I wish President
would explain to the nation that the federal budget deficit isn't the nation's major economic problem and deficit reduction shouldn't be our major goal.
Our biggest problem is lack of good jobs and sufficient growth. And our goal must be to revive both.
Deficit reduction leads us in the opposite direction -- away from jobs and growth.
The reason the "
But more jobs and growth will help reduce the deficit. With more jobs and faster growth, the deficit will shrink as a proportion of the overall economy.
Recall the 1990s, when the Clinton administration balanced the budget ahead of the schedule it had set with
Europe offers the same lesson, but in reverse: Its deficits are growing because its austerity policies have caused its economies to contract. Sure, Greece had to pull in its belt. But Britain and Spain were doing fairly well before they began cutting public spending. Now they've pulled so much demand out of their economies that unemployment has risen and tax revenues have dropped.
Policymakers need to understand that when unemployment is high and workplaces are idle, the best way to generate jobs and growth is for the government to spend more, not less. And for taxes to stay low, or become even lower, on the middle class.
By the way, higher taxes on the rich don't slow economic growth, because the rich spend a much smaller portion of their earnings than do the middle class. And they'll continue to spend even if their tax rates rise. They're already taking home a near record share of America's total income and have a record share of total wealth.
Why don't our politicians and media get this? Because an entire deficit-cutting industry has grown up in recent years. It began with Ross Perot's third party in the 1992 election and continued through Peter Peterson's institute and other think tanks funded by Wall Street and big business. It was embraced in the late 1990s and earlier this century by the government-haters in the
As a result, much of official Washington and the media have bought into the narrative that our economic problems stem from an out-of-control budget deficit. They're repeating this hokum even now, when we're staring at a fiscal cliff that illustrates just how dangerous deficit reduction can be.
Deficit mavens routinely warn that unless the deficit is trimmed, we'll fall prey to inflation and rising interest rates. But there's no sign of inflation anywhere. The world is awash in underutilized capacity. As for interest rates, the yield on the 10-year Treasury bill is now lower than it's been in living memory.
In fact, if there was ever a time for America to borrow more in order to put our people back to work repairing our crumbling infrastructure and rebuilding our schools, it's now.
Public investments that spur future job growth and productivity shouldn't even be included in measures of government spending to begin with. They're justifiable as long as the return on those investments -- a more educated and productive workforce, and a more efficient infrastructure, both generating more and better goods and services with fewer scarce resources -- is higher than the cost.
In fact, we'd be nuts not to make these investments under these circumstances. No sane family equates spending on vacations with investing in their kids' education. Yet that's what we do in our federal budget.
Finally, the biggest driver of future deficits is the rising cost of health care -- that same phenomenon that's causing headaches for individuals, families and businesses. America's wildly inefficient, balkanized health-care system is already taking a far larger share of the total economy than that of every other rich nation (18 percent), and yet our health outcomes are worse.
So instead of fighting over how to cut the budget deficit, we should be having a constructive conversation about how to use government's bargaining power through Medicare and Medicaid to hold down health care costs. And then use the
So can we please stop obsessing about future budget deficits? They're distracting our attention from what we should be obsessing about -- regaining jobs and growth, and making our health care system work.