That deficit problem we keep hearing about is gone. When it comes to spending cuts, it’s time to follow the advice a general offered when we were mired in Vietnam: Declare victory and get out.
We had a deficit problem, once, although it was never as urgent or as important as our jobs crisis. Nor was it as important as the wealth inequity that’s destroying the middle class, killing the hopes of a better life for lower-income Americans and stifling growth. Wealth inequity hasn’t been this high since the Great Depression.
Our problem now is that we’re not spending enough.
Washington needs to spend more money now if we want a balanced budget tomorrow. That’s called investment, and we’ve needed more of it for the past four years. Instead President Obama and other Democrats bought into that right-wing narrative that said that “The Deficit” – something that’s described in static, singular, and slightly scary terms, like “The Blob” – was our biggest problem. Good thing it’s, as Paul Krugman says, “mostly solved.”
In fact, other cuts in this battered economy would make the economy worse – and would make deficits go up. Don’t take our word for it. The world’s leading institutional deficit hawk, the International Monetary Fund, reached the same conclusion.
To understand why reality’s so different from the Beltway’s fantasy we need to know how we got here.
The Big Score
Some Democrats don’t like hearing this, but the seemingly miraculous “Clinton economy,” including the government surplus we heard about when Bill Clinton left office, was primarily driven by a stock market bubble.
That bubble, and the one that followed it, were largely driven by irresponsible Wall Street deregulation – together with Republican collaborators like Sen Phil Gramm, got rich on Wall Street – and the bubble kept inflating.
We didn’t use that bubble money to rebuild our social safety net. We didn’t put it in the bank, either. Instead the Bush Administration pushed through an irresponsible set of tax breaks for the wealthy, who were already being taxed at historically low rates. And despite the end of the Cold War, we went on a military spending spree that include two wars of choice, massive weapons purchases, and continued staffing and maintenance for the thousands of military installations that span the globe today.
The deficit soared as a result of these profligate moves. The long-term deficit outlook became grim, too, as our profit-driven healthcare system led to soaring medical cost inflation, a growing number of uninsured Americans and a rising wave of medically-caused bankruptcies for people with health insurance. But that was off the table in the halls of corporate-funded political power.
Holding the Bag
Then came the financial crisis of 2008 – brought on by the same Clinton-era deregulation. Taxpayers paid billions to rescue Wall Street – money which has not all been repaid, despite the government-sponsored mythology that says otherwise. Then the same taxpayers were left to face the consequences: massive and long-term unemployment, continued wage stagnation, and millions of homes ‘underwater’ as the result of bank malfeasance and criminality.
Statistics show that corporations and wealthy individuals reaped all the benefits of the taxpayer-funded recovery – and they’re paying record-low taxes. Meanwhile, as The New York Times reports, “Wages have fallen to a record low as a share of America’s gross domestic product.” Low wages mean low tax revenue. They also mean that a lot of Americans can be described as the “working poor” – more than ten million of us, in fact, at last count.
We’re still 9 million jobs short of full employment, too.
After Wall Street and other big-money interests were safely back in the saddle, the debate over “deficits” began anew – a debate that only seems to grip Washington after Wall Street, wealthy individuals, and other big-money interests have had their turn at the trough. The Republicans led the charge, as always.
Once Obama bought into the GOP framing – minimal tax hikes (e.g raising the highest tax bracket from 35 to 39.5 percent) along with devastating cuts to Medicare, Social Security, and programs for the poor – the (highly limited) debate was on: How many of these “deficit-reducing” cuts should we make, and where?
After the initial stimulus, which was successful but not large enough, Washington stopped talking about the real measures needed to fix the economy that would also ensure long-term deficit stability. Instead we saw a repeated ritual dance in which the GOP held the government itself “hostage” while the administration, reluctantly or not, acceded in large part to deals that emphasized spending cuts rather than meaningful tax increases.
That distracted us from the real crisis in this country. And here we are. But a funny thing happened on the way to the fiscal forum: The “deficit emergency” – never our greatest priority – began to heal, at least as much as it can be healed under these economic conditions.
Here are some of the signs that The Problem, at least as defined by Washington’s conventional wisdom, has passed:
A Break in the Clouds
Health care is unacceptably expensive in this country, and unacceptably inefficient, too. We still need to address that. But the soaring rate of medical inflation has stabilized for the moment, even though it has outpaced wage increases. Long-term deficit projections look much better as a result.
The Federal government came surprisingly close to a balanced budget last month. These numbers fluctuate, of course, but this shows how close we’ve come to deficit stability with the measures already in place. That’s quite an accomplishment – although it’s a bitter one, given the price most Americans paid for it.
And despite all the doomsayers, global investors still believe in the U.S. government – and the U.S. dollar. That’s kept the federal government’s fiscal picture far rosier than the so-called “deficit hawks” predicted.
The Real Agenda
Let’s stop pretending this is a debate about “fiscal responsibility” or “facing reality”: It’s about keeping taxes as low as possible for the wealthy and corporations while shifting as much pain as possible onto lower- and middle-income Americans.
Cuts to Social Security? They’re meant to pre-empt a much wiser and fairer approach to that program’s funding: Lifting the payroll tax cap that currently leaves high incomes exempt.
Cuts to Medicare? They’re intended to make the elderly pay more – or suffer more – so that Washington doesn’t have to rein in the for-profit interests who are ruining our healthcare system.
Cuts to programs for lower-income Americans? Hey, they don’t vote that much – and they certainly don’t write fat campaign checks.
Nothing more can be done to reduce the deficit until we address our real problems: jobs and income. More cuts will make the problem worse, not better. We need to spend for the short term – on jobs, growth, and opportunity – if we want real stability in the long term.
It’s time for Washington to stop pretending we have a deficit crisis and start working on our real crisis – the ones that most Americans face every single day of their lives. So stop talking about the deficit and start fixing the problem by investing in our future.
You know how to invest, don’t you? You find an investment you believe in … and you write a check.