplus of $236 billion. And that’s only a 5-year guess. Let’s look at this debt problem that suddenly seems so threatening to them.
If you listen to Paul Ryan and his acolytes, you would think that the debt is a runaway train and Obama is at the throttle. Is this true? Let’s check some of those pesky facts they so like to ignore. Jeff Spross points out in his column “VIEWPOINT: The Debt Everyone Is Freaking Out About Doesn’t Exist,” that in 2011, Ryan was using the computer projections from the CBO to extrapolate out to 2037 to sell his plan (which is virtually identical to his 2010 and 2012 plan). If the CBO can’t tell you with any remote degree of surety what’s going to happen in a 5 year period, what makes him so sure its 25-year guess is going to be accurate in the least? Ryan went so far as to show graphs projecting the debt out for the next 75 years. As Spross pointed out, that’s like trying to tell us what 2011 was going to be like in 1940. Things change. The GOP, unfortunately, doesn’t.
Now let’s look at what Obama has done. An article on Investors.com, from Investor’s Business Daily, Nov. 20, 2012, was titled, “US Deficit Shrinking At Fastest Pace Since WWII, Before Fiscal Cliff.” The article states: “Believe it or not, the federal deficit has fallen faster over the past three years than it has in any such stretch since demobilization from World War II …While long-term deficit reduction is important and deficits remain very large by historical standards, the reality is that the government already has its foot on the brakes. From fiscal 2009 to fiscal 2012, the deficit shrank 3.1 percentage points, from 10.1 percent to 7 percent of the GDP.” Hmm. Maybe the train isn’t running amok after all.
Paul Krugman, one of the Nobel laureate economists that the GOP consistently hates, pointed out in his blog on March 9, “Anyone who is serious (as opposed to Serious) about matters fiscal knows that it is highly misleading just to focus on the raw deficit numbers ($1 trillion), for two reasons. First, fluctuations in the deficit tend to be driven by the business cycle; when the economy slumps, revenues fall and some kinds of expenditure, like unemployment benefits, rise. You want to take out these ‘automatic stabilizers’ when assessing the underlying state of the budget.
“Second, we don’t have to balance the budget to have a sustainable fiscal position; all we need is to ensure that debt grows more slowly than the GDP.” Krugman goes on to point out that of the 2013 CBO report on automatic stabilizers on a projected deficit of $845 billion comes to $422 billion, leaving a cyclically adjusted deficit of $423 billion. Krugman says there is about $11.5 trillion of federal debt in the hands of the public, and that a conservative estimate is that the GDP will grow by at least
4 percent during this period, so 4 percent of $11.5 trillion comes to $460 billion, hence we’re there! It appears that these figures from the CBO have been ignored by Ryan in his budget. Perhaps it’s because they hoist him on his own petard. If Congress would get down to business and actually do something to create jobs, the revenue increase would lower the debt even further. This seems to make a lot more sense than trying to predict the future.