photo credit: Center for Economic and Policy Research
The basic story is that the mainstream in Washington has created enormous fear and confusion around the country's current budget deficits. There is no dispute that the cause of the large budget deficits in recent years was the economic downturn that followed the collapse of the housing bubble. If the economy had not tanked, the deficits would be relatively modest. We know this from the projections from the Congressional Budget Office and others.
As a result of the economic collapse, instead of having deficits that were in the range of 1.0-1.5 percent of GDP, which can be sustained literally forever, we had deficits that got as high as 10 percent of GDP. Of course, these deficits were good. Private sector demand collapsed when the housing bubble bursts. The government had to fill the gap in demand by running deficits. In fact, it would have been better if the deficits were even larger. This would have generated more demand, created more jobs and brought us closer to full employment.
Unfortunately, there has been a huge effort to take advantage of this downturn to create unfounded fears about the deficit. This effort has been well-funded by people like Peter Peterson, a Wall Street private equity fund billionaire who has publicly committed $1 billion to this cause.
These people have sought to portray the problem as one of an out of control government rather than an economy that had sunken into recession as a result of the collapse of the Wall Street-fueled housing bubble. By continually referring to the deficit numbers, which are of course large, they manage to make it appear as though the whole system is on the edge of the collapse. They conveniently ignore the fact that investors around the world are willing to lend the U.S. government trillions of dollars at record low interest rates. Obviously, the people who are putting their money on the line are not worried about the financial health of the U.S. government.
Against the backdrop of imminent disaster, which they have largely gotten the media to buy, the business elites are insisting that everyone sacrifice, including seniors dependent on Social Security and Medicare. They are hoping that they can get the leadership of both parties to agree to a deficit reduction package that includes large cuts to both programs under the guise of shared sacrifice.
Is it my imagination, or does it always seem like those with the least are always the ones, often the only ones, being asked to make the sacrifices? And does that fly with the average man on the street?
It is incredible given that we got into this downturn as a result of the incredible excesses in the financial sector that we would not be looking to the financial industry to make some serious sacrifices. In fact, cutting down the size of the financial sector would almost certainly provide large benefits to the economy, since it would reduce a major source of waste and instability. An over-sized financial sector is every bit as much of a drain on the economy as a bloated government bureaucracy that serves no real purpose.
Of course the idea that we have to sacrifice at all right now is just absurd. We are in this downturn because we have too little demand in the economy. If we reduce demand further, by cutting Social Security benefits or increasing seniors' payments for health insurance, then this will be a further reduction in demand, slowing growth and raising unemployment.
There can be an issue further out with large budget deficits, but it is easy to show that is almost entirely the result of our bloated health care system. The United States already pays more than twice as much per person for its health care as the average for other wealthy countries. This gap is projected to grow in the decades ahead. If we paid the same amount per person as people in Canada, Germany, or any other wealthy country we would be looking at huge budget surpluses, not deficits.
This would seem to argue for reducing health care costs. However that would require going after people with power, like the insurance industry, the pharmaceutical industry, the medical supply industry and highly paid medical specialists. Since politicians don't have the courage to go after the people who are driving up costs, they instead try to cut benefits for seniors, with the idea that they will just have to figure out a way to pay these bloated costs themselves.
When you put it in these terms, Dean, it sounds so absurd. Is it an issue of raising awareness? Or are we dealing more with a willful corporate and governmental "I don't like what this means so I'm going to ignore all the signs and do all the wrong things instead of doing what needs to be done to get us out of this mess" attitude? And if so, what can we possibly do about it? The facts are consistently countered by their "facts". So, where does that leave us [other than majorly screwed]?
It is a question of raising awareness. Obviously things are hugely skewed toward serving the interests of the wealthy. That is most apparent in elections where candidates need millions of dollars to win House seats, tens of millions to win Senate seats and billions to win the presidency. They are not going to get this money from ordinary workers. They get it from millionaires and billionaires who don't want to hear people talking about restructuring the economy in ways that have the benefits from growth being broadly shared instead of just going to the wealthy.
However, the problem goes well beyond elections. The media are supposed to report issues in an even-handed way. Reporting scary budget projections showing huge deficit without pointing out that these numbers are driven by projections of exploding health care costs is just irresponsible, if not actually dishonest. Similarly, most of the people in my profession who work on these issues have gone along with the line being pushed by the wealthy. Thankfully the Internet makes it possible to challenge the misrepresentations that appear in the media or get perpetrated by economists in a way that was not true 15 or 20 years ago. That doesn't mean it is easy, but these people can be exposed for not doing their job. That is the reason that I write my blog, Beat the Press. The point is to show the public where the news sources they rely upon (e.g. National Public Radio, the New York Times, the Washington Post) are not being responsible in their reporting.
Ideally this will also cause reporters to reflect on their reporting. I do know of many occasions where I have gotten reporters to change their reporting because of my comments. If we can get reporters to avoid the habit of just accepting at face value assertions by people with power, that is a huge step forward.
Before we wrap this up, anything you'd like to add?
I think the best way to combat these efforts to cut Social Security and Medicare is to bring them out in the open. People should ask incumbents and candidates running for office -- the House, Senate, or the presidency -- if they support cuts in the Social Security Cost of Living Adjustment, if they support raising the Social Security retirement age or if they support raising the age of eligibility for Medicare.
And they should be careful to get very specific responses to these questions. An answer like "I support Social Security" or "I oppose privatization" should be taken to mean that the person supports these cuts. There is no one running for these offices who is not smart enough to understand the questions being asked. If they don't answer the question as asked, then it is because they don't want the public to hear their honest answer.
Also, people should demand that reporters ask these questions of people running for office. It is outrageous that we would be expected to vote for candidates for these offices without knowing where they stand on such important issues.
I couldn't agree more. Thanks so much for talking with me, Dean. It's been a pleasure. Let's do it again soon. ***
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