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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
"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.
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.