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So, I Guess the Federal Budget Deficit Isn’t All that Bad After All

So, I Guess the Federal Budget Deficit Isn’t All that Bad After All

On Feb. 1, President Barack Obama unveiled his 2011 budget proposal. While conservative pundits reacted with predictable, yet preposterous, wailing about the federal budget deficit, the short-term U.S. budget outlook is just fine. If anything, Obama’s budget doesn’t dedicate nearly enough funding to create jobs.

As John Nichols notes for The Nation, Obama budgets just $100 billion for jobs in fiscal 2011. The amount is nowhere near enough to make a significant dent in the epic unemployment rate. The government’s fiscal 2011 calendar begins in October of this year, and by that time, the stimulus package Obama pushed through in February of 2009 will have been exhausted, leaving the labor market without serious support from the federal government.

The free market isn’t going to take care of the jobs shortage on its own. While the unemployment rate fell from 10.0% to 9.7% during January, the “improvement” is really just a statistical mirage—the economy actually lost 20,000 jobs during the month.

If we had pushed through a bigger, or as Nichols notes, a better stimulus package in the first place, we might not be facing the same situation today. Part of the problem is that Obama redirected about $326 billion of the $787 billion bill away from direct job-creation efforts toward a set of tax cuts intended to appease Republican senators.

Tax cuts do not equal job growth

But as Art Levine emphasizes for Working In These Times, the $100 billion that Obama sets aside for job creation in 2011 appears once again to take the form of relatively inefficient tax cuts. Giving money to businesses, even small businesses, isn’t really going to make them start hiring unless there’s a real demand for what those businesses produce. When everybody is broke and out of work, that demand doesn’t exist, since people don’t have money to spend.

If the government wants to create jobs, it has to do it directly by hiring people to help rebuild the nation’s infrastructure through institutions such as schools, transportation and green energy. Just as important, the federal government can provide funding to state and local governments to make sure that jobs that serve our communities—teachers, cops, etc.—don’t disappear.

Sure, these things cost money. But the short-term budget deficit is nowhere near the current deficits of many European nations, or the deficits the U.S. ran during World War II. The budget deficit only matters to economics insofar as it raises concerns that the government will not be able to pay back its debt. But despite caterwauling from the right, investors just aren’t worried about a U.S. debt default. If they were, they would demand very high interest rates on Treasury bonds, and Treasury rates are at their lowest levels in decades.

If policymakers want to keep the jobs bill from running the deficit higher, they could always raise taxes on somebody. Financial speculation on Wall Street seems like a good place to start, but just about any tax on the wealthy would work fine. Rich people don’t get hammered by recessions. After all, they’re rich.

Overzealous tax cuts hurt communities

In a piece for AlterNet, David Sirota details the budgetary disaster that has already befallen the city of Colorado Springs, CO., a conservative enclave where anti-tax extremists have managed to slash just about every basic government service imaginable. Rather than impose some modest taxes on the wealthy, Colorado Springs is going to lay off cops and firefighters, let its parks go to waste, shut-down rec centers and museums and even allow its streetlights to go out. This is the Republican plan for fiscal responsibility.

But several state governments recognize that shredding the social fabric just isn’t a good idea. In Oregon, Sirota notes, voters just approved two ballot initiatives to raise taxes on corporations and wealthy individuals rather than allow their state to slide into social decay.

How to deal with a deficit

There are two ways to increase a budget deficit: You can either increase spending, or cut taxes. If you want to decrease the budget deficit, you can either cut spending, or raise taxes. As Kevin Drum notes for Mother Jones, Republicans both increased spending and cut taxes during the George W. Bush presidency. Now those same so-called fiscal conservatives are feigning outrage over the prospect of the government actually spending some money to put people back to work. These are not serious economic arguments—conservative politicians are just hoping to gut progressive policy priorities.

But while the attacks don’t hold any water, conservative media outlets are latching on to them, and Obama isn’t pushing back.

What caused the current crisis

Writing for The American ProspectRobert Kuttner notes Obama’s recent support for a proposal from right-wing deficit hawks to create a commission to evaluate the causes of our so-called fiscal crisis. But we already know what put us in the current fiscal situation: Rising health care costs, a brutal recession, and the Bush era. The commission is being pushed by radical conservatives for a reason—it’s part of an effort to gut Social Security. It’s bad economics, bad public policy and it badly misreads the real source of public discontent. Kuttner explains:

“Public concern about deficits is really a proxy for broader unease that government is not delivering enough practical help . . . . The president should be helping citizens sort this out, not caving in to the fear-mongers.”

Fortunately, as Steve Benen notes for The Washington Monthly, Senate leaders appear committed to passing at least some kind of legislation to help put people back to work.

Whatever right-wing pundits say, the U.S. fiscal crisis remains a totally theoretical problem. Someday, if the U.S. budget does not come down, it is conceivable that investors would be reluctant to purchase U.S. debt. For now, that is simply not the case. But the crisis in the job market is very real and requires direct action. Put simply, the deficit is no excuse for inaction.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. This is a project of The Media Consortium, a network of leading independent media outlets.

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photo credit: AMagill via flickr
By Zach Carter, Media Consortium Blogger

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49 comments

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1:27AM PST on Feb 27, 2011

Keep dreaming - New disturbing information about taxes, programs being cut and what tax break could be paying for them.

http://tinyurl.com/4ldelsv

8:38PM PDT on Oct 14, 2010

ok

11:35AM PST on Feb 16, 2010

thank you

8:27PM PST on Feb 15, 2010

December 23, 1913 was a very dark day for this young country.

2:34PM PST on Feb 12, 2010

"The president should be helping citizens sort this out, not caving in to the fear-mongers.” It is sad to see Obama falling for this fear mongering. I thought he knew better but I know it is hard when that is all you are surrounded by. Still we need someone that can deflect that even when surrounded by it. Anything ruled by fear is guaranteed to fail.

1:16AM PST on Feb 12, 2010

Nicely said, Patricia. However few seem to have the guts to say that the billions of dollars being expended on the utterly futile, insane antics of your mindless, moronic, murderous military is a crippling burden on your national economy. Were you to stop trying to dominate the world, to attempt to impose your very dubious way of life upon others, you would be able to afford universal healthcare, a viable education system to combat your widespread ignorance, a better infrastructure with national construction undertakings giving full employment. Why not try it?

10:27PM PST on Feb 11, 2010

Chad, your comments on the Great Depression are incorrect. It was caused by lax regulation of the financial industry by Republican administrations throughout the 1920's (Roaring '20's) culminating in the 1929 crash (sound familiar?) Roosevelt's "ineffective" policies of providing public jobs provided millions of people with a living when there were no other jobs to be had from the wonderful private sector. These public jobs built roads, schools, libraries and work on parks and forests, among other things. A much better approach than giving tax breaks to companies in the hopes that they will create jobs. The only criticism of this approach is that it did not go far enough and provide more public jobs.
The liberal Roosevelt enacted progressive legislation like minimum wage, the 8 hour day, paid sick leave and vacation pay; policies that most people value but that conservatives think are "ineffective."
The decades following Roosevelt experienced a great enlargement of the middle class, and one of the most prosperous periods in the nation's history ("50's and '60's). Tax rates on the rich and corporations were extremely high and guaranteed a much more equable distribution of wealth.
In contrast the last 30 years of conservative rule have seen a dramatic decline of the middle class as wages stagnate or are cut, and a corresponding explosive growth in the wealth of the already wealthy, a dramatic increase in wealth inequality, and explosive growth of both personal and fede

9:13PM PST on Feb 11, 2010

These numbers have been genuinely incomprehensible, and that has to be a compelling tipping point, so to speak. How long can an economic engine run without enough fuel? We so urgently need to up the education effort we make.

8:50PM PST on Feb 11, 2010

Socialism isn't so bad either. Maybe we all need to become more equal in the fact that we all need a certain amount of money for food, rent/housing, travel, communication, fun. We all have these same needs, why not address it and help this country become more equal, less hourding of money or resources and just share what we all have, we would all benefit, and I guess really the reason that hasn't happened is because of fear, but mainly, for someone to give, they make a decision, a choice. We, as humans have more than enough, we just need the reason to share and extend that hand or whatever we have, so that everyone can be here, and be happy. That's what socialism is to me. It doesn't have to be a horrible thing. It could be awesome.

10:13AM PST on Feb 11, 2010

Thank you..I come from a conservative family, and all I hear from them is how much "Obama is going to ruin the economy" ( my dad thinks that Obama is an evil "Socialist"!). Yeah, I come from an awesome family, right?

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