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The Deficit Commission Misses the Point

by David Doody


Tags: Robert Reich, Kevin Drum, Deficit Commission Report, politics, Mother Jones, David Doody,

 Graph Federal Outlays 

Revenues and Spending Exluding Interest, by Category, as a Percentage of Gross Domestic Product Under [Congressional Budgest Office's] Long-Term Budget Scenario.*  

Economist Robert Reich and Mother Jones blogger Kevin Drum agree on the proposal put forth by co-chairmen Erskine Bowles and Alan Simpson last week to reduce the federal budget deficit. They agree that they disagree with it, that is. Or they at least disagree with where the report places its emphasis.

According to Reich:

At their best, presidential commissions focus the public’s attention—not only on the right solution to some important problem but also on the right problem. Sadly, this preliminary report does neither.

If the report misses the mark, where then should the commission be looking? “[A]ny serious long-term deficit plan will spend about 1% of its time on the discretionary budget, 1% on Social Security, and 98% on healthcare,” Drum writes.

Any proposal that doesn't maintain approximately that ratio shouldn't be considered serious. The Simpson-Bowles plan, conversely, goes into loving detail about cuts to the discretionary budget and Social Security but turns suddenly vague and cramped when it gets to Medicare. That's not serious.

Reich agrees, with slightly different percentages:

As to solution, the report mentions but doesn’t emphasize the biggest driver of future deficits  – the relentless rise in health-care costs coupled with the pending corrosion of 77 million boomer bodies. This is 70 percent of the problem, but it gets about 3 percent of the space in the draft.

And, while the report suffers from the lack of attention it gives to health-care costs, it suffers a more fundamental flaw, according the Reich: The “unquestioned assumption that America’s biggest economic challenge is to reduce the federal budget deficit.”

This is Reich’s drum, and he beats it often. Calling it “budget-deficit mania,” he fears that too much attention given to reducing the deficit while still very much feeling the effects of the Great Recession could lead a slow, but steady climb out of that recession right off a cliff, ending in an economic flatline. Pointing out that in the past even a national debt of 120 percent of GDP has not been a lasting issue because the U.S. economy regained strength, Reich sees government as “the only remaining booster rocket” for the economy, since people aren’t spending and companies aren’t hiring. To focus too much on deficit reduction at the expense of investments that will improve the country will have dangerous long-term consequences.

Reich concludes:

The preliminary report of the President’s deficit commission doesn’t help. It’s another example of budget-deficit mania generating more heat than light.

While Drum dismisses the thing on its face:

Bottom line: this document isn't really aimed at deficit reduction. It's aimed at keeping government small. There's nothing wrong with that if you're a conservative think tank and that's what you're dedicated to selling. But it should be called by its right name. This document is a paean to cutting the federal government, not cutting the federal deficit.

Extra: Read a statement signed by more than 300 economists and civic leaders, including Robert Kuttner (a co-founder, along with Robert Reich, of The American Prospect), that fleshes out the job-growth path, as opposed to the deficit-reduction path to recovery.  

*From http://www.cbo.gov/ftpdocs/93xx/doc9385/06-17-LTBO_Testimony.pdf: The alternative fiscal scenario deviates from CBO’s baseline projections even during the next 10 years, incorporating some changes in policy that are widely expected to occur and that policymakers have regularly made in the past. 

Source: Mother Jones, Robert Reich  

Image from the Congressional Budget Office.  

steven
11/24/2010 8:22:38 AM

Excellent Dr. B.!! Actually the USA's military spending accounts for over 60% of the "discretionary" federal budget. We (most anyway) call ourselves a Christian nation and claim the Prince of Peace as our messiah. Yet, as a nation, we are the single largest warmonger on the planet. If we are "serious" about the federal deficit we should put the elephant on much more meager rations.


dr. b.
11/18/2010 10:06:49 AM

Why not focus on the elephant in the room, our spending on a worldwide military presence and two poorly conceived wars? Military spending accounts for over half of our "discretionary" spending. The rest of the world has turned the bulk of their economic muscle away from military competition, instead using resources to foster their economies, leaving us alone in trying to get our way with a gun. Military occupation is not pursuasive, but it it is very effective in fostering anti-American sentiment and fundamentalist extremeism against the occupier.