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Thursday, October 27, 2016

The deficit is already shrinking rapidly, and Social Security won’t add much to it anyway.

The reason President Obama’s proposal to cut Social Security benefits is tragic is that it is simply not necessary. His plan is to use a different method to compute how much benefits are raised to offset inflation. But Social Security will add very little to federal spending over the next 30 to 40 years. As a proportion of national income (GDP), It will rise from 5 percent to 6 percent. At the same time, retirees are set to get much less money from their pensions because so many were forced to depend on 401(k)s and defined contribution plans rather than traditional pensions with defined benefits.

But a new report from Goldman Sachs economists puts the Obama decision in an even harsher light. The federal deficit is coming down rapidly on its own. In a piece entitled, “The Rapidly Shrinking Federal Deficit,” Goldman notes that the deficit averaged 4.5 percent of GDP in the first calendar quarter, compared to 10.1 percent in fiscal year 2009. The reasons are faster economic growth, higher taxes, and reduced government spending.

More importantly, Goldman thinks the deficit will fall to 3 percent or so over the next two years, mostly because business and households will begin spending again. They think so-called deleveraging—that is, paying back debt—is coming to an end.

And here’s some additional good news: deglobalization! McKinsey reports that deglobalization has plagued the world since the financial crisis. The cross-border flows of capital are down sharply. The good news, McKinsey admits, is that they probably should be. Such border flows were often hot capital, financing speculation more than long-term investment. Now foreign direct investment, usually stable investment in business, is a much higher proportion of capital flows.

And financial deepening—the proportion of GDP that is in debt and stocks–is also down. What sticks out like a sore thumb is that the financial deepening of the preceding two and a half decades—which was huge–went far less to households and business than is to be expected. Even McKinsey says this is astonishing, because what else is finance supposed to do but supply funds to individuals and businesses? Instead, an enormous proportion went to finance itself—that is, financial firms borrowed at dramatically higher rates. And an awful lot of that must have gone into speculative activities, especially highly risky mortgage securities. From my point of view, this financialization was the disease created by the triumphalism of globalization. Globalization, to be sure, had benefits, but they were overshadowed by the financial instability of capital flows, which grew enormously since Ronald Reagan was president.

McKinsey warns that this deglobalization of finance could go too far. As noted, cross-border flows, especially long-term investments, can be highly benefical for world growth. But for me, it is now welcome.

Roosevelt Institute Senior Fellow Jeff Madrick is the Director of the Roosevelt Institute’s Rediscovering Government initiative and author of Age of Greed.

Cross-posted from Rediscovering Government

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

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Copyright 2013 The National Memo
  • Michael Kollmorgen

    WE did not elect Obama to even try to mess with or cut SS or any of SS Programs! All of these program are of vested interest, monies that we put into it.

    Maybe we should start considering Sequestering him.

    Obama, get off your ass and start fighting for what we elected you to do; fight for our progressive liberal agenda(s). Or, we the people just might decide to make you totally null and void during your current term of President.

  • rustacus21

    If this comes as a surprise to ANYONE in America – much less the Prez & Dems who are bent into contortions trying to ‘appease’ conservatives – U (collectively) HAVE NOT been paying attention the last 20 + years! I’m finally starting to realize why Big Eddie (Schultz) was ‘ousted’ from the MSNBC lineup, as he’s been hammering gutless, weak-kneed Dem’s, who can’t tell conservatives ‘NO’ – especially when they should be telling them ‘HELL NO!!!’ on everything they whine about in attempting cutting back civil society protections for the Middle Class & poor. Whatever the problem is w/Democrats – why they’re obsessed w/caving to conservative ideology & demands, instead of standing up & advocating & BATTLING for the only ideology (Liberal/Progressive) that has made America work for ALL American’s, mayB recall & the ’14 MidTerms will fix!!! Still we wait for conservatives to NAME their ONE contribution to our Democracy or the republic overall?! Social Security was originally designed to do what – b/c of what? The Voting Rights Act? The ruling in Brown v. Board of Education? What was the Civil War for & who won? The sacrifices given by whom, overall? What the HECK was the Revolution about, if 237 years later, knuckleheaded Americans would even DARE TRY giving our FREEDOMS, LIBERTIES, EQUALITIES, LAW & ORDER imperatives & PROTECTIONS BACK to the same conservative TYRANTS who forced the citizenry to REBEL in the 1st place? This isn’t about COMPROMISE!!! This is about REPENTANCE for the SINS (by ignorant Americans!) of allowing conservatives to AGAIN try & DESTROY American Democracy, when we KNEW it was what they would do in the 1st place! 2 Depressions & a(n) crushing recession (in the 1980’s) inside of 85 years pretty obviously says that the economic slavery we’re at the precipice of, is replication of the realities of 1775, in case anyone needs history lessons!!! How low must we be PUSHED B4 we realize THIS!!! There is no negotiations to have! There is ONLY Democracy or there IS NOT! PERIOD!!! Why can’t the Senate Majority neutralize filibuster abuse NOW? Why must we wait for more carnage & horror B4 we BAN assault weapons AGAIN (for a 2nd time since 1994)? Do we really have to see the economy dive again B4 the Prez & Dems in Congress REALIZE JOBS not AUSTERITY is the BEST initiative for PROSPERITY for the poor, the rich & every 1 in between?! The poor, Middle Class, seniors, retiree’s ALL were NOT responsible for the trillions lost, stolen & WASTED during 2001-current & I we, the PEOPLE REJECT making US pay the price for conservative CRIMINALITY since 2001!!!!!!!!!!!!!!!

    • Michael Kollmorgen

      Any gain that this society has struggled with hasn’t been from the Republican side of the isle. All of our advances has been due to the Democratic Party advancing many of our things we take for granted today.

      Believe me, if the same situation existed 100 years ago as it is today, there would be mass demonstrations, and riots in the street.

      During the Depression, Communism was a major threat to our society as well as Nazism. IF FDR hadn’t of brought us out of that depression, many believe by bringing us into WW2, we would most likely be a Communist country. If not that, we would be flying the Nazi Flag here today.

      OHHH, how easily America tends to deliberately forget our past history. And, how easily we tend to repeat the same mistakes that we never learned a dam thing from.

  • montanabill

    The deficit has a ‘projected’ shrink, simply because they are ‘projecting’ new revenues from the substantially increased taxes, not only on the rich, but also on the middle class. Oh, the taxes on the middle class are not as obvious as those passed for the top earners, but if anyone in the middle class is dumb enough to think that they only got a 2% increase, it won’t be long before they will join the lower class and not have to pay any taxes.

    In any case, the ‘shrink’ will be short lived. As more and more people continue to drop out of the work force, businesses cut back or fail because of Obamacare, and taxes significantly reduce what little business expansion might be left, government revenues will fall, government welfare, in all its guises, will grow and the deficit will continue to grow until our total national debt simply results in a disaster far worse for our people than the Great Depression ever was.