Keeping Fear Alive: The Deficit Hawks Push Their Agenda
from Dean Baker
The deficit hawks must believe that they are in the home stretch of their drive to cut Social Security and Medicare benefits since they seem to be pulling out all the stops. The attack on Social Security and Medicare is heating up with the opponents of these programs going the route of straight up xenophobia and racism.
The latest shot from the deficit hawks is an ad sponsored by the Citizens Against Government Waste. This ad is apparently being widely shown on TV in addition to being available over the web. It shows a classroom in the year 2030 in which a group of Chinese students are hearing from their teacher about the reasons that great countries decline. Their list is the Roman Empire, the British Empire and the United States.
The teacher explains that all these great empires forgot the principles that made them great. The teacher tells the students that the United States tried to spend and tax its way out of a Great Recession, that the government took over health care and major industries. The teacher then says that because the U.S. built up huge debts “they now work for us,” prompting laughter from the students.
This is not the first time that opponents of Social Security and Medicare have appealed to xenophobia and racism. The China threat is a common refrain in much of their literature. But this ad does take this despicable tactic to new heights.
Just in case it is not clear to all readers, the amount that United States owes to China and other foreign countries is determined by the trade deficit not the budget deficit. So the connection makes no sense at the most basic level. Cutting the budget deficit will not reduce the amount that the United States owes China if the trade deficit remains the same.
The trade deficit in turn is the result of an over-valued dollar. A high dollar (“strong dollar” for those macho types) makes imports cheap. This causes us to buy more imports. A high dollar also makes our exports more expensive so foreigners will buy less of our exports. High imports and low exports are the causes of a trade deficit.
This means that if anyone is upset about the extent to which China or other foreign countries are buying up U.S. debt and other American assets then they should be yelling about the over-valued dollar. Blaming the budget deficit for this borrowing is just an effort to use xenophobia and racism to advance an argument that cannot stand on its merits.
The merits of the argument implicit in the ad do not pass the laugh test. The borrowing to finance the stimulus creates no debt burden since it has largely come from the Federal Reserve Board. This means that the governments sells bonds to the Fed, which in turns refunds the interest it receives back to the Treasury. Last year the Fed refunded $77 billion to the Treasury, almost 40 percent of the government’s net interest burden.
The point is that we have no short-term deficit problem. If the budget deficit was smaller we would have higher unemployment. How does having their parents lose their jobs help our kids?
Over the longer term the country is projected to face a deficit problem only because of its broken health care system. If per person health care costs in the United States were comparable to costs in any other wealthy country, the United States would be looking at huge budget surpluses in the distant future, not deficits.
This is why honest people talk about ways to fix the health care system. The rest produce racist ads about exploding deficits.
See article on original website
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of False Profits: Recovering from the Bubble Economy. He also has a blog, “Beat the Press,” where he discusses the media’s coverage of economic issues.
Economists often forget the other side of the ledger: The productive system.
They tend to focus on the IOUs that are issued in order to facilitate production and consumption.
During the last number of years those IOUs have been used predominantly to finance consumption rather than production, which has been transferred to the sweatshops of China and elsewhere.
Because the US dollar has been manipulated into the position of a world currency,
Americans have fallen into the habit of believing the printing presses can solve all their financial problems. There is a rude awakening ahead:
It is going to need to be “rumps up again” in order to fix the problems.
Dean Baker, Wake Up!
Charlie Rose Show Forum
http://www.charlierose.com/view/interview/11263#comment_75903
JohnGelles informs us on 10/28/2010 08:41 AM:
To those who see America 2010 as Germany 1923~
The risk of American decline and global disarray today and the decade
ahead is great. It is happening NOW with a President whose following is
fractured and whose nation has forgotten the principles of Functional
Finance that must be recalled from WW II to retool the arsenal of
democracy for success at home and abroad.
A leaderless global economy will fail to match demand to supply and
supply to the needs of peace and prosperity. It may drift toward wars –
trade wars first, worse wars next.
Voters like rob and others are not really the problem. Obama is the
problem — he lacks the brains and guts to see what’s wrong and fix it.
No one among our current politicians and pundits, except Ben Bernanke,
has spoken up for essential liquidity to prevent loss of critical
demand. Nor have they stressed the power of money to break the back of
deflation and invite production of critical green supply of energy and
the material needs of national and global security.
Zakaria sees automation and thinks robots will not produce our needs
because they would prefer to only take away our jobs. He sees
globalization as aimed at destruction of purchasing power when it is an
engine for creating new money and the supply of things to purchase at
affordable prices. He sees our politics as incapable of doing the right
thing. Mandelbaum, Zakaria and Rose, all see and say the same things.
They are all not up to their jobs.
We in the audience are invited to vent. But most in that audience would
prefer we vent Hoover’s notions not Lerner’s. In a way its slavery all
over again: this time we’re wed to wage slavery. Automaton and
globalization invite the increase of production of all that retirees and
children need and working generations would love to provide. But Sarkozy
in France, Cameron in Britain, and Obama in America are blind to the war
against wage slavery. With Jeff Davis and Robert E Lee in their heads,
they remain loyal to what is familiar and ignorant of the moral issues
involved.
Would that I had them alone and could persuade them to open their eyes.
Nano-tech, biotech, and info-tech revolutions have empowered them to
lead us to the promised land. Why are we so unfortunate to have leaders
who have lost their way and their voice?
Do the followers here deserve the decline they suffer? Some in Wall
Street and banking are still stealing and expect to get away with
ignorance for their own narrow profit forever.
….. ….. Do they forget the fate of Europe and Asia in 1945? The
non-American rich of that day saw their assets burning in every street.
We did not — but we saw the Gold Stars and crippled warriors who paid
for our freedom today and their leaders’ ignorance in the years of the
1930′s depression.
Obama is the worst of all. He alone has the megaphone that if he used it
could end deflation, unemployment and wage slavery overnight.
Dean Baker is not one of the stupids. His messages are the same as my own — his language far better.
Sorry– forgot to ask for emails– this is to do that.