Four Deficits

October 11th, 2012 at 9:03 pm

Here’s what I hope is a simple and straightforward way to think about what’s at stake in this election and the differences between the tickets.

We face not one, but four deficits:

–budget deficit
–jobs deficit
–investment deficit
–security deficit

Budget Deficit: That the current budget path is unsustainable is well understood by most voters.  But the different plans to close it are confusing and easily obfuscated.   It’s very hard for listeners to figure out who’s right when two politicians are arguing about how their budget plan would close the deficit while the other guys would explode it.

But in this case, it should be less hard to figure whose right because, despite his claims to the contrary, Gov Romney has a plan that a) makes the Bush tax cuts permanent, and b) adds $5 trillion more in tax cuts, and most importantly c) he refuses to tell us how he’ll pay for it.  “Trust me” isn’t exactly a compelling argument in this space.

It’s not hard to convince people that the unpaid for Bush tax cuts continue to drive current deficits as shown here.  From there, it’s a short step to: tax cuts that aren’t paid for add to the budget deficit, and Gov Romney will not say how he pays for his cuts.

It’s also true that the President has a plan that really does reduce the deficit by $4 trillion over the next decade and in doing so, stabilizes the rising debt-to-GDP ratio.  But again, that’s the kind of argument that’s easily obfuscated in debates.  A much better position is to point out what common sense dictates to virtually every audience I’ve spoken to outside of the Larry Kudlow show: a sustainable budget plan must involve both spending cuts and new tax revenues.  Now, we’ve already been cutting spending, and pretty aggressively at that, so compromise implies that the R’s (Republicans, Romney, Ryan) must give something on taxes.  But they won’t; they’ve pledged not to.

And therein lies the problem with the budget deficit and why the R’s cannot be trusted to solve it.

Jobs Deficit: That we have too few jobs in our labor market to provide people the employment and earnings opportunities they need and deserve is also clear to all.   There are long-term, structural concerns here as to whether the American jobs machine will achieve full employment on its own in normal times, but that’s not so much the issue today (it’s one I get back to in the investment deficit discussion below).

Right now, the economy and the job market are still struggling to leave the residual gravitational pull of the Great Recession.  But we’re making progress and the administration’s fingerprints are all over that progress: the Recovery Act helped a lot, as did the auto rescue, and even their housing programs are finally helping.  We’re sailing out of the storm—not fast enough, to be sure—but moving in the right direction.

Of course, the folks who want to take back the helm have the same trickle-down, deregulatory map that took us into troubled waters that almost scuttled the ship.  And, despite their phony tack to the middle, it’s important to hammer that home.

But more to the point, people need to hear about jobs measures that would help build on the momentum we have: ideas that would reduce layoffs of teachers and police, that would rebuild infrastructure—and tangible parts of it, like our public schools—and measures that would protect paychecks (like not letting the payroll tax cut disappear next year).

The R’s reject all of these—in their view, such temporary measures are just a “sugar high.”  That’s wrong—since Keynes, it’s been understood that when the private sector is down on the mat, there’s a temporary role for the feds to step in and take up the slack.

It’s a stark difference that will make a difference.  It’s simple and intuitive and D’s should emphasize it.

Investment Deficit: That we’re under-investing in our future is also clear to most voters.  (Running out of time here, so I’ll have to use shorthand.)  The R’s do not believe in investing in public goods.  Their YOYO economics tells them that the private sector should make such investments, which leads them to embrace trickle-down tax cuts under the assumption that wealthy people with higher after-tax incomes will make the necessary investments for a productive economy.

But that’s a serious misread of both the evidence and even of classical economics, which recognizes that no private firm will invest in the public goods without which our economy cannot function.   These include roads and all that stuff, but also education, R&D in new areas that do not yet promise investors reliable returns (the internet at its inception, clean energy production today), and the protection of the environment from negative externalities—activities that pollute but where the polluter doesn’t face the price of their actions.

Both the Ryan and Romney budgets completely gut these functions.  Ryan cuts deeply to shrink government and (partially) offset his trickle-down tax cuts, and Romney caps spending at levels that will preclude these investments.

Here again, voters can intuitively grasp the implications of the R’s disinvestment in public goods.  They—the R’s–say “small government.”  And we should all aspire to a government sector that’s not a dollar larger than it needs to be.  But what they’re talking about is taking investment dollars that should go to schools, roads, the planting of seeds that will grow into future industries, environmental protection—and turning them over the wealthiest households among us.

Security Deficit: That most of us are becoming increasingly economically insecure is felt by many—probably most—in the middle class.  Certainly retirement security, both in terms of income and health care, is a serious concern, but so is economic inequality, which has diverted growth from middle and low-income families for decades now, long before the Great Recession came along and did even more damage to middle-class living standards.

And yet, the R’s do not even speak of the latter, once again assuming, despite all evidence to the contrary, that tax cuts for the wealthy (and more drilling) will fix everything.

Stark differences exist here as well and must be highlighted.  Which one sounds like it increases health security for seniors: guaranteed health care coverage or a voucher with which you shop for it (and an inadequately priced voucher at that)?  A guaranteed Social Security benefit or one that rises and falls with the stock market (note: Social Security privatization is not on the R’s ticket but is an idea that Rep Ryan has supported in the recent past and a darling of conservatives for years).

Most importantly, all the other deficits feed into this one—get them wrong and you get this wrong.  Without jobs, public investment, and an amply funded government, we will be unable to provide a secure safety net under retirees, create and retain the near-term jobs to bring us closer to full employment, invest in productive infrastructure and industries of the future, or provide disadvantage kids the educational opportunities they need to realize their intellectual and economic potential.


The idea that these critical issues will be decided by debate theatrics is…um…unfortunate, especially given the willingness of Romney/Ryan to totally blur their positions.  They say anything to win, and then folks like me shout about the deception on cable TV, fact-checkers scrum around, and many in the electorate once again conclude that politicians just can’t be trusted so you might as well vote for the guy who seems confident and upbeat versus the guy who was looking down at the lectern too much.

I refuse to accept that outcome and I hope you do too.  From now until election day, I’ll be everywhere I can be stressing these four deficits, their impacts on the economy, on our livings standards, and on our kids’ opportunities.  And, of course, most importantly, I’ll be stressing the gaping differences between the parties’ approaches to closing these deficits.

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3 comments in reply to "Four Deficits"

  1. Jake says:

    Why didn’t the president seem to have a grasp of differences as stark as these during the debate. I wonder what he was thinking about instead.

  2. save_the_rustbelt says:

    The R’s do not believe in investing in public goods.

    Ah c’mon Jared. The R’s believe in less public investment and more private sector investment with less nanny state.

  3. katie says:


    I really liked the segment you did with Stephanie Kelton. And think it would be instructive for you to address the policy space for a monetary soveriegn like the US.

    It seems wildly unconvincing to talk about deficits without also talking about what deficits ARE within a regime of fiat currency controlled by a monetary soveriegn.