Spending vs. Deficit Reduction is a False Choice
by David Atkins
A part of me dies every time I see supposedly objective journalism that gets basic facts as wrong as this from the New York Times:
Obama Budget Bets Other Concerns Will Trump the Deficit
President Obama will lay out a budget blueprint on Monday that amounts to an election-year bet that a plan for higher taxes on the rich and more spending on popular programs like infrastructure and manufacturing will trump concerns over the deficit.
Ahem:
Let’s leave aside the fact that there is no contradiction at all between deficit reduction and tax increases on the super-wealthy. The notion that those two goals are somehow contradictory is bizarre.
But even the presumption that there’s a discrepancy between popular targeted spending programs and deficit reduction is false. Beyond the initial speculative financial bubble crash that was the immediate cause of the downturn, the continued economic malaise is caused by a lack of demand. That lack of demand stifles growth, jobs, and investment, which in turn leads to less tax revenue and greater strains on the social safety net. Obviously, there comes a point at which the spending ceases to be beneficial and merely adds to the deficit, but demand is so weak in the American economy that we’re nowhere near that point yet, as Paul Krugman is wont to observe.
Take another look at that graph. A huge part of the deficit is due to the economic downturn alone. The Bush tax cuts account for the lion’s share of the rest, while the wars in Iraq and Afghanistan are the icing on the cake.
Returning the wealthiest Americans to Clinton-era tax rates while boosting demand to fuel eocnomic recovery isn’t at odds with reducing the deficit. That’s how we’ll reduce the deficit.
That journalists at the supposedly “liberal” New York Times have so internalized false conservative memes on macroeconomics that they present an Alice-in-Wonderland case against targeted taxes and spending as matter-of-fact apathy about the deficit is nothing short of terrifying.
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