Is anyone else sick and tired of the constant lies being told to the American people about our federal budgetary woes and our supposed deficit armageddon?

The reality is our national debt truly is the least of our economic worries, as is the deficit. One thing that both Dick Cheney and Ronald Reagan said that WAS true, is that deficits don’t matter and they really don’t. THEY are NOT the biggest issues our economy faces and have less impact on our national economy than many think.

In July 3, 2010, Professor Jamie Galbraith provided testimony to the Deficit Commission. His statement should be required reading to ALL those who are worried about the deficit boogyman. Professor Galbraith provided a succinct and easy to understand analysis of our economic system AND the reasons behind our current economic issues.

http://www.angrybearblog.com/2010/07/professor-jamie-galbraiths-testimony-to.html

Other noted macro economists, such as Paul Krugman and Josesph Stiglitz, among others, have also weighed in on our economic issues in various writings and public appearances. YET, no matter how many noted, respected economists STATE that the deficit and our national debt are the least of our worries, the right wing and the MSM continue beating this mantra that the deficit boogyman is out to get our children and grandchildren and that the Chinese are going to repossess America!

WHAT utter hogwash, that utterly ignores ALL the facts about how our economy functions and how government expenditures work toward keeping our economy functioning.

All the talk of reducing government spending would actually CAUSE further harm to our already fragile economy. BY taking those dollars OUT of the economy, further contraction will be felt, and more people will end up unemployed.

Think of all the government contractors whose business relies on the government paying their invoices, whether they be NASA contractors or department of defense contractors….these large companies, employ MANY people, who in turn spend their money in the economy, buying goods and services from others, which in turn leads to other people having jobs and money to spend. TAKE away those contracts and all those companies will no longer have a customer…and thus will no longer need employees.

Here is a list of the top 100 government contractors along with a list of how much those contracts are worth to those businesses.

http://washingtontechnology.com/toplists/top-100-lists/2009.aspx

There are others as well, those are just the top 100. WHO is going to replace that business if the government cuts that spending? Does anyone bother to think about that? How many people do each of those private companies employ? WHAT would happen if those contracts were no longer?

And what about employees of the federal government, or by extension employees of the states and municipalities that receive federal funds…what happens to them if the federal government cuts all this spending?

The federal government employees about 2 million civilians. WHERE are those people going to go if the federal government were to cut all those positions? WHAT would that do to our fragile economy?

http://www.bls.gov/oco/cg/cgs041.htm

NOW, in so far as so called “entitlement” programs the fear mongering and out and out lies and myths about our ability to sustain these programs, I defer to Professor Galbraith’s comment referenced above:

Social Security is a transfer program. It is not a spending program. A dollar “spent” on Social Security does not directly increase GDP. It merely reallocates a dollar from one potential final consumer (a taxpayer) to another (a retiree, a disabled person or a survivor). It also reallocates resources within both communities (taxpayers and beneficiaries). Specifically, benefits flow to the elderly and to survivors who do not have families that might otherwise support them, and costs are imposed on working people and other taxpayers who do not have dependents in their own families. Both types of transfer are fair and effective, greatly increasing security and reducing poverty — which is why Social Security and Medicare are such successful programs.

Transfers of this kind are also indefinitely sustainable — in fact there can intrinsically be no problem of sustainability with transfer programs. Apart from their effect on individual security, a true transfer program uses (by definition) no net economic resources. The only potential macroeconomic danger from “excessive” transfers is that the transfer function may be badly managed, leading to excessive total demand and to inflation. But there is no risk of this so long as the financial crisis remains uncured. Under present conditions Social Security and Medicare are bulwarks for stabilizing a total demand that would otherwise be highly deficient.

Similarly, cutting Social Security benefits, in particular, merely transfers real resources away from the elderly and toward taxpayers, and away from the poor toward those less poor. One can favor or oppose such a move on its own merits as social policy – but one cannot argue that it would save real resources that are otherwise being “consumed” by the government sector.”

OUR economy is cyclical, by that I mean money spent by the federal government returns to the economy and is spent by others in the economy which in turn creates demand for goods and services. THOSE dollars have a multiplier effect as they move through the economy. THUS all this talk about federal spending being a bad thing completely ignores the reality of how our consumer economy works and how money flows through the economy.

If the federal government were to stop spending or only spend what is taken in from tax revenue our whole economy would tank overnight. IT would be the worst thing to happen and the immediate fallout of such myopic thinking would be catastrophic. IT would take DECADES for private industry to make up the lost income derived from the spending of the Federal government and in the interim MANY MANY actual human beings would suffer substantially.

SO, enough of the gloom and doom and enough of the deficit boogyman.

ALSO, enough of the simplistic solutions to very complex problems. ALL things in our economy effect each other, and if the private sector is not creating enough demand on it’s own, the only logical entity with the economic resources and the will to get the economy functioning by creating appropriate demand is the federal government.

OH and let’s dispel another myth, there is no federal credit card. US FEDERAL GOVERNMENT debt does not work the same way as an individual or business debt works.

Again, I defer to Professor Galbraith as he explains so much better than I:

“9. In Reality, the US Government Spends First & Borrows Later; Public Spending Creates a Demand for Treasuries in the Private Sector.

As noted, the above argument is based on the common belief that the government must borrow in order to spend, and thus that the government faces “funding risks” in private markets. Such risks exist, of course, for private individuals, for companies, for state and local governments, and for national governments such as Greece that have ceded monetary sovereignty to a central bank. But the situation of the United States government is quite different.

The U.S. government spends (and the Federal Reserve lends) in a very simple way. It does so by writing checks — in fact simply by marking up numbers in a computer. Those numbers then appear in the bank accounts of the payees, who may be government employees, private contractors, or the recipients of federal transfer programs.

The effect of government check-writing is to create a deposit in the banking system. This is a “free reserve.” Banks of course prefer to earn interest on their reserves. Thus they demand a US Treasury bond, which pays more interest without incurring any form of credit or default risk. (This is like moving a deposit from a checking to a savings account.) The Treasury can meet that demand, or not, at its option — it can permit, or not permit, the stock of US Treasury bonds in circulation to increase.

So long as U.S. banks are required to accept U.S. government checks — which is to say so long as the Republic exists — then the government can and does spend without borrowing, if it chooses to do so. And if it chooses to issue Treasuries to meet the demand, it can do that as well. There is never a shortfall of demand for Treasury bonds; Treasury auctions do not fail.

In the real world, the government creates demand for bonds by spending above the level drained by taxation from the system. The extent to which those bonds are held locally, or abroad (another common source of worry) depends on the US current account deficit. This also has nothing to do with approval or disapproval by foreign bankers, central bankers, or their governments of American deficit policy. A foreign country cannot acquire a US Treasury bond unless someone outside the United States has acquired dollars to pay for them, which is generally done by running a trade surplus with the United States. And when foreigners do acquire those dollars, then like domestic banks they prefer to earn interest, which is why they buy Treasury bonds.

Insolvency, bankruptcy, or even higher real interest rates are not among the actual risks to this system. The actual risks in this system are (to a minor degree) inflation, and to a larger degree, depreciation of the dollar. However at the moment there is wide agreement that a lower dollar would be a good thing — against the Chinese RMB and now also the euro. So it is difficult to believe that the goal of deficit reduction per se serves any coherent, or presently desirable,
economic objective.

We can conclude that there is actually no economic justification for the target of reducing the primary deficit to zero by 2015 or any other date. The right economic objectives are to meet real problems, not those conjured from thin air by economists. Bringing about a rapid end to unemployment, caring properly for an aging population, cleaning up the Gulf of Mexico, coping with our energy insecurity and with climate change are all far more important objectives than reducing a projection of future budget deficits.”

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MIVOTE
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MIVOTE

Thanks Abby for a great article, and thank you all for great posts. I’ve reinforced what I thought I knew and learned much about a subject I know little.

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choicelady
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Abbey – brilliant! This is an outstanding summation of this issue. Thank you!

In CA the mantra from the Right is that the state must be like a family – that when times are tight, families cut spending. Well, maybe that’s true on frills, but what families do NOT do is throw their kids into the streets, wheel Granny into a parking lot to die, cut off food to their disabled brother-in-law, and hold back insulin to Mom who is diabetic and take away Dad’s tools by which he can make a living. Any family that did those things would have the police on their butts ASAP. So why is the standard suddenly a massively DYSFUNCTIONAL family “solving” their problem through criminally-negligent actions? That’s what the Right demands in CA rather than raising any kind of revenue through taxes.

You are right about reallocation – but the rich want NONE of it. They want to “right” to buy diamonds and leave you unable to buy food.

I mentioned before that the REAL culture wars comes from a marked difference between those of us who believe in the Common Good – the general welfare – and those who are invested utterly in hyper individualism. The rest – sexual issues, etc. – are just diversions. The real culture wars has to be challenged about whether we really are, as Obama says, “in this together” or whether it’s a war of all against all as the new Social Darwinists posit.

There is no reason to gut spending when that spending generates growth. The only reason to gut spending is to keep all the money in the pockets of the few.

So we have to challenge these ideas of debt, of making our grandchildren pay, of bankrupting government, of killing the goose that lays the golden egg. It’s nonsense and is NOT sound fiscal policy. It’s political, it’s class based, and it’s WRONG.

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Smirnonn
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Smirnonn

“I mentioned before that the REAL culture wars comes from a marked difference between those of us who believe in the Common Good – the general welfare – and those who are invested utterly in hyper individualism.”

Extremely well put, choicelady!! And closely tied to the difference between “those who believe in the Common Good” and “those who are invested utterly in hyper individualism” are baser human traits like racism, xenophobia and greed.

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Chernynkaya
Member

If y’all want to get your blood pressure up, listen to this explanation about the deficit and cuts from Prof. Richard Woolff. He is Professor of Economics Emeritus at the University of Massachusetts in Amherst and currently a Visiting Professor at the Graduate Program in International Affairs of the New School University in New York.

about 4 minutes only:

http://www.truth-out.org/austerity-comes-america67747

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zootliberal
Member

cher – good lord, that was almost heartbreaking. Shared it to my FB page, love truth-out, thanks for the link.

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Chernynkaya
Member

I know, zoot. heartbreaking is right.

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PocketWatch
Member

This whole notion of cutting spending when the economy clearly needs a boost (and it is always the federal government that is the ‘spender of last resort’ in these situations), reminds me of the businessman, who, when times are tough and sales are down, looks at his sales staff and fires half of them to cut costs, and eliminates the advertising budget.

Say what?!?!?!? I’ve seen it a dozen times. Then the guy sits in his office and wonders why sales shrink even further.

Crazy thinking… just crazy! That is the exact circumstance to BOOST the advertising budget and to make sure he’s getting everything he can out of the sales staff. Even if he has to cut costs somewhere else to do it.

Sometimes I have no idea what goes through peoples’ heads!

8)

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Smirnonn
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Smirnonn

That’s a GREAT analogy, PocketWatch. Deficit and debt reduction do nothing to stimulate the economy in a recession. The best way to recovery is to get money circulating again, which is exactly what we need to be doing right now. Spending on things like infrastructure, renewable energy, mass transit, education, research and development, etc. is actually an investment which has proven time and time again to pay back in spades while creating jobs and priming the economic pump, so to speak.

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PocketWatch
Member

Smirnonn – Thanks. It actually goes deeper than I said.. The owner should look long and hard at each salesman and make sure he’s getting his money worth and maybe upgrading to better salesmen when he sees a deficiency.

In other words, you have to eake out a return on every dollar spent on sales.

In government, that means reducing waste and fraud, eliminate anything that isn’t working, and spend every dollar you can to stimulate the economy in the right way. UI returns 170% to the economy in activity (call it productivity to keep the analogy going). Infrastucture spending ALWAYS pays back more than it costs.

Tax cuts to wealthy individuals and subsidies to large corporations? Only 80% …. maybe.

How to choose? It’s so hard!

8)

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ADONAI
Member

I’ve never been much of an economist so the nuts and bolts make no sense to me.

I do know that this economy is built on spending. That much should be obvious.

I think we need more jobs to have more people spending and putting money back into the economy. The rest will take care of itself.

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david p canada
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david p canada

Oh, the deficit issue will be resolved, to be sure, but it won’t be pretty. The poor should be most concerned about the deficit for they are the most dependent on govt largesse for basic necessities such as food and shelter.

The rich don’t give a rat’s ass about the deficit because they have diversified their investments to the point where they will be well-positioned no matter how the economy goes. Safe havens such as precious metals, farmland, commodities, etc.

Once the rich become really concerned about govt debt, they will simply stop buying govt securities. In short order the govt cannot finance it’s entitlement programs and *presto* no lunch for Bobby and his little brother.

The govt then will be forced to simply print money and runaway inflation right behind. And who benefits, you ask? Why, the rich of course. Their aforementioned investments pay off handsomely because commodities are generally immune to inflation value erosion.

The big losers with inflation are the weakest in society, namely the elderly and disabled. Their cash savings for retirement become worth less and less as inflation marches on.

The way I see it, a 10% rise in taxes and a 10% cut in spending is needed and needed now, before it all goes to hell in a handbasket.

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Chernynkaya
Member

Outstanding post, Abby!

It’s really infuriating that we are now talking about the deficit as if it was the most critical thing — Dems freaking out about the deficit during a jobless recession? I was disgusted at how many Progressives joined that Repub talking point– case in point, the recent tax extensions.I watched in shock as even Keith Olbermann decried the deal Obama made, based on the deficit factor! Many others did too. I think that is hypocritical, because, while it was true, Progressives have no business using the deficit to criticize- it’s the wrong reason the deal was bad.

Yes, long term the deficit is important, but not when people can’t get jobs! I have read Krugman and Reich and all the other Keynesian economists and they ALL say that until unemployment drops to about 7% deficits must be accepted. There is NO WAY to create jobs and reduce the deficit. No way.

Two things reduce deficits– income (through taxes), and less spending (cut programs).

What creates income? Jobs and exports.

What creates jobs and doesn’t increase the deficit? Nothing.

Deficit reduction during a recession is going to cause great depression II.

Let the Repubs own that issue during a Recession-¬- because it is the wrong issue.

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Buddy McCue
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It IS the wrong issue.

And here’s the thing about the Keynsian economists (like Dean Baker and Joseph Stiglitz.) These are the people who actually SAW the economic crisis coming, even when the Right did not.

In the last few months of 2008, when McCain and almost all the other conservatives were denying that there was a crisis coming, I was hearing Rush Limbaugh telling callers to ignore their real life experiences. He told one caller (a loyal listener who was struggling to pay the bills) that the economic bad times were all in her head. He advised her to stop reading the New York Times, and to see if that made her feel better.

The Right never saw the crash coming. When McCain said “the fundamentals of the economy are strong,” he was repeating the consensus view of the Right. Why in the world should anyone believe them now when they tell us what the economic policy of the nation should be?

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audadvnc
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audadvnc

“These are the people who actually SAW the economic crisis coming, even when the Right did not.”

That’s not quite accurate. I was working in the DC hotel meetings biz in 2007/08, and heard on more than one occasion that people in the loop were expecting the “hammer to come down” shortly. They didn’t come out and explicitly say which hammer – my guess is that whoever needed to know, already did.

In other words, they knew it was coming, but did nothing to stop it… they just delayed the inevitable as long as they could, hopefully until they were out of office, and therefore blameless. They almost made it.

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Buddy McCue
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Perhaps instead of using the phrase “saw it coming,” I should have said “said it was coming in public statements?”

Alright, I’ll concede that. But my main point stands: why should anyone listen to the Right when it comes to economic policy?

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phread
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phread

In a nut shell…every tax dollar spent on We The People, is one less dollar toward corporate welfare. Our economy is fascist, the government subsidizes “heavy industry” at the expense of “light industry”…guns or butter as the macro texts phrase it…the military-industrial complex does not walk alone. As Bertram Gross pointed out in his book Friendly Fascism; “It has many partners: the nuclear-power complex, the technology-science complex, the energy-auto-highway complex, the banking-investment-housing complex, the city-planning-development-land-speculation complex, the agribusiness complex, the communications complex…”each of these cartels/complexes buys politicians to do their bidding.

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KQµårk 死神
Member

That’s truly the ironic part of all our arguments. If you look at where tax dollars are spent the majority are spent on social programs one way or another.

[img]http://upload.wikimedia.org/wikipedia/commons/f/f0/US2009FederalExpenditures.png[/img]

http://upload.wikimedia.org/wikipedia/commons/f/f0/US2009FederalExpenditures.png

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phread
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phread

I don’t believe social programs are at fault…a decade of war and the bush tax cuts are the cause of the deficit

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DustyMills
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Nice piece here, Abby Rose…..

All this talk we hear from the right about the budget and spending is what my Granny used to call the cock & bull story…..or as it’s become known, the crock of chit. Republicans do not want the people talking about the real weight around the neck of this nation, and they will run with any and all reasons why it is HC, SS or Medicare or education or the EPA, that are breaking us. The GOP will steadfastly refuse to have a serious conversation about our Defense budget, and they will do whatever they must to make people believe that just as soon as we make cuts, terrorists will attack or sharia law will begin their takeover of Oklahoma or a whole new era of communists will begin their invasion of America. It’s total B.S., it’s look over here so you won’t see what’s over there…..

It is so like the right to blame the president for our deficit, when it was GW Bush who started two wars, & passed billions of dollars of tax cuts for the rich, that’s where our real budget problems began, but there isn’t one republican who has the courage to stand up and say that…..it’s all so much easier to blame Obama.

Want to really do something to cut our budget? Cut defense in half, and raise taxes. This is so simple……are we a war machine or a civilized society?

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Buddy McCue
Member

“War machine”is exactly the way to put it.

The Department of Defense used to be called the Department of War, right? Maybe they should go back to calling it that, just to be honest about it.

When’s the last time we actually fought a war to DEFEND our country anyway? WWII? Seems like we’ve been fighting offense, not defense since then.

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phread
Member
phread

Very nice indeed!!!

I love the link to Jamie Galbraith-Galbraith is the son of economist John Kenneth Galbraith!! Out FN standing!!

We need more people like krugman and stiglitz speaking out on these matters.

Very nice…kudos!

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BigDogMom
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BigDogMom

Abby, excellent article, is there any way I can get this through the mods over there, you think. This is an excellent rebuttle to HP’s grossly overstated, right wing slanted former Main.

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PocketWatch
Member

@BDM: You COULD try posting the link:

http://planetpov.com/2011/02/14/budget-deficits-the-debt-and-the-lies-from-the-right

But I have the feeling…

I wonder if it can be masked somehow?

8)

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Chernynkaya
Member

Abby– I’m stressed. This looks like such a juicy fabulous piece. This place has become an embarrassment of riches. But I HAVE to put my groceries away now. I can’t wait to read this!

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funksands
Member

I heart JKG. He is a tremedous voice in the wilderness.

Revenues have dropped only 5 times since 1950.

Each time on the backs of a recession. Tax policy and budgetary policy have less and less to do with the deficit each passing year.

The economy and to a lesser degree the trade deficit more and more.

ALL the attention should be on goosing the economy. Tax cuts and credits are nice, but when your tax BASE is being hollowed out, the impact is felt less and less.

We have shipped 3.5 MILLION production and professional service positions overseas between 2000 and 2009. 2010 it is estimated to add another 500,000 to this number.

Our economy is being dismantled and outsourced. The people working these jobs used to spend money and pay taxes on a state and federal level.

If even HALF of these jobs came home what impact would that have?

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chasethis
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chasethis

A link to Abbyrose’s article would be perfect to post at HP on the main. Alas, I am techno challenged and a weenie. Just made a trek over there and am seeing many many comments about the misleading articles along with some “sure am glad there are some other great sites to go to.” Yes, we can!

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KillgoreTrout
Member

I was over there a few hours ago. I didn’t comment, because I am now getting quite used to freedom of speech. I didn’t want the aggravation of being censored.
I noticed, the headline was pure Obama bashing, but the article explaine Obama’s proposed cuts fairly well. That’s how HP is. The use of sensationalist headlines to grab the attention of commentators, many of whom don’t bother to read the corresponding articles. This plays to the righties, and it plays to lefties who, by and large, actually read the articles. I guess thats what the queen means by, “beyond left and right.”

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chasethis
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chasethis

Killgore, re: “cuts fairly well.” You’re right. The photo, the headline and the first paragraph was just enough to get my blood boiling. Digging down into the information was a whole different thing and adequately informative. Then, scrolling down to the comments and YIKES! “Beyond left and right” has devolved into “beyond sane.”

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KillgoreTrout
Member

Big money has a way of degrading things that were formerly pretty good. Big money interests are almost always a form of poison. Just my humble opinion.

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KillgoreTrout
Member

Hey abby! Good to see ya.

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phread
Member
phread
KillgoreTrout
Member

Thanks phread!

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ghsts
Member

Fantastic counter-point to the shill machines, after your last article I knew you were the girl for me, Be my valentine?

Someone recently responded to me, “dig deeper” and we all should. The problem with the right isn’t so much the lies that only appeal to the unwashed masses but the Half truths that are twisted out by msm and the talking puppets. Half of the truth is debt, not produced by our annual budgets, or consumer spending but the BASIS of valuation of our economy, economic growth, health or sickness. Our whole banking economy is based on escalating debt bubbles.

If Obama had only appointed Elizabeth Warren instead of Geithner I would still be a fanatical Dem.

This video is a good scratch of the top soil.

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