The Wrongologist

What’s
Wrong Today:

The news
media are obsessed with the Deficit. According to Bloomberg,
The Washington Post has run 2,310
separate stories including the word “deficit” over the past year.

That’s one deficit story for every 10 that the
newspaper publishes in its front and opinion sections. Is it the job of the
media to confuse or inform? Does this mean anybody actually cares?

Democrats
and Republicans say the deficit is a big problem:

• Mitch
  McConnell calls it “The
  transcendent issue of our time”

• Senator
  Marco Rubio, who delivered the Republican response to Obama’s State of the
  Union address, called it “our
  nation’s greatest challenge.”

• “Simply
  immoral,” said Mitt Romney

• “We
  have a budget deficit problem that we have to address,“ said Nancy Pelosi

How do
they plan to solve “the problem”?

Not with
tax revenue, John Boehner has said.
Not by cutting defense spending, Sen. John McCain insists.

Republicans
are so concerned about the deficit that they’re prepared to offer…not a single major policy concession to
address it.

Democrats
aren’t much better. Consider House Minority Leader Nancy Pelosi’s recent
interview on Fox News, where she said that is was “almost a false argument” that
the federal government has a spending problem.

Very few in
Washington care about the federal government’s budget deficit. Deficit talk is a
decoy for the unpopular components of both parties’ larger
political agendas. What’s really going on is a debate about the proper size and role of government.
 

Washington
is using the budget shortfall as a proxy for policies to expand or contract the
federal government. So, instead of talking mainly about tax increases or cuts
to government services, both parties
disguise the real issue by feigning concern about deficits.

The Economist reports
that Mr. Obama is closer to solving America’s growing debt than many think:

That projection
assumes that Mr. Obama and Congress do not override planned spending cuts and
tax rises, most importantly the “Sequester”. The Sequester mandates $1.1
trillion of additional spending cuts over the next ten years, including $85
billion-worth this year that are due to begin on March 1st after being put off
for two months. Even if those measures are overridden, the CBO still predicts
that the deficit will fall to 5.5% this year and 3.7% of GDP by 2015.
Thereafter, though, it will start to rise again.

As the Wrongologist reported
earlier this week, Mr. Obama and Congress struck two deals in 2011 that cut
spending and one at the start of this year that raised taxes.

Cumulatively, these
three deals have already cut a projected $2.4 trillion from deficits over the
coming decade, or a little over 1% of GDP, according to the Committee for a
Responsible Federal Budget, a watchdog group (see the Economist’s table
below)

That won’t be enough
to stabilize the publicly held debt as a share of GDP. The CBO says this will
climb to 87% of GDP in 2023, compared with 73% now, if the Sequester spending cuts do not occur or
if popular tax breaks are extended.

Yet this papers over
a more worrying reality.

America’s budget
classifies spending as either mandatory, which means it does not have to be authorized
each year by Congress, or discretionary, which means it does. Most of the
long-term pressure on the deficit comes from mandatory spending, in particular
the big Social Safety Net programs—Social Security, Medicaid and Medicare (see
chart from Economist below).

The spending cuts to date have fallen almost
entirely on discretionary spending, putting both defense and domestic
discretionary spending on track to fall steadily as a share of GDP. The Sequester
accelerates that, driving both below 3% of GDP by 2020 from more than 4% last
year.

Cutting discretionary
spending is politically appealing because it arouses less anger than cutting the
Social Safety Net or raising taxes, and because the specifics are negotiated by
Congress each year. Cutting just discretionary spending is hardly ideal for the
economy. Relentless downward pressure on discretionary spending could also
hamper the government’s ability to do its job, in both defense (see this
Economist article) and the
civilian economy.

We know that the two parties
disagree on how entitlements ought to be reformed. Republicans believe benefits have to be limited by converting
Medicare to a voucher system and limiting Medicare funding. Democrats prefer to
curb fees to drug companies and hospitals and experiment with different ways of
delivering care.

To replace the Sequester,
House Democrats have proposed higher tax rates for the rich and for oil
companies, while trimming farm subsidies.

Republicans
dismiss such plans. Republicans
want to cut public pensions and healthcare. Paul Ryan, chairman of the House Budget Committee, plans to
present a Republican budget that he says will balance the budget in a decade, presumably
with far more radical cuts to entitlements than Democrats can tolerate.

And
in conclusion:

The
Deficit is not the main issue today. Unemployment and underemployment are! (see the Wrongologist here)

They reduce demand,
stifling economic growth and lowering tax receipts. If we can get out of the hole and
prosperity returns to most, not just to the 1%, we will have plenty of time and
opportunity to address deficits and debt fundamentally.

Politicians
must look at the real problems and stop touting ideas to transfer even more of
the nation’s wealth from the middle class to the 1%. Banksters are thriving,
corporate profits are returning to record highs, the middle class is still
hurting, the poor are suffering and the
Washington Post is worried about? Deficits.

Is destroying
Social Security so necessary to right wing ideology that they can continue ignoring
these facts?

If you
repeat “Deficit” often enough and loud enough, do they think people will
believe it?