October 25, 2012
The Washington Post has long given up any pretense of objectivity in its news section on issues like Social Security, Medicare and the budget deficit. It routinely hypes deficit as a problem in a way that is inconsistent with the data and make assertions about the cost trajectory of Social Security and Medicare that are at least misleading, if not actually wrong.
In keeping with this pattern, the Post began an article reporting on an interview that President Obama had with the Des Moines Register by referring to the “the nation’s intractable budget problems.” Of course the nation’s budget problems are not “intractable.” The large deficits came about entirely because of the economic plunge following the collapse of the housing bubble as fans of Congressional Budget Office projections well know.
Source: Congressional Budget Office.
As can be seen the deficits were relatively modest until the economy collapsed in 2008 and were projected to remain modest well into the future. The debt to GDP ratio had been falling, which means deficits of this size could be sustained forever. This was true even if the Bush tax cuts did not expire at the end of 2010, although the budget was actually projected to turn to surplus in fiscal 2012 if the tax cuts did expire. It is also worth noting that the interest burden as a percent of GDP, at 1.6 percent, is near a post-war low, so the deficit is not currently presenting a problem to the economy in any obvious way.
The evidence is quite clear, the problem is a collapsed economy which has led to tens of millions of people being unemployed or underemployed. This has also led to much higher deficits. Rather than being a problem, these deficits are supporting demand right now, since there is no private sector demand to replace the $1.2 trillion in annual demand that was generated by the housing bubble.
Those advocating lower deficits in the current economic environment are advocating slower growth and higher unemployment. The fact that these people enjoy considerable political power and access to the media can be viewed as an intractable problem.
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