Thursday, August 12, 2004

Deficit Distortions

There’s no way to respond to the most recent "Point" without going line by line. So here we go (“The Point” is in italics; “The Counterpoint” is in Roman type):

There is no doubt about it. Deficits are not good.

Thank you, Adam Smith.

Yet our government is in a deficit to the tune of more than $400 billion for next year.

Actually, it’s nearly $500 billion.

Both the President and the Congress need to rein in spending and get back to a balanced budget.

It’s pretty much just the President and the Republican House leadership that need to rein in their spending tendencies. Conservative Republicans felt the wrath of this administration and its closest congressional allies when a few of them pointed out that Bush has supported large spending increases. For an example, see this article from "The Hill."

Much of today's deficits are attributable to too much spending. . .

This is true, but needs to be explained a bit more. According to the conservative Heritage Foundation, pork barrel spending has increased dramatically in the last several years, during most of which Republicans controlled the White House and Congress.

. . . and President Bush's middle income tax relief.

Directly contradicting what Bush said during the 2000 campaign, what he’s said as president, and what Hyman says here, the vast majority of Bush’s tax cuts go to the wealthy. Middle and working class taxpayers got around $100 in 2003-2004, and even that minimal amount disappears over the course of the tax cut plan, as the cuts become more and more skewed toward the rich as the years go by. For details, see this study by the Center for Tax Justice.

Taxes were cut to put more money in the hands of consumers to jump-start the economy which began to slide in the spring of 2000.

Many conservative commentators like to suggest Bush inherited a recession. Actually, according to the National Bureau of Economic Research, the recession didn’t begin until March of 2001. In fact, in the spring of 2001, the biggest economic concern about the national debt was paying it off too quickly, according to Fed chair Alan Greenspan.

But before we get too critical regarding deficits let's look at the facts and discuss the impact deficits have on today's economy.

Sure, why not?

The US has averaged 5.6, the annualized unemployment rate for 2004 is lower than the annual rate for 19 of the previous 25 years.

The fact of the matter is that since Herbert Hoover and the Great Depression, no president has actually managed a net loss in jobs . . .. until now. During a period that included a World War, several other global conflicts, many recessions, and a major energy crisis, no president failed to create at least some jobs, except George W. Bush. It is all but a mathematical certainty that he will be the first president since Hoover to lose jobs. Moreover, wages have fallen for those who do have jobs, and many people have simply stopped looking for jobs because the employment situation is so bleak, leading to an official jobless rate that’s artificially low. For more on this, see the sobering stats from

So while deficits are not good business, it's clear the deficits have not hurt our current economic situation.

Actually, they have, and most economists (including Fed chair Alan Greenspan) warn that continued deficits will have increasingly dire consequences for the economy.

Not only do deficits hurt our economic situation, but they hurt the global economy. The International Monetary Fund has warned that current U.S. debt will likely result in
worldwide economic problems.

And given a choice, I'd rather have deficits with robust economic growth, low unemployment and inflation rates, and record home ownership than a balanced budget with the sluggish economy that resulted from the false promises of the high-tech 90's . .

False promises? The period from 1991 to 2001 was the largest continual economic expansion in history. You don’t get this from a tech “bubble.” You get it from sound economic policies. In fact, in the spring of 2001, Alan Greenspan saw no reason to question the inherent strength of the U.S. economy, barring policy decisions that might undermine it. Gosh, what happened? Hmmmmmmmmm…

. . . and the 2001 terrorist attacks.

Tax cuts have contributed far more to current deficits than post 9/11 defense spending, and the economy has continued to underperform compared to the Administration’s own predictions since September 11, 2001.

Our next step is to have both a strong economy and a balanced budget.

Neither of which will happen with George W. Bush in the White House.

Look, if you want to know about deficits and this administration’s attitudes toward them, look no further than Ron Suskind’s The Price of Loyalty. From Bush’s own Treasury Secretary, Paul O’Neill, we learn that Dick Cheney thinks “deficits don’t matter” and that huge tax cuts for the wealthy are a goal not because they believe they help the economy, but simply because that’s their political policy. Tax breaks for the wealthy aren’t a means to and end; they’re the end. What happens when someone sensible like O’Neill suggests this might not be the best way to run the economy? He loses his job. Well, at least he’s got plenty of company.

And that's The Point.

And THIS is "The Counterpoint."


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