The Deficit Scare: Myth vs. Reality
If right-wing deficit hawks get their way, they will eliminate an essential tool for fighting economic recessions and cripple our ability to make the crucial public investments in education, technology, and infrastructure that would lay the groundwork for future economic expansion.
In recent years, a new and dangerous front has opened up in the conservative war on government: the battle over deficits and debt. The anti-government forces have tried to portray their position as merely one of fiscal common sense. They say that it is simply a matter of not spending more money than one earns. But make no mistake: this anti-debt crusade is a highly politicized effort to fundamentally undermine liberal programs and progressive government in this country.
If the deficit hawks are successful, they will do major damage to society and the economy. They are promoting a deficit hysteria in an effort to force the government to enact deep cuts in vital social programs like Social Security, Medicare, and Medicaid. This fiscal austerity movement would also prevent the government from using deficit spending to speed the recovery of the economy when it is in recession. And it would inhibit us from making the crucial public investments in education, technology, energy, and transportation that are necessary to improve society and lay the foundations for future economic growth.
The Anti-Deficit Campaign
First, let’s be clear on the terminology. The “deficit” is the yearly difference between the money the government takes in and what it spends, while the “national debt” is the accumulation of the yearly deficits. The debt is funded by the federal government selling Treasury securities like T-bills, notes, Treasury Inflation-Protected securities, and savings bonds to the public.
Since the election of President Obama, the Republicans have been working diligently to whip up public panic about growing deficits and the debt. Conservative commentators like Glenn Beck have been pushing this issue hard in their daily tirades against overspending “socialist” government. These ideologues maintain that deficits hurt economic growth and that the national debt is putting an unfair burden on the future generations. The only answer, they argue, is to reduce government, rein in public spending, and to move toward balanced budgets.
Also leading the charge to alarm the public has been private-equity billionaire Peter G. Peterson. For 25 years he has been warning that the growing national debt would lead the economy into a disastrous collapse – even during the Clinton administration when many economists predicted many coming years of budget surpluses. In recent years he has pledged to spend a billion dollars to convince lawmakers that we must drastically curtail spending and reduce Social Security and Medicare benefits. He has funded a foundation dedicated to this cause, produced a documentary shown on PBS, and created an on-line newspaper, Fiscal Times, to spread his alarmist point of view.
Despite the fact that Peterson’s anti-deficit arguments rely on highly questionable predictions and fuzzy math (more on that later), he has been effective in his efforts to woo lawmakers to his cause, even some Democrats. And all these conservative propaganda efforts are having an effect on public opinion, with more Americans saying that deficits are one of the most serious problems facing our country.
Clearly this anti-deficit campaign is part of the larger “starving the beast” strategy that was discussed in another article. But deficits and debt are complicated topics that merit some analysis on their own. This article takes on the “deficit hawks” and critically examines their arguments. It will show that (1) Republicans only care about deficits when the money is being spent on liberal programs; (2) our current large deficits have not been caused by overspending by the Obama administration; (3) deficit spending is an essential tool for combating economic recessions and depressions; (4) public debt can fuel vital public investments in education, technology, and infrastructure that lay the groundwork for future economic expansion; (5) the inflated and misleading right-wing rhetoric about deficits and debt is distracting from a more rational and helpful discussion of the financial problems that we do face as a nation.
Before considering what exactly is wrong with the conservative critique of deficits, it is first useful to see just how hypocritical many of them are about this topic. In reality, most conservative politicians don’t care nearly as much about deficits as they claim. Consider the evidence: most Republicans in Congress did not become deficit hawks until after President Obama was elected. During the previous administration they were busy helping President Bush turn the budget surpluses of the Clinton era into large deficits. Most conservatives did not see this rapid increase in the national debt as a problem at all. Vice-President Cheney blithely dismissed those issues at the time by saying, “Reagan proved deficits don’t matter.”
So clearly many Republicans think deficits are just fine when they are spending the public’s money on their own political priorities. It didn’t bother them to fund the wars in Iraq and Afghanistan by massive deficit spending. And they were all too glad to add hundreds of billions to the national debt by passing several enormous tax cuts – money that went largely to the wealthy. The Center for Budget and Policy Priorities has estimated that those wars and tax cuts will eventually contribute a whopping $7 trillion to federal deficits by 2019.1
Many Republicans know – or should know – that almost all the projected deficits in the coming years have nothing to do with “out of control and irresponsible spending” by the Obama administration. Consider, for example, the projected deficit for 2013 of $962 billion. A study has shown that 42% ($402 billion) of that deficit will be due to the Bush-era tax cuts. Costs of the Bush initiated wars in Iraq and Afghanistan will account for 16% ($153 billion). Another 41% ($395 billion) of the deficit will be caused by the economic downturn that began in 2008.2 This last figure includes lost tax revenues, money for the bailout that was necessary to prevent a complete economic meltdown, and money for an economic stimulus package to speed economic recovery. All these factors together will amount to 99% of the deficit in 2013! But this reality is being ignored by Republican politicians who continue to erroneously claim that Democrats and their policies are the main cause of our deficit problems.
Further evidence of Republican hypocrisy about deficits can be found in the way they ignore obvious ways of addressing this problem. If they really cared about reducing deficits, they would be enthusiastic about letting the Bush tax cuts expire. This would be the single most immediate and effective way to help rein in deficit spending. But instead, in 2010 they refused to extend unemployment benefits to millions of Americans until the Democrats agreed to extend all of these tax cuts – thus adding hundreds of billions to the national debt. Apparently, preserving low taxes, especially for the rich, is the real number one priority for Republicans, not cutting the deficits.
As their behavior indicates, many Republicans are not in principle against deficits, only deficit spending they don’t agree with. It is only when the Democrats want to spend money on things like making health care more accessible, improving education, or extending unemployment benefits that suddenly deficits matter and we are “broke” and “can’t afford” these “irresponsible” expenditures.