A Choice Not A Crisis
by digby
There were those who knew it was a set-up at the time — you didn’t have to be a genius to see the pattern. For decades the Republicans demagogued debt and demonized the “tax and spend” liberals even as they borrowed and spent the country into oblivion themselves. The Democrats (so ashamed and embarrassed by the mean names they were called that they even changed the name of their ideology in a desperate attempt to “re-brand”) tried to prove that they were indeed as frugal and fiscally responsible as any good Republican by cutting services to the poor, balancing the budget and leaving a surplus. Naturally, the Republicans took power at that moment and immediately gave the savings to the wealthy and ran up unprecedented debt with tax cuts and wars until the economy was a burning wreck. The Democrats were hired to clean up the mess and suddenly everyone insisted that deficits were a priority and that average people would have to sacrifice their financial security to put things right.
And so it goes. The party that allegedly believes in fiscal responsibility is reckless and profligate and the party that allegedly believes in taxing and spending is perpetually paying the price. Either way, the rich always seem to get a bigger and bigger share of the wealth and the people are less and less financially secure.
If you didn’t know better, you’d think the whole thing was rigged, wouldn’t you?
Here it is, all laid out, plain as day in the Washington Post:
In January 2001, with the budget balanced and clear sailing ahead, the Congressional Budget Office forecast ever-larger annual surpluses indefinitely. The outlook was so rosy, the CBO said, that Washington would have enough money by the end of the decade to pay off everything it owed.
Voices of caution were swept aside in the rush to take advantage of the apparent bounty. Political leaders chose to cut taxes, jack up spending and, for the first time in U.S. history, wage two wars solely with borrowed funds. “In the end, the floodgates opened,” said former senator Pete Domenici (R-N.M.), who chaired the Senate Budget Committee when the first tax-cut bill hit Capitol Hill in early 2001.
Now, instead of tending a nest egg of more than $2 trillion, the federal government expects to owe more than $10 trillion to outside investors by the end of this year. The national debt is larger, as a percentage of the economy, than at any time in U.S. history except for the period shortly after World War II.
Polls show that a large majority of Americans blame wasteful or unnecessary federal programs for the nation’s budget problems. But routine increases in defense and domestic spending account for only about 15 percent of the financial deterioration, according to a new analysis of CBO data.
The biggest culprit, by far, has been an erosion of tax revenue triggered largely by two recessions and multiple rounds of tax cuts. Together, the economy and the tax bills enacted under former president George W. Bush, and to a lesser extent by President Obama, wiped out $6.3 trillion in anticipated revenue. That’s nearly half of the $12.7 trillion swing from projected surpluses to real debt. Federal tax collections now stand at their lowest level as a percentage of the economy in 60 years.
Big-ticket spending initiated by the Bush administration accounts for 12 percent of the shift. The Iraq and Afghanistan wars have added $1.3 trillion in new borrowing. A new prescription drug benefit for Medicare recipients contributed another $272 billion. The Troubled Assets Relief Program bank bailout, which infuriated voters and led to the defeat of several legislators in 2010, added just $16 billion — and TARP may eventually cost nothing as financial institutions repay the Treasury.
Obama’s 2009 economic stimulus, a favorite target of Republicans who blame Democrats for the mounting debt, has added $719 billion — 6 percent of the total shift, according to the new analysis of CBO data by the nonprofit Pew Fiscal Analysis Initiative. All told, Obama-era choices account for about $1.7 trillion in new debt, according to a separate Washington Post analysis of CBO data over the past decade. Bush-era policies, meanwhile, account for more than $7 trillion and are a major contributor to the trillion-dollar annual budget deficits that are dominating the political debate.
I’ll never forget the wise Oracle of Greenspan talking about the surpluses in 2001.I knew that if this didn’t tip people off to the “deficit” scam, nothing would:
Greenspan went to the Hill on Thursday to testify before the Senate Budget Committee with Washington and Wall Street listening not for clues about next Tuesday’s FOMC meeting — “I want to emphasize that I speak for myself and not necessarily for the Federal Reserve,” Greenspan reminded the senators at the start — but for Father Greenback’s word on whether or not Bush’s $1.3 trillion tax cut is a good idea.
What Bush got was a relatively hearty endorsement along with Greenspan’s terms. Because the Fed chairman, it seems, has not only accepted the existence of the ballooning budget surpluses — fueled, he said, by the increases in productivity growth and taxable incomes that have changed the fiscal landscape — but has begun to wonder if debt reduction is actually happening too fast.
Not that a shrinking federal debt doesn’t remain a good thing. “The rapid capital deepening that has occurred in the U.S. economy in recent years is a testament to those benefits.” (That’s Greenspan for “I told you so” after corralling Clinton into that 1993 deficit reduction plan.) But, the Fed head said, “the most recent projections, granted their tentativeness, nonetheless make clear that the highly desirable goal of paying off the federal debt is in reach before the end of the decade.”
And that could be a bad thing.
Running surpluses without a debt, Greenspan warned, would result in the “longer-term fiscal policy issue” of a government paying off its debt, particularly long-term Treasury bonds, before the bonds mature — costing it extra money by buying back those securities from private investors before they mature. Which is very expensive — better to buy back only matured bonds, which won’t be possible until at least 2011.
Now, we know how Greenspan feels about reducing surpluses via additional spending — he doesn’t like it. And that leaves tax cuts, which by halfway through the speech were an integral part of a budget strategy “that is consistent with a preemptive smoothing of the glide path to zero federal debt” and aimed at “making the on-budget surplus economically inconsequential when the debt is effectively paid off.”
Uh huh. They made very sure that wouldn’t happen.
It’s all working out great. Democrats are now voting for tax cuts for billionaires and everyone’s on the same page about slashing spending — it’s just a matter of what to cut. And when the people’s programs have been degraded as much as possible and the economy continues to be anemic at best, the Democrats will bear the burden of the public discontent, allowing the Republicans to once again take charge and pillage the government coffers and the rest of the country’s wealth once again. The circle of life…
This rising and falling deficit hysteria has been a Wall Street tool for decades now, used to manipulate American politics whenever it’s convenient. Greenspan’s arguments proved just how transparently self-serving this whole issue is.
Update: Dean Baker lays out the reasons why “surpluses” are no more real than “deficits.”