Wednesday, November 21, 2012

Deficit Obsession

Politics is, at first glance, a matter of competing ideologies springing from different values.  

Some people believe same-sex marriage should be only between a man and a woman, as traditionally it has been, and as sanctioned in the world's best-selling book.  The other believes it is simply a matter of equality, allowing everyone the same opportunity.

There are different opinions as to when life begins, but even some individuals who believe it is at conception support reproductive rights, believing that a woman must be allowed to do as she wishes with her own body.  And many pro-life people, even those not fixated on the the idea that life begins at conception, believe that each life- or potential life- is precious and should not be snuffed out.

This clash of values is featured prominently even in a discussion of the federal income tax rate.   Everyone should pay something, to have "skin in the game," say conservatives, who would maintain that position even when reminded that virtually every American pays some combination of   payroll, property, sales, excise, or local/state income taxes.    The rest of us argue that there already is a growing gap between the wealthy and everyone else, and that efforts must be ongoing to help those who most need it or to smooth out the vagaries of life.

Sometimes, however, evidence suggests that conflicting values is less significant than with ignorance of facts, willful or otherwise.

The drive to cut Social Security benefits is perhaps the most glaring example.   Many peopledo not realize that Social Security has its own dedicated source of funding, cannot legally operate with a deficit, and is financially sound.   They hear members of the media who, engaged in a profession with very little demand physically, may live and work forever, casually maintain that the lifespan of Americans is growing by leaps and bounds.

Lynn Parramore of Alternet has observed the "group of hustlers claiming that life expectancy for Americans was less than 62 years in 1935, and now it’s more than 77 years, so the program must be inadequate."   She explains

The early figure was based on life expectancy at birth. That is a vastly different matter from projecting how long people will live after they reach the age of 65 and start collecting benefits. In the 1930s, there was much higher infant mortality, and children died much more frequently from diseases that are now preventable through immunization. Because our parents’ and grandparents’ generations had a high rate of early death, the life expectancy at birth in 1930 was indeed less than 62 years. But here’s the catch: Social Security is funded by the workers who collect the benefits, along with their employers. Obviously, if you die as a child, you are not going to collect benefits. So the significant measure is not how long you’re going to live after you are born, but rather how long you’re going to live once you hit 65.

In reality, the average life expectancy once a person has reached the age 65 has increased only a modest five years on average since 1940.

So let’s be clear. Workers who reach the age of 65 today are only living five years longer than their parents. The designers of the program were fully aware of this possibility when they calculated the retirement age and they constructed the program accordingly.

Recently, this clash of myth and reality has taken root in the obsessive desire by the mainstream media to warn the American people of utter death and devastation if the budget deficit is not curbed.   Robert Reich has noticed

an entire deficit-cutting political industry has grown up in recent years – starting with Ross Perot’s third party in the 1992 election, extending through Peter Petersen’s Institute and other think-tanks funded by Wall Street and big business, embracing the eat-your-spinach deficit hawk crowd in the Democratic Party, and culminating in the Simpson-Bowles Commission that President Obama created in order to appease the hawks but which only legitimized them further.

Most of the media have bought into the narrative that our economic problems stem from an out-of-control budget deficit. They’re repeating this hokum even now, when we’re staring at a fiscal cliff that illustrates just how dangerous deficit reduction can be.

As the deficit burgeoned under Presidents Reagan and Bush 43, there was concern (among Democrats) but little alarm raised and Dick Cheney famously boasted "Reagan proved deficits don't matter."  Once a Democrat entered the Oval Office in 2009, however, there were dire predictions of runaway inflation and soaring interest rates, with public spending crowding out private investment.      But inflation remains low and interest rates have plummeted to a level even below the minimal growth in the consumer price index.                            

Deficit fetish has not been curbed, unfortunately, even though, as Jed Graham describes at

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.

In fact, outside of that post-WWII era, the only time the deficit has fallen faster was when the economy relapsed in 1937, turning the Great Depression into a decade-long affair.

If U.S. history offers any guide, we are already testing the speed limits of a fiscal consolidation that doesn't risk backfiring. That's why the best way to address the fiscal cliff likely is to postpone it.

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.

In this sense, the "fiscal cliff" metaphor is especially poor. The government doesn't need to apply the brakes with more force to avoid disaster. Rather the "cliff" is an artificial one that has sprung up because the two parties are able to agree on so little.

Hopefully, they will agree, as they did at the end of 2010, to embrace their disagreement for a bit longer.

And hopefully, congressional Republicans will succumb to the tea party and the more unyielding factions of their coalition.   More dangerous would be accepting the advice of their realists, such as William Kristol, who believes the party should accept the higher taxes on upper incomes proposed by Barack Obama in return for concessions from the Democrats.   This would please President Obama but, as Digby remarks

I know that the administration doesn't want to delay the expiration of the high end tax cuts, but I honestly don't think it's the most important thing in the world if they do. This economy is weak and if we do go back into recession (or even slow growth) after these tax hikes are enacted, the moneyed elites will ensure that "taxing the job creators" gets the blame. It's not worth the price of "dramatic reforms" to entitlement programs and it won't create one job or help one foreclosed homeowner.

                                             HAPPY THANKSGIVING

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