This Week’s Mtg: Deficit Reduction – Who Should Sacrifice?

 Reducing the federal budget deficit has become priority #1 in our political system.  Not jobs or the fragile economy or Wall Street reform or any of our other looming problems.  Deficits.  One way or another, by the end of the summer a deal will be in place to slash spending brutally and raise taxes slightly, all in the name of fiscal probity.

Fine.  Let’s talk about deficit reduction.  But, let’s do it in a way that sheds light on what the real choices are and their consequences.  Who really will sacrifice?  Who should?  What should guide our choices?

(Other than raw blackmail of course.  I just don’t know what to say about the hostage taking over the deficit ceiling. Nothing so reckless has ever been done in all of American history.  Failure to raise the ceiling could cause a huge recession, an immediate cut in federal spending of 44%, force cuts in either programs for seniors or war spending, and damage the country’s credit rating for years to come.  Worse, winning this round of blackmail ensures that the blackmail will be repeated, over and over.)

(Further, you all know that the political debate has nothing to do with the deficit, right?  If it were, the Republicans would not have supported every single Bush tax cut and spending addition during 2001-08.  N or would they still be demanding more huge tax cuts for the wealthy and.  For example, the House GOP [Ryan] budget plan would cut social spending by something like $2.4 trillion and give it ALL back  as tax cuts for the rich, by ending the estate tax, capital gains taxes, etc.  The Ryan plan would not balance the federal budget for 60 years.  This debate is and always has been about the size of government and who government should be in the business of helping.  That’s a great debate to have, but since the public doesn’t know we’re having it, they aren’t really participating.)

Okay, okay, back to Thursday.  I’ll open with some facts on:

  1. How big a problem deficits really are.  Liberals – they are a real problem and we
    will always be playing defense until they are brought under control.
  2. What’s causing these deficits in the short run and the long run.  Conservatives – This is the part you won’t like.
  3. The moral dimensions of different ways to reduce government debt.  Deficit reduction is NOT just about the math; It’s about what kind of country we’re going to be in the next century and what kind of…wait for it…social contract we’re going to have.

Here’s background on some of this.  It’s just two charts.

HOW BIG IS THE DEFICIT PROBLEM?

Annual federal deficits are very large now, as is the accumulated debt from past deficits.  Annual deficits are running above 10% of GDP –which is large – and total debt is around 100% of GDP, a level not seen since WWII.  Also, Forty-two states face fiscal shortfalls this year, and, since they can’t borrow the difference like the federal government can, they’re slashing spending left and right.

But, the interesting part is what has caused these deficits.

WHAT CAUSED THE BIG DEFICITS?

SHORT-RUN:
It’s not rocket science, really. Cutting taxes repeatedly in the midst of two wars, adding an expensive prescription drug benefit to Medicare, and the effects of the biggest recession since WWII have pretty much done the trick, as the chart below shows.

Notice that, without the recession, the Bush tax cuts, and the extra spending, we would still have a federal deficit (the grey area).  But, it would be flat as a percentage of GDP;
i.e., as compared to our nation’s ability to afford to pay it off.   For more details, see this article.

State budget shortfalls are mainly the result of the recession’s lower tax revenues and higher social spending.  But, some states, including California, have such out of whack balance between taxes and spending that they have “structural” deficits.  They drown in red ink even in good years.

LONG-RUN:
Back to pissing off liberals.  After about 2020, the causes of the deficit change.  Why?  The recession and the Bush wars wind down and end.  What’s left?  As the next chart shows, basically, it’s rising health care spending by Medicare and Medicaid.

Of course, the Bush tax cuts remain a cause of the deficits, and, as the Boomers retire, Social Security starts to contribute a little bit.  But, in terms of spending, it’s liberal health care programs that do the long-term damage.

None of these facts I’ve mentioned are a secret or controversial.  Our politicians know all of them.

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5 responses

  1. FACT: Federal spending will account for 100% of budget deficit, always.

    1. mcoville :
      FACT: Federal spending will account for 100% of budget deficit, always.

      True mcoville, for at least a couple of reasons:

      1. They have no money. They no longer create their own (well, other than coins – some of which have more melt value in metal than their face value; nickels will get you almost $.07 apiece on the metals market. See my other comment on this thread re paper/electronic money. Every dollar they spend is borrowed from the Fed). JFK wanted to boost the production of US Notes backed by silver, and look where that got him. Funny how dimes, quarters, half dollars, and silver dollars went to copper around ’64-’65, right after he took a bullet, huh? It’s hard to start highly profitable wars (on cancer/poverty/drugs/communism/terrorism/etc.) when the money supply is restrained by something so quaint as metal, not to mention buying off third world dictators to expand your market share.

      2. The “budget deficit” is in relation to only tax revenues. When the full value of all privatized corporate government investment is taken into account (they own ~70% of the stock market), the story is much different. Most governments (they are all corporations) have about 3 times their public value buried in their Comprehensive Annual Financial Reports.

      So yes, I agree.

  2. Wish I had time to write a lengthier response, or better yet come to the meeting tomorrow, but I can’t. Anyhow, here goes…

    Since this whole conversation will be denominated in money, pull a dollar bill our of your wallet. I will wait…

    Now, take a look at what’s at the very top: “Federal Reserve Note”. What does it say right below that?: “United States of America”.

    Understanding the relationship of those two phrases and where they are positioned in relation to each other is key.

    On any promissory note, the lender is always at the top of the page, with the borrower underneath. Every FRN is a debt note to a privately owned cartel of not very nice people.

    Every single one of them also carries a hidden lien. Why? Because they’re not your property. They belong to the creditor. For example, if I loan you my car, and you trade it for a boat without asking my permission, do you lawfully own the boat? Of course not! So why does anyone think they own anything “paid” for with FRNs? They’ve just added another item to the huge pile of goodies that the creditor can snatch up anytime they wish, with full backing of the corrupt criminal “just us” system.

    Until America wraps its collective brain around this simple concept, we will NEVER solve our financial problems.

    Injecting more debt to these banksters into the economy by raising the debt ceiling is like telling your spouse to go ahead and charge this month’s rent to the Visa card… again, and again, and again… How’s that going to work out for you?

    As for the huge spike in the chart above, isn’t it funny how “in a post 9/11 world” we are seeing this kind of craziness…? Or is it…? Here are two of the most enlightening hours you could ever spend alone with your ears, courtesy of a young man who was on the inside during that time, and managed to get out alive:

    http://peacerevolution.podomatic.com/player/web/2011-06-05T15_21_58-07_00

    1. Great comment. Wish more voters understood this so they could pressure their representatives to pay attention.

  3. mcoville :
    Great comment. Wish more voters understood this so they could pressure their representatives to pay attention.

    Well, IMHO they do it every day – whether they realize it or not – with their FRNs.

    You want true democracy? Stop relying on others to “re-present” yourself, and take charge of what you CAN control – the marketplace (of ideas as well as of goods). Do your best to stop supporting corporations that don’t have your best interest at heart. That includes any company that has outsourced their manufacturing to China (I know, it’s nearly impossible. I buy local or used whenever possible. With all the brouhaha over global warming and “carbon footprints”, how come conscientious people rarely mention the unregulated ocean freighters that spew many thousands of times of really, really bad pollutants into the air (and sea) all day, every day than cars do as they bring this cheap crap produced by forced labor to “consumers” in “first world” countries?) Thanks a lot, Tricky Dick.

    It also includes corporations masking as governments that take your money and give you a piddly return on investment while they pocket the difference (government jobs surpassed other private sector jobs in wages/benefits in the last decade). I remember a time when there were tax protests from the left from those who didn’t want to support wars and such. Where did they all go? I suppose Obama has put such a shiny face on imperialism that it’s hard to protest “kinetic peace actions”, but I digress…

    Sheesh, I better stop. I got work to do, and once you get me started… haha.

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