This blog is about right-wing distortion of evidence and how opinion formation in the US appears to be, as expected, inconsistent and ill-informed. The US President brought down his 2012 Budget yesterday and as expected he promised very large public spending cuts at a time when the US economy cannot afford them. In doing so, the President was bowing to the extremist conservative views that get all the airplay and column inches in the mainstream media in the US. Fox News pumps this extremism out all day every day. But if you sought to understand what the “main street” American actually thought about deficits you might be surprised. The New York Times and CBS sponsor a regular poll and recently they delved into the issue of budget deficits. One right-wing journalist actually had the audacity to use this Poll as a vehicle for her claim that even larger cuts are required to balance the budget. It is easy to show how she misused this public information.
To see the scale of the problem we are dealing with at present in the battle of opinions I refer to an article (syndicated by News Limited’s The Australian newspaper) published February 15, 2011 – Obama will have trouble balancing the budget.
The author is from the Hudson Institute which claims it is a “nonpartisan policy research organization dedicated to innovative research and analysis that promotes global security, prosperity, and freedom”. There is that non-partisan claim again – yes, nonpartisan as long as everyone is neo-liberal. They also claim to challenge “conventional thinking” which I found odd given that there publications are all conventional in thought and not innovative at all.
Anyway, the Hudson Institute is just another of these right-wing outfits in the US which has been lucky enough to get solid funding which allows it to pump out its relentless propaganda that undermines prosperity.
The first thing I said to myself when I saw the title was yes he will but why would he want to.
Apparently, Americans are being implored not to:
… hit the panic button just yet. But keep it handy. Without drastic, and I mean drastic, spending cuts, and tax increases, and continued bond buying by the Federal Reserve board to suppress interest rates on the federal debt, America will not be able to balance its budget.
I venture to note that with drastic spending cuts and tax increases, low interest rates notwithstanding, the US government will also not be able to “balance its budget”. The sheer damage such a fiscal contraction would cause to spending and output in the US would drive the automatic stabilisers (lost tax revenue etc) south and increase the deficit. Don’t these characters ever understand that.
Growth is needed for the deficit to fall. Growth comes with spending. If the private sector doesn’t want to spend in sufficient volumes to promote growth then the public sector has to. Otherwise you get stagnation and large deficits.
But moreover, does this writer actually understand what a balanced government budget would imply for the rest of the economy. Under current circumstances where the external balance is negative and not going to be positive any time soon (if ever), a balanced budget means that the private domestic sector (households and firms) would be in constant deficit overall. That is not my opinion.
It is a statement of fact derived from the System of National Accounts. The rule is simple – government surplus (deficit) equals non-government deficit (surplus). The non-government sector is comprised of the external sector and the private domestic sector. If the government sector is in balance, then the non-government sector is in balance. If the external sector is in deficit (that is, the economy is spending more abroad than it is earning from abroad) then the private domestic sector has to be in deficit (spending more than it is earning) to achieve balance. Dollar for dollar.
What does that imply? A continual private domestic deficit means continued increases in private domestic indebtedness. The financial crisis and subsequent real recession was, in part, caused by private debt reaching unsustainable levels (and proportions). It simply cannot be a sustainable economic strategy for the government to run a balanced budget under existing circumstances – even if it could.
Can any one provide an example of a fully sovereign government which did not issue debt in foreign currencies ever causing a crisis such as we are enduring at present? You will not find such an example.
Also, notice the use of the term America here as if the country owns the budget deficit. This blurs government and households and firms all into some sort of common-status sharing of this accounting balance. Like those stupid debt clocks – every man, woman and child now owes $X where X is some stupendous monetary amount. Well I owe none of the Australian government’s public debt. Not a single cent. I am not liable for it. I don’t have to repay it any time and all I can see are the benefits that the public spending has provided me over my life.
Anyway, the article just sets up the stereotypical political debate between Obama’s “liberal base … [which] … continues to call for more government spending” and the Republicans who first of all wanted to hold government “spending to $US35bn below 2010 levels” but since the November elections want “an additional $US26bn of spending cuts”. Somewhere in there are the extreme conservative congress members who say “We have to go for significantly more” cuts than ever imagined.
I actually don’t hear many US politicians calling for more spending cuts and the President’s 2012 Budget which was brought down yesterday (February 14, 2011) promised:
… more than $1 trillion in deficit reduction – two-thirds of it from cuts — and puts the nation on a path toward fiscal sustainability so that by the middle of the decade, the government will be paying for what it spends and debt will no longer be increasing as a share of the economy.
The President promised to “bring this spending to the lowest level since President Eisenhower sat in the Oval Office”. So it seems the “cutters” (aka vandals) are dominant in the US as they are in the UK and elsewhere. I think the President should monitor the UK Office of National Statistics more closely to see what effect fiscal austerity will have on his nation’s economy.
Anyway, all this talk about the politics driving the deficit reduction lead me to think about what the American people actually think. There was an Bloomberg article (February 14, 2011) – Egypt Protests Hold Lesson for U.S. Wastrels by known right-wing commentator Caroline Baum. The article was anticipating the 2012 US Budget.
Freezing domestic discretionary spending for five years, as Obama proposed in his State of the Union address last month, isn’t going to cut it … The president and Congress are going to have to look elsewhere and dig deeper if they want to put the U.S. on a sound fiscal course.
Please read my (other) suite of blogs – Fiscal sustainability 101 – Part 1 – Fiscal sustainability 101 – Part 2 – Fiscal sustainability 101 – Part 3 – for an alternative view of what a “sound fiscal course” might look like, independent of a mindless obsession with financial ratio.
Baum provides some analysis of a recent New York Times/CBS poll on reducing the deficit which had a sample of 1,036 randomly selected adults throughout the US and was conducted between January 15-18, 2011.
She concludes the following:
The American public is all for smaller government — as long as it doesn’t affect their specific benefit. This conflicted sentiment is borne out in various opinion polls … In a Jan. 15-19 New York Times/CBS poll, 75 percent of the 1,036 randomly selected adults throughout the U.S. said the federal deficit was a very serious problem. Twenty percent said it was somewhat serious …
That was not an accurate depiction of the result. If you consult the Actual Publication you will read that “70% of Americans say the budget deficit is a very serious problem for the country”.
Further the size of the deficit is not an indication of the “size of government”. Knowledge that someone is concerned about the deficit doesn’t allow you to conclude they are in favour of smaller government.
You could get a much larger government by increasing spending and matching it with tax increases but with a smaller overall budget balance.
Baum then looked at the question of what to do about this concern and reported that the poll showed that:
More than half (56 percent) of the respondents said we need to take action immediately …
Which was accurate with 38 per cent thinking that it “(c)an wait for better economic times”.
But then you dig a little further.
Baum didn’t bother putting this concern about the budget deficit into context. The CBS Poll report provides the following analysis:
Although concern about the deficit is widespread, that issue pales in comparison to concerns about the economy and jobs. As they have throughout President Obama’s first two years in office, Americans volunteer the economy and jobs as the most important problem facing the country today — 51% name that. The budget deficit and national debt (6%) and health care (6%) are far behind … 41% of Americans are very concerned that someone in their family will be out of work and looking for a job in the next 12 months, and another 25% are somewhat concerned. These numbers have changed little over the past two years.
So the correct reporting would have been to say people are concerned about budget deficits (even if they do not understand them – more on that later) but this is a trifling concern relative to their fear of unemployment.
What do people know about the budget deficit? The Poll asked them this question:
As you may know, the budget deficit is the shortfall when the amount of money the government spends is more than the amount of money it takes in. How much have you heard or read about the federal government’s current budget deficit — a lot, some, not much, or nothing at all?
The answers were stunning.
- A lot – 33 per cent.
- Some – 38 per cent.
- Not much – 22 per cent.
- Nothing at all – 7 per cent.
So 29 per cent of the sample haven’t heard much and another 38 per cent have only heard “some”. Given the loudness of the conservatives in this debate it is a fair bet that those who have heard “a lot” watch Fox news and so have a completely distorted view of what a budget deficit is.That doesn’t appear to be a very informed group at all. That is not surprising but suggests that the progressive side of politics (if there is one) has some public education to undertake to better inform the public about:
1. What an expenditure system is (aggregate demand) and its link to income generation and employment – remember, spending equals income which, in turn, is the reason firms employ people. Without spending employment drops and unemployment rises.
2. What deficits do in the context of an expenditure system – that is, public demand can (and should) support spending and income generation especially at times when private spending is weak (at present).
3. What a sovereign government is – monopoly issuer of currency without financial constraints – so all the debt debate is sheer hoopla when considered in terms of the operational (as opposed to the political) reality of the monetary system. Political sentiment can change but the operational characteristics of the fiat monetary system are clear and unchanging. The operational characteristics need to be understood and include the primacy of the government in maintaining economic stability, the fact it has no default risk, the fact it can never run out of money, the fact that inflation may arise under certain circumstances.
4. The implications of government debt – the currency issuer can always service and repay its debt. It also doesn’t even have to (and should not) issue debt. Exposing the political aspects of debt issuance and showing there are no financial reasons for such a practice are important tasks. Exposing the myths about foreign purchase of debt is also an important task.
5. Relating a firm understanding of inflation – how it arises and to disabuse people of the notion that deficits equal future inflation. They do not!
6. Relating a firm understanding of how intergenerational legacies are transmitted with a focus on the value that public education and public infrastructure provision is for the future generation and how our kids never pay back our public debt.
7. Relating a firm understanding of the fact that imports are a benefit and exports are a cost.
Baum then reported the responses to where Americans would prefer to see a cut in government spending. 62 per cent wanted spending cuts while 29 per cent wanted tax hikes.
She say that:
Here comes the catch. Everyone knows that to cut spending you have to cut where the spending is. Given a choice of reducing federal outlays for Social Security, Medicare or the military, the budget’s Big Three, guess which one Americans prefer?
Bingo. The military (55 percent). We are all affected, now or in the future, by reductions in retirement and medical benefits for the elderly. Unless you happen to be one of the 2.2 million people who are on active military duty, in the reserves or in the national guard, or are among the 545,500 civilian workers that supported the Defense Department last year, or work for the myriad of defense contractors and parts suppliers, you are less apt to be concerned by cuts in military spending, even if they threaten national security.
The reporting of the results is accurate but I was interested in her interpretation. In fact, the CBS Poll provided further information that might lead to another interpretation.
The Poll said that “More specifically, a majority of Americans choose reducing the number of U.S. troops in Europe and Asia as the area of military spending they would most like to see cut”.
So it might just be that the majority of Americans are more concerned with the failed aggressive (martial) foreign policy and the damage this is causing America’s reputation abroad. They might have finally twigged that the “war on terror” has made the world less safe and hasn’t stamped out Islam.
That is probably a better bet than to suggest the response is driven by selfish cynicism.
Moreover, the Poll said that “Medicare and Social Security make up a significant portion of the nation’s budget, and changes to these programs may be necessary in order to keep them paying benefits. Given a choice, Americans prefer increasing taxes on people who pay into Medicare and Social Security rather than reducing future benefits for recipients of those programs”.
That response also puts a different complexion on matters. It is not that the American public eschew public pensions and health care – they just want those who can pay to pay more.
Baum then went onto finish off by promoting another myth. She said:
Ninety-five percent of Americans in the New York Times/CBS News poll said the federal deficit is a problem. Parents readily concede they don’t want to saddle their children with a legacy of debt.
The CBS Poll did ask people if they thought the large deficit would “create hardships for future generations”. 64 per cent said they were very concerned while 26 per cent said somewhat concerned. They were then asked to articulate the specific concerns they had. This is what they said:
- Jobs/outsourcing/unemployment – 29 per cent
- Services cut/reduced – 18 per cent
- Hurt economy in future – 15 per cent
- Future generations pay – 9 per cent
- Country in debt – 7 per cent
- Taxes will go up – 5 per cent
- U.S. become weaker country – 2 per cent
- Nothing – 0 per cent
- Other – 5 per cent
- DK/NA – 10 per cent
So they are mostly concerned about for their children because of less jobs, less public services, and damage to the economy (associated with less jobs etc).
There were very few Ricardians in this sample, which Baum acknowledges was random and representative. That is, people who fear deficits because they think the future tax burden (to “pay back the deficits”) will rise.
Only 9 per cent were worried about “saddling their children with a legacy of debt”. Baum’s representation is thus very misleading.
Relatedly, the respondents were asked whether budget deficits were “generally okay for the government to run whatever deficits it needs, if that’s what it takes to provide important services to people. 2. It is sometimes okay for the government to run deficits such as in emergencies or if the size of the deficit is kept manageable, OR 3. It is never okay for the government to run deficits under any circumstances”
You will find that the overwhelming majority (81 per cent) were in the generally okay (6 per cent) and sometimes okay (75 per cent). Americans might not understand what deficits are but the vast majority do not hate them like the Austrians and neo-liberals do. So the latter have no grounds to cite “popular opinion” for their irrational views.
Finally, Baum finished by trying to draw some link between the US federal deficit and the “30-year autocratic regime” in Egypt:
In Egypt, it took 18 days of mostly peaceful protests to bring about the end to a 30-year autocratic regime. Surely the American public, under no threat of torture, imprisonment or death, can assert itself to get our government to crunch some budget numbers and get them to balance.
Journalism doesn’t come much worse than that.
The scariest part of the Poll (which went into gun control issues as well) is that 65 per cent of Americans oppose the ban on sale of handguns to the public.
But I hope this blog has shown you the way right-wing journalists distort information to weave their pre-determined message. It is clear the the public attitudes to budget deficits are nuanced and probably based on massive misinformation. Baum and her gang of right-wingers help perpetuate the latter which abuses and dumbs-down the public debate.
That is enough for today!