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Saturday, October 22, 2016

Have We Been Looking At Deficit Reduction The Wrong Way?

Jared Bernstein–formerly a top economic advisor to Vice President Joe Biden, and a key figure in the Obama Administration’s attempt to get the economy back on track–has published a fascinating response to Ezra Klein’s analysis of the administration’s response to the Great Recession.

Bernstein closes with a poignant critique of official Washington’s irrational, and destructive, fear of deficit spending:

“The main question we want to ask…is not ‘is the deficit getting too large’ but ‘is it large enough?’ As long as the economy is operating under capacity and the spending is temporary—think Recovery Act, not Bush tax cuts—to do too little in the name of deficits, bond vigilantes, and Treasury rates (which are now at historic lows), is to condemn millions to unnecessary unemployment, declining living standards, and even, in the case of the young, permanent scarring.

And, yes, for many in Congress it’s a tactic—they don’t care about the deficit other than its use a cudgel against doing something to help someone other than their funders. But as long as we fail to understand the dynamics of deficits—their need to expand as much as necessary in bad times and contract in good ones—we will never be able to meet the market failures we face now or in the future.”

According to Bernstein, we have been looking at our national debt in the wrong way. Although debt reduction has emerged as one of the most effective talking points in our political discourse–and as of June, 59 percent of Americans wanted the government to make debt reduction its primary concern, even if it meant slowing down the economic recovery–Bernstein suggests that we should be going in the exact opposite direction.

The divide between Bernstein’s opinion and the public’s will is just another clear example in a long list of signs that our most commonly used political talking points have little to do with economic reality.

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  • edwinlee58

    I agree with Bernstein that increased spending would stimulate the economy and reduce the deficit over the short run. However, it would do nothing to stop our economy from sinking into third world status because it doesn’t fix the underlying causes. There are three primary causes, which have leaked wealth and jobs for roughly 40 years: 1) We’ve dismantled our economic borders allowing money, jobs, technology and information to freely flow to the rest of the world; particularly to regions that have cheap labor,no controls on pollution and with governments, like China, which tightly regulate their economic borders. 2) Stagnant pools of wealth greater than $3 trillion have collected under individuals and international corporations ( ironically they are sheltered by strict economic borders, enforced by governments and the rule of law), 3)Parasitic entitlements for individuals and corporations established by negotiated contracts, but not earned by the beneficiaries or paid for by the parties who made the commitments. Medicare, Social Security, Guaranteed Benefits pensions, and tax breaks for Big Oil and bloated compensations for top executives are just a few of these parasitic entitlements.

    Neither citizens or politicians are willing to dispassionatly examine and correct these structural issues. We prefer anger and blame that enables each of us to keep doing our thing while expecting others to make sacrifices.