The lead from an editorial in today's
WHEN IS an improving fiscal situation not really an improving fiscal situation? When it’s the United States’ current one.
That’s the lesson of the White House’s annual budget update, known as the Mid-Session Review, which was published Tuesday by the Office of Management and Budget (OMB). Data in the report show the federal government is on course to record a $455 billion budget deficit this year, which is $128 billion less than the Obama administration had projected six months ago. Expressed as a percentage of gross domestic product, this is even more impressive: it amounts to six-tenths of a percent of GDP that we were planning to borrow this year, but won’t have to borrow after all. Well over half of this unexpected deficit reduction is due to above-forecast tax revenue, generated by the economy’s continued growth. Given the report’s forecasts for next year, it is likely that, as a share of the economy, the budget deficit at the end of the Obama presidency will be three-quarters smaller than it was at the beginning. Not too shabby.But, of course, this impressive accomplishment can't be allowed to stand unchallenged. Allusion to the Simpson-Bowles "catfood commission" in 3...2...1:
These stubbornly high levels of public debt, and the prospect of truly uncontrolled debt in the years beyond 2025, reflect the lack of fundamental reform to U.S. entitlement programs such as Medicare and Social Security. President Obama may be able to boast about lower deficits on his watch, but not his avoidance of this issue."Yes, =cough= much lower deficits =cough= but let's keep our eye on the small picture: keeping the oldsters from robbing us! Let them eat catfood!"
For a look at the world the rest of us live in, let's turn instead to Robert Kuttner, who we'll quote at length on what the real debt problem is:
This is the real debt problem—the merciless and economically stupid failure to write off old debt. It is the opposite of the claim that is relentlessly promoted by conservative groups, who tell a story of debts that must always be paid and of public debt burdening future generations. The reality is the opposite. It is growth that tames debt and makes it less burdensome; sometimes it takes debt relief to restore growth.
Here in the United States, the Peter G. Peterson Foundation and a variety of front groups that it has created have spent more than $1 billion to propagate the story of public debt destroying America’s economic future. In this view, only austerity—budget cuts intended to pay down debt—can spare America from this fate.
This view violates the most basic logic of economics. If an economy is in a deep recession, balancing the budget is the worst policy that can be pursued, because fiscal contraction during a downturn reduces the rate of growth. The government’s books may eventually balance, but at a needlessly depressed level of economic output. This is what has occurred in Greece, where forced austerity has caused the economy to shrink by more than 25 percent and the budget is still not in balance. [snip]
Peterson and the deficit hawks have continued to warn that deficits and debts are courting sky-high inflation, on the theory that government borrowing crowds out business borrowing and pushes up rates. But in a subpar economy, demand for credit is depressed and the inflation never arrives. That the austerity mongers have been proven wrong again and again has not diminished their puritanical crusade.
President Obama needlessly succumbed to the allure of the deficit hawks in 2010. He defined America’s prime economic problem not as prolonged stagnation but as excessive public debt. He appointed a bipartisan ["catfood"] commission inspired by the Peterson Foundation, chaired by Erskine Bowles and Alan Simpson, to come up with a belt-tightening program. Mercifully, the commission could not agree on a plan that met its required supermajority. [snip]
Only when the Federal Reserve embraced heroic monetary policies of bond purchases on a scale unknown since World War II—more debt!—did the economy begin a real recovery. The debt-to-GDP ratio began coming down faster than projected—not mainly because of the budget cuts but because growth was resuming. Obama finally abandoned austerity economics in his 2015 State of the Union Address. By then, the political damage was done. Republicans controlled both Houses of Congress and his proposals for increased public investment were dead on arrival.Not that we expect the editorial board at the
