Pundits and politicians from moderate centrists to the Tea Party right-wingers are frantically warning that if nothing changes, federal debt in 2050 will be three times the size of annual economic output—supposed proof that the end of America as we know it is at hand if we don’t make “tough choices.”
In late November, budget analysts began rolling out tough-choice plans that prescribe austerity for government, and people in the working and middle classes. Center-right proposals (with nominally bipartisan mixtures of budget cuts and tax increases) have been put forward—most important by the co-chairs of Obama’s Fiscal Commission, Democrat Erskine Bowles, a multimillionaire former investment banker, and former Republican Sen. Alan Simpson (BS); by former Clinton budget director Alice Rivlin and former New Mexico Republican Sen. Pete Domenici (RD); and by the Pew Trust and Peterson Institute (PP).
A rejoinder, one that showed it is possible to create jobs and grow a new, fairer economy while balancing budgets, was provided by progressive Illinois Democratic Rep. Jan Schakowsky, a one-time community organizer who is now a member of the Fiscal Commission; The Citizens’ Commission on Jobs, Deficits, and America’s Economic Future (CC), organized by the Institute for America’s Future; and Our Fiscal Security (OFS), a joint project of the Economic Policy Institute, Demos, and the Century Fund. On the right, a “road map” was offered by incoming Budget Committee Chair Rep. Paul Ryan (PR), a Wisconsin Tea Party golden boy.
On December 1, Bowles and Simpson submitted a final Commission plan for a vote two days later. Cutting the deficit prematurely and endangering job market recovery, it closed roughly two-thirds of the deficit with cuts, the rest with new revenue—and the cuts hit Social Security, Medicare, and other crucial social programs as well as defense and farm subsidies. Despite some tweaks of the BS draft to emphasize growth or to soften some blows to the middle class, the final BS plan made “tough” choices that would balance mainly on the backs of low- and middle-income Americans—the very people who were the big losers during the Bush years and the Great Recession.
Predictably, the BS plan goes easy on the CEOs, bankers, speculators, and rich people who caused the crisis—the very same highly paid people (investment bankers like Bowles) who, through the media that they control, are stoking the deficit mania. That prominently includes Peter G. Peterson, the billionaire investment banker (Lehman Brothers), one-time Nixon adviser, and co-founder of the notorious Blackstone Group.
This deficit grand opera plays out as a variation on a discordant theme: The financial meltdown—viewed two years ago as a crisis of capitalism requiring massive state intervention—has somehow (and so conveniently) morphed into a crisis of government. The villain in this mainstream-media fantasy is the welfare state. It is a crisis that demands sacrifice from average citizens. Underlying this blame-the-government meme is a drumbeat to unleashing rule of the markets—in health care, education, pensions, and everything else. It is as if the collapse of 2008 taught no lessons about the limitations of markets.
A review of the six deficit-reduction plans yields 10 points of advice.
1. America is not Greece. (And in the short term, the deficit is a help, not a hindrance.)
The 2010 fiscal year deficit of $1.3 trillion represented roughly 9 percent of America’s gross domestic product. This was the biggest deficit since the end of World War II, when deeper deficits did not inhibit growth and, in fact, turned out to precede two decades of shared prosperity.
However, with the 2008 collapse of the $8 trillion housing bubble, the year’s federal deficit compensated for declining consumer demand, saved or created as many as 3.7 million jobs, and helped stop economic free fall.
National governments do not operate like family households (which also go into debt, often wisely, for needs like education). Governments run surpluses or deficits in part as a reflection of business cycles and in part as a way to moderate business cycles. But according to Economic Policy Institute studies, debt does not constrain future growth.
Even if US debt rises to 70 or 80 percent of GDP in 2020, as different agencies project, it will still be moderate compared with many other rich countries (in 2009 it ranked behind 46 other countries, including Japan, which had debt equal to 160 percent of GDP). As the economy recovers, it will be easier to raise more revenue or make cuts that do not hurt low- and middle-income Americans and thus reduce the debt, even to the arbitrary, low goal of 40 percent favored by the BS Commission.