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FOR IMMEDIATE RELEASE
February 16, 2010
9:40 AM

CONTACT: CEPR

Alan Barber, (202) 293-5380 x115

Deficit Scaremongering Undermining Economic Recovery

Reining in Health Care Costs of Far Greater Consequence in Long-Term Budget Picture

WASHINGTON - February 16 - The Great Recession has left tens of millions of families facing unemployment, underemployment and the possibility of losing their home. However, concerns over the deficit threaten to derail efforts to turn around the economy and spur employment. A new report from the Center for Economic and Policy Research (CEPR) corrects many of the misperceptions about the deficit that have brought the issue to the center of national debate.

"There would be no short-term or long-term benefit from reducing the current deficit," said Dean Baker, co-director of CEPR and the author of the report. "If the budget deficit were smaller we would see higher levels of unemployment."

The report, "The Budget Deficit Scare Story and the Great Recession," shows that the most-cited claims of leading deficit hawks are driven by unfounded fears and misrepresentations of basic economic relationships.

One such example cited in the report is that the worsening of both the short- and long-term deficit picture was driven not by a spendthrift Congress, but almost entirely by the economic crisis brought on by the collapse of the housing bubble. The small portion of the budget deterioration driven by legislative actions was primarily the result of increased defense spending associated with the wars in Afghanistan and Iraq.

As well, the study demonstrates that the true long-term deficit problem is skyrocketing health care costs and any meaningful attempt to deal with deficits would start with reining in health care.

"The nation does not really have a long-term deficit problem," Baker writes. "What we have is a long-term health care problem."

The study also refutes the notion that the budget deficit is the source of concern over the threat of foreign government ownership of U.S. debt. If budget hawks were truly worried over the prospect of foreign ownership of debt, they would focus on the trade deficit. Given that the trade deficit is driven by a high dollar, this should be a focus of their attention, but the people raising this concern almost never discuss the over-valued dollar.

These misrepresentations and others are more than diversionary arguments of no consequence. In a time when cogent, effective policies are needed to address the suffering stemming from the economic downturn, the tactics of the deficit hawks distract the public and policy makers from the policies necessary to bring the economy back to full employment.

The full report can be found here.

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The Center for Economic and Policy Research (CEPR) was established in 1999 to promote democratic debate on the most important economic and social issues that affect people's lives. In order for citizens to effectively exercise their voices in a democracy, they should be informed about the problems and choices that they face. CEPR is committed to presenting issues in an accurate and understandable manner, so that the public is better prepared to choose among the various policy options.



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