The Economic Whodunit

Obsessing Over Deficits

The policy mystery of our time is why politicians in the United States and across much of the democratic world are so obsessed with deficits when their primary mission ought to be bringing down high and debilitating rates of unemployment.

And since last week saw a cross-party celebration of the opening of George W. Bush's presidential library, I'd add a second mystery: Why is it that conservative Republicans who freely cut taxes while backing two wars in the Bush years started preaching fire on deficits only after a Democrat entered the White House?

Here is a clue that helps unravel this whodunit: Many of the same conservatives who now say we have to cut Social Security to deal with the deficit supported Bush's plan to privatize Social Security -- even though the transition would have added another $1 trillion to the deficit. The one thing the two positions have in common is that Bush's proposal would also have reduced guaranteed Social Security benefits.

In other words, deficits don't really matter to many of the ideological conservatives shouting so loud about them now. Their central goal is to hack away at government.

This goes to the larger argument about jobs and deficits. For a brief time after the Great Recession hit, governments around the world, including President Obama's administration, agreed that the immediate priority was restoring growth. Through deficit spending and other measures, the 20 leading economies agreed to pump about $5 trillion into the global economy.

Obama and Democrats in Congress enacted a substantial stimulus. The package should have been bigger, but Obama -- thinking he would have another shot later at boosting the economy -- kept its size down to win enough votes to get it through Congress.

The second chance didn't come because conservatives stoked anti-government deficit mania -- and never mind that the deficit ballooned because of the downturn itself, the stimulus needed to reverse it, and those fiscally improvident Bush-era decisions.

Then along came academic economists to bless the anti-deficit fever with the authority of spreadsheets. In a 2010 paper cited over and over by pro-austerity politicians, Carmen Reinhart and Kenneth Rogoff argued that when countries reached a debt level above 90 percent of their GDP, they almost always fell into slow growth or contraction.

Financial Times columnist Philip Stephens compactly takes the story from there: "The implication was that deep retrenchment was the only route back to prosperity. Now, economists at the University of Massachusetts Amherst say the results reflected a data 'coding error' and some questionable aggregation. The assumption that high debt always equals low growth is not sustained by the evidence."

While Reinhart and Rogoff acknowledged their error, they dismissed the controversy in a New York Times op-ed as an "academic kerfuffle" and insisted that their findings had often been "exaggerated or misrepresented" by, among others, politicians. (They also complained about the "hate-filled, even threatening, email messages" they received. I'd be happy to share my email with them. Friends, if you have the good fortune to be engaged in public debates, you get a lot of angry missives these days.)

The two economists would have added to their credibility by showing a bit more humility about their data problem. But the damage was done. Europe and the United States moved prematurely to austerity. Tens of millions of people have suffered from joblessness or lower real incomes. Reinhart and Rogoff didn't force these decisions, but they abetted them.

Now, through the sequester cuts, we are compounding the problem. It's outrageous that Congress and the administration are moving quickly to reduce the inconvenience to travelers -- people fortunate enough to be able to buy plane tickets -- by easing cuts in air traffic control while leaving the rest of the sequester in place. What about the harm being done to the economy as a whole? What about the sequester's injuries to those who face lower unemployment benefits, who need Meals on Wheels, or who attend Head Start programs?

Instead, we should be using this period of low interest rates to invest in our infrastructure. This would help relieve current unemployment while laying a foundation for long-term growth. But anti-government slogans trump smart-government policies. For reasons rooted in both ideology and the system's bias against the less privileged, we hear nothing but "deficits, deficits, deficits" and "cuts, cuts, cuts."

To paraphrase a French statesman from long ago, this is worse than a crime. This is a mistake. Its costs are being borne by good people who ask only for the chance to do productive work. 

(c) 2013, Washington Post Writers Group

About the Author

E. J. Dionne Jr. is a syndicated columnist, professor of government at Georgetown University, and a senior fellow at the Brookings Institution. His most recent book is Our Divided Political Heart: The Battle for the American Idea in an Age of Discontent (Bloomsbury Press).



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The other economic whodunit is the enormous cash on hand that big corporations are sitting on without a thought of hiring or raising wages. HS students all know that Henry Ford paid $5 dollars ,way above the prevailing wage so the workers could buy his cars. Much better data then the fraudulent data by Fox news and WS beholden economists.

Whether or not "austerity" is good policy in the current economic environment, "sequestration", as enacted by our Congress and President, is probably the worst way to assure getting real value for every dollar spent on infrastructure, defense, or aiding the unemployed. A far better approach might be to establish an overall Federal spending budget and allow the President to allocate the authorized funds among the various agencies. This is a slight twist on line item veto--an authority that presidents of both parties have recommended. Sequestration employs a meat cleaver where a scalpel would serve better.

Mr. Dunn, Congress would never yield that much power to a president, any president.

Before the legislative fix that ended the furloughs, conservatives were insisting that the president had wide discretion under the sequester rules to make sure that furloughs didn't happen.  I heard several calls of "Why doesn't he shut down some of the small regional airports?" -- presumably so that the controllers could be deployed to larger airports. 

Why doesn't he indeed.  Probably for the same reason that the president can't shut down military bases by executive order: because Congress wouldn't stand for it.  Every member of Congress thinks the airports and military bases in his or her own district are indispensable, so close the facilities somewhere else.

While I agree with Ms. Stockton that the current Congress is unlikely to give much discretion to the current President, there is historical precedent for my suggestion.

The Emergency Relief Appropriation Act of 1935 gave President Franklin Roosevelt discretion to open new agencies, close existing agencies, and allocate or re-allocate funds by executive order. Within weeks he established the Works Progress Administration (WPA) the Rural Electrical Administration, the Resettlement Administration (to relocate farmers to more productive lands) and others. FDR moved funds among these agencies at his own discretion, often abruptly, to the consternation of Cabinet members who lost funding and the joy of those who received. Defense spending in those years was minimal, so the discretion given to FDR extended to almost all areas of Federal spending in that and successive years.

For the sake of full disclosure, I should add that the plan failed to meet expectations. Harry Hopkins, whom we might today call FDR's "economic recovery czar," privately committed to FDR when the law passed (April 8) that all "employables" (their term) would be hired by July 1. Hopkins later pledged to complete re-employment by November 1. In fact, as late as 1939, the unemployment rate was still 14 percent, and about one-third of all employed were earning below the poverty level, either as full-time government workers or part-time private sector workers, as the economy was still limping along. Even those years of heavy infrastructure and stimulus spending are part of the decade still known today as the Great Depression.

Joseph J. Dunn      Author of After One Hundred Years: Corporate Profits, Wealth, and American Society


Let us be clear: the uber rich and 1% have already got all they need. The poor, sick, elderly and unemployed should not look to them for any solutions. They are not interested and will just create another reason why not.

As for Social Security President Bush  never proposed privatizing SS but proposed giving people 50 or perhaps 55 and older the choice of remaining in the current program or placing a small percentage of their SS contribution, 2% was suggested, into a personal retirement  program similar to a 401K. Younger people would be in the in second program. While not an FDR historian I am familiar with his SS proposals and the President's plan closely follows FDR's  original intent for SS as highlighted in thesecond and third points in the following: President Roosevelt on Social Security MESSAGE TO CONGRESS ON SOCIAL SECURITY. JANUARY                          17,1935 "In the important field of security for our old people, it seems necessary to adopt three principles: First, non-contributory old-age pensions for those who are now too old to build up their own insurance. It is, of course, clear that for perhaps thirty years to come funds will have to be provided by the States and the Federal Government to meet these pensions. Second, compulsory contributory annuities which in time will establish a self-supporting system for those now young and for future generations. Third, voluntary contributory annuities by which individual initiative can increase the annual amounts received in old age. It is proposed that the Federal Government assume one-half of the cost of the old-age pension plan, which ought ultimately to be supplanted by self-supporting annuity plans." PRESIDENTIAL STATEMENT SIGNING THE SOCIAL SECURITY ACT. 14,1935 "We can never insure one hundred percent  of the population against one hundred percent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age."

When President Obama declared that SS contributions were a tax and temporarily suspended 2% as a tax cut those who opposed allowing individuals to invest 2% of the SS contribution into a private saving account widly applauded Obama's 2% "tax" cut to be spent. They also objected loudly when the temporary 2% "tax" cut was allowed ot expire. 

Mr.Dunn referenced Harry Hopkins but another FDR cabinet member Secretary of the Treasury, Henry Morgenthau,Jr., wrote in his diary and told the House Ways and Means Committee in1939:

“We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong…somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises…I say after eight years of this administration we have just as much unemployment as when we started…And an enormous debt to boot!” It isn't necessary use the Roosevelt administration failures to end the Great Depression but to simply study the absolute failures of European countries that have taxed, borrowed and spent their way to bankruptcy as welfare states.  Does history repeat itself? Yes, it does. And there is every indication that Obama and the democrats are intent on repeating the errors of FDR and European countries today.George Santayana wrote "Those who cannot remember the past are condemned to it repeatit."

It's good to know that we had surpass our economic recession despite of many obstacles,still we're trying to cope with it. A recently released study by international children's development organization Plan and the anti-poverty Overseas Development Institute suggests that female and girls have survived the most during the worldwide economic recession. According to international research, women and girls are most likely to be poor, drop out of school and die early. Source of article: why possibly not carry out a favour and check out?

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