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.
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.
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?
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:
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,
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.”