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Deficit Phobia

The Deficit Errorists are at it again.  On April 28, the Peter G. Peterson Foundation is sponsoring a “Fiscal Summit” in Washington D.C.  The purpose of this summit is to discuss ways to cut federal budget deficit and Social Security will certainly be on the agenda.  Peter G. Peterson is a billionaire who made his money on Wall Street and would also love to privatize Social Security (turn it over to Wall St.).  Pete Peterson, his foundation and many Deficit Errorists are creating fear and hysteria about the federal budget deficit. 

A couple of things about the budget deficit:

1) Budget deficits are the norm not the exception.  There have been very few times in our history that we had a budget surplus:

2) The last time the budget deficit was eliminated - FYs 1998-2001 were followed by a recession (began in March 2001) and huge accumulation of debt in private sector - coincidence or causation?

Our economy has a fixed number of sectors that can participate economic growth - government sector, private sector (businesses and families) and the external (exports over imports).  And because of basic accounting and math - one that spends more than it earns (deficit) means that the other is earning more than it spends (surplus).  So, when the government is running a deficit that means the the non-government sectors (private and external) are running a surplus (external sector has run a deficit for a while in the form of trade deficit).  Government and non-government sectors cannot run surpluses at the same time.  Which would you prefer? 

This article: “What is Responsible Fiscal Policy?” explains much better than I can:

If we want the government to “correct” its budget stance, then we must necessarily be offering to reverse ours. If we demand that the government run a surplus, then we are demanding that we, the private sector, run a deficit. If we are demanding that the government pay off its entire debt, then we must be demanding that every single private portfolio, retirement account, or college fund sacrifice its Treasury securities. Surely the private sector does not want that. The government’s deficit is someone else’s surplus and the government’s debt is someone else’s asset. If you would like to wipe out one, then you must be offering to wipe out the other.

This doesn’t mean that any type of government spending or taxing policy is good.  Government spending and taxing (or tax cuts) can be wasteful and/or counter-productive.  The measure of whether government fiscal policy is responsible is by the impact it has on the real economy.  Government fiscal policy objective should be for full employment and a productive economy:

So while it is true that government deficits create non-government surpluses, the real question that taxpayers should be asking is, not how large the deficit is, but who benefits from the deficit and whose coffers does it fill?

If the deficit went to bailing out banks, then we know exactly who accumulated net financial assets. If we knew that the deficit saved state programs and prevented school shut downs, teacher layoffs and civil servant furloughs, then we would know that it is they who ‘received’ the deficit. If the deficit went towards massive infrastructure investment and direct job creation, we would know exactly which individuals and which firms got the funds and how many jobs and projects were created

.

Neo-liberals/conservatives have used government fiscal policy to redistribute income upward to wealthy and corporations.  Now, there is an opportunity to change fiscal policy to be more responsible and to foster economic growth that can help those Americans that need it the most.  But many of those who are creating this hysteria over the budget deficit are those who don’t want to make fiscal policy more responsible.  They just want to protect what they have.  It’s a matter of “I got mine - screw everybody else.”

Good luck.

FYI:  There are tentative plans for a Fiscal Sustainability Teach-in Conference on the same day that Peterson Foundation is having its summit.  It will probably be in D.C. and free to the public.