Krugman: Unhinged Deficit Fears Create Misguided Policy Priorities

If you missed Paul Krugman’s op-ed in the New York Times this past Thursday, I strongly recommend reading it. The Nobel Prize-winning economist and Princeton scholar adroitly explains why “the sudden ubiquity of deficit scare stories,” which “isn’t being driven by any actual news,” is leading Washington to focus on the wrong fiscal priorities.

In his piece, Krugman questions the current “drumbeat of dire fiscal warnings” that claim near-term federal budget deficits will threaten our economic recovery, ruin the country’s economic stability and undermine our influence in the world. He admits that the long-run budget outlook is problematic – though “much less frightening than the public is being led to believe” – but argues that short-term deficits are nowhere near as problematic as many pundits and some recently converted “apostles of fiscal rectitude” in Congress claim.

Interestingly, Krugman sees the same groupthink dynamic that dominated the nation during the run-up to the war in Iraq playing out in the budget deficit issue:

Now, as then, dubious allegations, not backed by hard evidence, are being reported as if they have been established beyond a shadow of a doubt. Now, as then, much of the political and media establishments have bought into the notion that we must take drastic action quickly, even though there hasn’t been any new information to justify this sudden urgency. Now, as then, those who challenge the prevailing narrative, no matter how strong their case and no matter how solid their background, are being marginalized.

As Krugman notes, misperceptions about current deficits are at the root of much of this fear. Notwithstanding what the president’s detractors claim, runaway spending under the Obama administration is not the cause of the federal government’s large deficit this year. Rather, it is due to a drastic reduction in tax receipts because of the ongoing economic crisis, and a group of programs, including tax cuts, two wars and a Medicare program, that the previous administration deficit-financed.

Despite these facts, budget fear mongering has already shifted policy in the wrong direction in Washington. Due in large part to the ascendance of this fiscal restraint meme, the president has asked for only $270 billion in next year’s budget to boost job creation begun under the stimulus plan; proposed freezing non-security discretionary spending for three years; and tasked his administration to create a bi-partisan commission to work up solutions to the debt and deficit *problem.*

The notion that current budget deficits are too high has become conventional wisdom on Capitol Hill, which has forced the White House to walk the tightrope of adequately funding economic recovery efforts while also trying to show fiscal restraint. The result is a trimmed down employment initiative that most Keynesian economists argue will help few people, and a spate of ill-timed budget stunts that will do little to affect future deficits.

Given the economic needs we currently face, budget deficits are acceptable for the time being. While long-term deficits present a problem, if lawmakers would truly like to being tackling them, they must do so without sacrificing the short-run needs of the economy.

Image by Flickr user Taekwonweirdo used under a Creative Commons license.

(Gary Therkildsen 02/09/10)

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by CLARENCE SWINNEY (not verified) on 02/10/10

WALL STREET OF

WALL STREET OF AMERICA formerly usa RAPE oF MIDDLE CLASS EMPIRE DESTRUCTION 1980 to 2007 20 YEARS OF 3 CONSERVATIVE PRESIDENTS 18 years Conservative Senate 12 years Conservative House 6 years Total Conservative Control Redistribution of Wealth to top 20%. Folk! It is downhill slide for Middle Class. FACTS---numbers rounded- 1946--1% owned 30% of Total Wealth 1980—20%--a 33% decline due to Estate Tax and High Top Income Tax Rate. thence cometh conservatism 1989-36% 80% Increase in 8 years of Reaganism 1993-47% 2007--20% owned 93% of Total non home Financial Wealth 80% owned equity in homes. Most major corporations are owned by WALL STREET RICH MEN CASINO In 1945, corporations paid 35.4% of federal revenues and 7.4% in 2003 In 2000, 45% of corporations with revenue over 50 million paid no federal tax Five Wall Street Banks own 75% of all Bank Deposits in America. 5. Two own 20%. Think that is not POWER??? FACT CHECK In 8 years of Bush with 6 years of Total Control They (wall street rich) created a Net New Jobs of 31,000(19.000?) per month. Why? That is NET. You take the new jobs created and subtract the ones sent to China, etc 31,000! Wow! 19,000? Bush took over after Clinton had created 237,000 Net New Jobs per month. Reagan took Carter 218,000 net new jobs down to 175,000 per month. Clinton left Bush a spending of 1830 B Per Year. Bush doubled it to 3600 B. Bush inherited a 5700B Debt from Clinton. He took it to 11,500B 20 years of 3 conservative presidents did this horrible thing. Took the Debt of less than 1000B after 200 years and added on 8000B. In 2009 they are spinning big time to blame Obama for huge debt. Conservatives will spend millions to coverup their Big Recession. Much of that 8000B Debt add-on went to WALL STREET GAMBLERS. The people do not know what has happened to them. Shhh! Do not awaken sleeping Democrats. Forbes list of 400 Richest reveals how many became Billionaires via corporate takeovers and Hedge Gambling Right Wingers yell--- Rich Pay most of taxes. Income Taxes!Yes! They have most of the income. From 1997 to 2001 the rich 1% took 24% of total national individual income growth Yet! Conservatives transferred much of taxation from Rich to Middle Class. Reagan elimination of REVENUE SHARING a disaster for Middle Class where taxes were transferred from Rich Income taxes to Middle Class in State and Local Taxes. Was it a Designed Act of taxation transfer by Conservatives. In 2008 the Middle Class paid 30% of nominal Income in Federal-State-Local Taxes. Top 10% paid 30% also. Progressive tax system? Social Security Tax Increase in 1983 was it designed to hit the Middle Class and ease on the rich? Greenspan + Reagan. 6.2% Tax on Middle Class. One earns $50,000 pays 6.2%. Earns $1,000,00 pays 6.4%. Earns $10,000,000 pays 1/10th of 1%. By design to keep rich rich? Was Destruction of S&Ls a deliberate act of wealth transfer from 400 local investors to individual Rich on Wall Street? Key actor Michael Milken became a Multiple Billionaire with income of 550 Million in one year from raiding S&L deposits (plus) for his Rich Corporate Raiders on Wall Street. Raiders like Perelman and Ichan became multiple Billionaires. Sweat of Brow? Ho Ho. Bush I had to borrow 140 Billion on 40 year bonds to pay for the raids on S&L's by Wall Streeters. 140B creates many Billionaires and Millionaires. Depositors money was used by those Corporate Raiders and bankrupted the S&L then the government pay off to depositors by Federal Deposit Insurance created Debt for Middle Class. The Tax Panel estimates that in 2010 the top 1 million with incomes exceeding $500,000 will earn 241 Billion more than 80 Million who will earn under $40,000. Christ, where art thou. RAPE OF MIDDLE CLASS 1980-2007 Same ideology gave us Great Depression now Great Recession. It is not a Depression due to: Democratic Social Safety Nets such as Social Security and Medicare and Unemployment tinsurance Only the uninformed vote to send conservatives to Washington. Some type of Revolt will take place in next decade. Democrats will continue to allow Conservatives with their huge right wing talk shows spreading lies to blame them. Democrats need a national Megaphone informing all the people as to what has been done and how they have been RAPED by a few million RICH on Wall Street who have taken their Wealth. I ask one thing. PROVE ME WRONG. With numbers and facts not usual vile name calling author-Lifeaholic-Workaholic to Lifeaholic success author-unpublished All American Party-How Democrats created a great successful Middle Class and how Conservatives are determined to destroy it

by CLARENCE SWINNEY (not verified) on 02/10/10

$14,000 Billion Surplus

$14,000 Billion Surplus missed NOTE—Numbers are rounded and are not exact. Simplistic. Purpose here is for an Overview. Will be exact in my forthcoming book. No Reagan or Bush Tax Cuts for the very Rich. Today we would have a $14,000B SURPLUS NO DEBT. $14,000 Billion SURPLUS 24 X $750B=$18,000B Revenue missed (1985-2009) 5 X $1700B=$8,500B Revenue missed (2004-2009) Total $26,500 Billion of Revenue missed Debt is close to $12,000B $26,500B of Revenue and we would have no Debt but a $14,000B Surplus Now you know what occurred? HERE IS THE BEEF In 1980 the top 1% owned 20% of Total Financial Wealth In 1989 it was 36%. An 80% Increase via good old Ronnie enrich the rich policies and shaft middle class. Even his David Stockman said his Tax Cut was Trojan Horse to enrich the rich. Bush took over and now 20% own 93% of Total Financial non-home Wealth. Top 2.7% got four times as much of Bush Tax Cuts as bottom 80%. Those are, primarily, Wall Streeter who own our major corporations. During Bush 8 sent 2,300,000 jobs to CHINA. While getting huge bonuses on profits from Gambling.. While closing hundreds of plants in America. While eliminating millions of jobs. While buying our government. The new--Wall Street of America--formerly USA All Aboard! Next Boat to China in 2010 carries all jobs from Hanesbrands Winston-Salem NC jobless thank you Wall Street. p.s. Actually the Surplus would be much more. The ultra rich got most of Income Increase since 1980. A Tax Increase would have gotten us more of it clarence swinney burlington nc