The Nerf Sword of Damocles and An OTE Contest!

March 2nd, 2013 at 11:30 pm

(This post was originally entitled the ‘Needle of Damocles’ but the very clever Chris Hayes just saw me and raised me on this point on his show this AM.)

Three insights:

One: The Sword that Became a Needle

Ezra Klein and I were bemoaning the current state of fiscal affairs the other night on the Lawrence O’Donnell Show and he made a point that is worth pondering for a second.  The sequester was supposed to be a sword of Damocles, so damaging that even hardened obstructionists would seek compromise to avoid its terrible vengeance.


More like a nerf sword.  The defense cuts were supposed to bring R’s to the table, but there are apparently enough R’s who’d rather protect high-end beneficiaries from tax loopholes than the Pentagon.

The logic of this is: then D’s should be at least OK with this outcome because even though domestic discretionary spending is taking a hit, defense is too.  Here, e.g., is Howard Dean:

I’m in favor of the sequester. It is tough on things that I care about a lot, but the fact of the matter is, you are not going to get another chance to cut the defense budget in the way that it needs to be cut.

Yeah, well…a) I don’t think that’s the way it needs to be cut, i.e., it needs vertical cuts of inefficient programs and systems, not horizontal across-the-board ones, and b) now’s not the time for more cuts, as per this figure from GS researchers of the impact of contractionary fiscal policy on real GDP growth this year.

I’ve stressed the bad timing of the expiration of the payroll tax break, which is most of the black part of the bars in 2013.  But according to these calculations, in Q2 and Q3 the sequester is of similar magnitude in terms of its drag on growth.

Two: You Can Never Go Back To the Well

I’ve done many mea culpas, deservedly so, for naively thinking way back during my tenure at the White House that if we needed more stimulus, we could go back to the well.  And, truth be told, we did get a few more buckets of water, including unemployment insurance extensions, the afore mentioned payroll tax break, and various other measures (more state fiscal relief, the HIRE Act).   But Republicans generally argued “been there done that” when it came to further Keynesian measures.

And that’s exactly what they’re saying now, of course, to the President and Congressional D’s on tax and further tax revenues.  They gave at the fiscal cliff and that’s that.  Why that doesn’t hold for spending—D’s gave, and gave a lot more, in terms of spending cuts back at the 2011 budget deal—go figure.

The point is that if the Obama team, which originally pressed for $1.6 trillion in revenues only to settle for about $600 billion (10-year numbers) in the cliff deal in early January of this year, was thinking, “we’ll get this much now, and more in round two when we hit the sequester,” they were making the same mistake.  It would be good not to make it again.

Three: Is There Never Enough Deficit Reduction for Some People?!?

Rhetorical question…I know there isn’t.  But as I was sitting in a midtown NYC bar tonight, eating dinner and prepping for the Chris Hayes Show tomorrow (8AM…check it out!), I read this and almost spilled my overpriced beer.  He’s talking about what might happen if the sequester sticks, not just for this year but cutting spending by over $1 trillion over the next decade.

“This is not a result that deals with our long-term debt problem,” said Vin Weber, a Republican former congressman. “The fact we’ve gotten to a $4 trillion deficit-reduction deal without tackling entitlements is almost a bad thing,” he added, if it lulls the public and the politicians into thinking the problem is solved.

To be fair, cutting discretionary spending doesn’t deal with the central long-term fiscal challenge, which is a) pressure from health care costs, and b) the need to raise more revenue than we are now or, for that matter, more than past historical averages (for reasons I’ll write about next week).  But the sequester plus the cuts and tax increases we’ve passed so far would just about stabilize the debt over the next decade, which is a fine first order goal.

And really, what’s this nonsense about lulling people into thinking the problem is solved?  With respect, do you really know what people think “the problem” is?  It’s not the budget deficit, it’s the jobs deficit.  I’m starting to think this is just really very simple: people with jobs screaming about deficits just have a really hard time thinking about people who don’t have jobs.


Which brings me to the first annual OTE write-in contest.  Write a short, one or two paragraph explanation (to comments) of this obsession with budget deficits and what it will take to put that concern—and ftr, I believe it is a legitimate, long-term concern—back in perspective.  I’ll do my best to read and judge the entries.

The winner gets to host a Friday Musical Interlude!


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36 comments in reply to "The Nerf Sword of Damocles and An OTE Contest!"

  1. Richard Careaga says:

    Deficit obsession is a manifestation of the ancient notion that monetary wealth is a thing with an objective, fixed value in itself totally independent of the culture in which the tokens symbolizing wealth are stored. If only we were to dip into the treasure chest to extract the strictly finite quantum and apply it properly, all would be well.

    Getting over that static notion to see money as merely an accounting device for social value would be a leap. We aren’t really very good at dynamic systems in which, for example, money flows to objects of social value. Because values conflict and we seek to avoid political conflict necessary to resolve value conflict, the flows become turbulent, labyrinthine and out-of-time. Just as the difficult tax and accounting issues relate to timing, the difficult deficit issues relate to the amounts and orders in which we collectively decide to satisfy our conflicting values.

  2. foosion says:

    >>do you really know what people think “the problem” is? It’s not the budget deficit, it’s the jobs deficit.>>

    It’s important to keep this thought front and center and not get lulled into focusing on the budget deficit. Fix the economy and the deficit will take care of itself. Fix healthcare spending and the deficit is a non-issue.

    What will it take to bring deficit concern back into perspective with which group? Normal people will stop caring when everyone stops screaming about the deficit and when the economy improves. Republican politicians don’t really care about the deficit (see the Bush years), it’s just a tool to get what they want (power, lower taxes for the best off, etc.). I have no idea what will fix Democratic politicians. Obama may be beyond hope – “govt must tighten its belt” and the willingness to trade vital priorities, such as Social Security, Medicare, infrastructure, education and spending generally, for ephemeral budget reduction (the Rs will just cut taxes on the best off as soon as they can) in this economy.

  3. azlib says:

    The deficit obsession will go as long as we keep electing people who do not have a clue about modern economics. Shrieking about deficits is easy, since the available metaphors (the household) are an easy sell. Unfortunately, they are dead wrong and destructive. The only way to fix this is to elect better representatives.

  4. Pinkybum says:

    Did you really believe you would be able to go back to the well? Then you haven’t been reading Krugman. His analysis of the stimulus was – it was too small to do the full job, Republicans would then say “see it didn’t work” and then we wouldn’t get anymore stimulus – and this is exactly as it played out exacerbated by the 2010 mid-term elections.

  5. Katie Schaper says:

    I think the focus will move from budget deficits back to jobs hopefully when the 2014 elections occur and Democrats retake the House. Although if Obama still thinks that the government needs to “tighten its belt,” all hope could be lost. Maybe when poverty and unemployment go up, but that hasn’t spurred the Europeans from changing their austerity beliefs. Unfortunately, it looks like something that will have to be ridden out. It’s been five years already and this path hasn’t changed to be more jobs- and growth-focused.

    This affects me especially since I have a degree in library science and the government seems very fond of cutting library budgets. I graduated last August and every job I have applied to (and it is a high number), I have received a rejection. Why hire a new graduate like me when there are librarians with 10, 20, 30 years of experience willing to take entry-level positions? It is a very frustrating endeavor that a lot of people are going through.

    Any chance you will be returning to Oregon soon? I missed your last chat in Portland.

    • PeonInChief says:

      I would join you in hope were it not for the fact that Republican control of the House is assured until districts are redrawn after the next Census. Republican gerrymandering has set the House districts until then.

  6. Tom in MN says:

    The obsession with deficits is entirely a Trojan horse. It’s designed to get inside the budget negotiation walls and once inside out pop a bunch of rich guys that hack away at social programs.

    The only way to get over this insincere obsession is to have disaster strike and make it so that nothing else matters. It can’t even be fought by agreeing to their current demands. As Ezra Klein shows

    any rational attempt to make a deal will be met by more demands. So what we need is an asteroid on a collision course with Earth or an alien invasion. If the aliens insisted on treating the entire population for mental defects that cause beliefs to trump (pun intended) facts, that would be ideal.


    That’s my sarcastic entry, here’s a serious one, but the point is really the same.


    People know from personal experience that too much debt is bad and that not having debt is good. The false comparison of personal and state finances leads people to worry about the debt when it’s largely money we owe ourselves and does not affect our country’s net wealth.

    What many of the rich don’t seem to understand is that their tax money for social programs is buying stability (always appeal to self interest if common decency does not work). They can make lots of money and keep it only so long as the country is stable. It may take a disaster in a country like Italy, which just had very troubling election results, to show that unless the majority in the country are taken care of, your country might burn.

  7. xpostfactoid says:

    What it’ll take: a Republican victory. They’ll become instant Keynesians, albeit with skewed spending priorities.

    • Anonne says:

      ^In a nutshell, this. The unprincipled opposition only howls about spending when they’re not the ones with veto power.

  8. Logan Mohtashami says:

    Long Term Reform is needed~

    We are heading to a point where our mandatory payouts will exceed government revenue in 13-18 years. This means every single cent will go to people 62 and over and net interest payments.

    The other problem we don’t want to admit here in the US is that


    Are all going to keep a lid on capacity growth here in the US. We are at best a 2-3% GDP country, at best.

    Net interest factor gets completely tossed aside because these low rates have made us feel safe but the laws of math can’t be broken. We will have bigger debt loads going forward and higher interest payments.

    Our arrogance in this debate will be our doom because we don’t want to admit that we might have seen our peak capacity growth.

    • Pinkybum says:

      Your post includes a lot of rhetoric but very little in the way of verifiable fact. Unless you can point us to a source of your “prediction” of 13-18 years your credibility leaves a lot to be desired.

      • Logan Mohtashami says:

        CBO, OMB, GAO take any of them as they trend out to that axis point. I would read those reports in full so you can actually see the numbers for yourself to see how the real problems long term come in after 2022 because of demographics and net interest payments.

        Can’t break the laws of math with promises and hope. Medicare cost, demographics, debt and net interest payments on top of a 20 Trillion plus deficit adds pressure to the balance sheet over time.

        • Pinkybum says:

          Annualized GDP growth in the US has historically been over 3 percent – for example:

          which charts GDP growth between 1871 and 2009. The US economy shows no slow-down in growth after the 2009 recession. However, there is an output gap and this will cause long term misery and suffering for millions of people unless it is closed – or we accept that the US is heading to a more welfare based state along the lines of the European systems. Otherwise the gap has to be closed and jobs found for those millions of people.

          You still did not provide a link for your “prediction” of (and I quote)

          “We are heading to a point where our mandatory payouts will exceed government revenue in 13-18 years. This means every single cent will go to people 62 and over and net interest payments.”

          13-18 years are you sure? One of the latest forecasts from the CBO shows that the debt has been stabilized for the next 10 years:

          Are you telling me for the next 3 to 8 years after that the US economy goes into freefall or government spending suddenly goes out of control? What cataclysmic event causes that to happen?

          There is a long term problem in this country and that is medical costs up until recently have been far outstripping inflation and that is worrying but not JUST for government spending that affects private spending on medical costs too. For what reason do medical costs have to be so inflated? Especially compared to other developed countries.

          • Logan Mohtashami says:

            I can see you haven’t read any of the


            So I will repeat what I said. Take a look at the mandatory payouts from years 2022 and on.

            Not the 10 year cycle. The 10 year cycle looks ok as the deficit will grow slight in pure nominal numbers.

            It’s after that is where the Demographic problem. So read the CBO reports after year 2022 and on. Don’t cheat yourself from an education and know that the We can’t believe in an economy that needs to be inflated by the FED always

          • Logan Mohtashami says:

            Another note you have to remember capacity growth will be limited and the bubbles cycles we had in the past won’t occur

            We are the first country in modern day history going back 2,000 years that has had 3 different financial bubbles within 17 years.

            Tech/Stock Market Bubble

            Housing/Household Debt Bubble

            Now.. The government/Fed liquidity bubble

            Now I am just assuming you believe in the wealth factor model of economics which I don’t. When a economic thesis is based on a model to where you need to feel wealthy to expand consumption without income growth… that tends not to end well.

            So, not only do I disagree with your assertion on the debt and I 100% disagree with your economic thesis that we can have this expanded growth in the US like we did the last 100 years.

            We are a 2-3% GDP country at best
            In Scale will limit growth for the next 30-50 years.

            I repeat look at the Budgets on years 2022 and on and you can see why many budget groups ( Unless we get long term reform) has in Fact that mandatory payouts will exceed government revenue in a 13-18 time frame which is years 2026-2031

            This means again not what you described above, this means Yearly budget will have this problem.

            This is why I suggest your read the reports directly. The next 10 years have nothing to do what I am even talking about as they have nothing to do with yearly budgets in years 2022 and on. You should know that by now

  9. Carol D. says:

    First, Democratic leadership has to recognize its role in the obsession. E.g., Obama put the debt high on his list and even framed the issue using republican language way back when – maybe even when you were in the administration. His analogy was the “American family” and how individuals deal with debt.

    Second, Democratic leadership must realize that they can’t trust the republicans. Reid can’t depend on them to keep their word about the filibuster and Obama can’t compromise (if given the opportunity again).

    Third, I have a feeling that the WH and the Ds in Congress never talk to one another. I’ve only ever heard of Obama meeting with Rs and the WH has definitely undermined Reid and Pelosi more than once. Instead the Ds might have a little retreat at Camp David to decide how they will handle the Rs together as one entity. Then make a plan of there own without considering the Rs and stick with it. (First item on the agenda is how to keep Obama away from the negotiating table.)

    Third, take back the house in 2014 or wait until the Rs completely destroy the economy like they did in California.

  10. JD says:

    “and what it will take to put that concern—and ftr, I believe it is a legitimate, long-term concern—back in perspective”

    I can’t answer this while accepting that premise. What evidence do you have that it is a genuine long-term concern? No one that I have seen in a decade of reading about this has presented any good evidence that deficits are a serious problem apart from a few historical examples that have no similarity to the US. Even the Reinhart and Rogoff paper essentially rests its entire case on four European countries whose situations are nothing like the US. The best argument to put deficit concerns back in perspective is that the deficit poses no problem whatsoever for the US, either in the short or the long term.

  11. Fred Donaldson says:

    Watched you on Chris Hayes this morning and it appeared you were more among friends than usual. They were a smart group, discussing the “deficit”, and the dialogue was far above usual talk show standards. I think Mr. Hayes is evolving, probably because he apparently carefully researches in preparation for his program.

  12. Sidney R. says:

    Your supposition is incorrect. The Deficit can never be brought back into perspective for several reasons. The first is that it is a stalking horse for Republicans to justify cutting government spending on social programs. So as long as there are deficits and government spending on health care, poverty, education and energy Republicans will use the deficit as the basis for justifying cuts in those programs. It is much easier to talk about cutting the deficit than cutting grandma’s health care.

    The second reason why the Deficit will hit above its weight is that the American people have been sold the fallacy that government, like businesses and families must balance its budget. The obvious truth is that businesses and families do not balance their budgets, hence the trillions of corporate and consumer debt. The proper policy is for government to borrow money to finance capital projects which have long term benefits and to replace private sector spending when that spending is insufficient. However this is politically inconvenient for those who argue against government intervention in the economy, and their command of the public debate will prevent rationale discussion of the Deficit.

  13. David S. says:

    Elected Democrats need to be making the case for Keynsian economics. Point out how Clinton (the only President in the last 40 years to actually have a balanced budget) turned what seemed intractable deficits in to surpluses in an amazingly short time without austerity. Enlisting Bill Clinton’s help would not hurt either. He probably has more credibility on economic issues with the American public than anyone else.

  14. Jill SH says:

    [I’ve always hated the kitchen table view of fiscal policy, but maybe this attempt from a different direction gets to the point.]

    The local town officials, to improve the view of the waterfront properties, allow the dismantling of the decades old seawall. The Superstorm of the Century sweeps in and the storm surge plows 2 miles inland. Now Mr and Ms Average Family, who thought they were beyond danger, find that they have water in the basement, and part of the roof got blown off. One car is under a tree limb, creating complications getting to their jobs, and even one employer has folks on furlough while the business do repairs. So the family sets priorities: the kids must still get a good breakfast into them before they head for school; time is still set aside for homework. Grandma has had to come (the rest home has no power); the family makes sure they still get her medications for her. (Times like this some basic normalcy is important.) As soon as possible, the basement is pumped out and the roof is fixed, maybe tapping those home-equity funds. While on furlough, Mr Family hires himself and his chainsaw out cleaning up downed trees. The extra cash tides them over. (There is a lot of clean-up work to do.)

    The one thing they do NOT do is decide that they must get rid of their biggest debt and throw all their meager financial resources at their mortgage. In fact, they call the bank to see if payments can be deferred for a month or two.

    • Flex says:

      This is along the same lines that I was thinking, and I think it’s effective. It’s understandable, which is important. It is also easy for most people to relate to.

      The only thing this doesn’t include is Mr. Rich, the wealthy neighbor on the hill who thinks everything is fine because he just lost some singles (which are being replaced by insurance). Mr. Rich can’t understand why Mr. Family is calling the bank.

      But as including Mr. Rich into the metaphor is rather snarky, maybe it is best to leave him out.

      • Jill SH says:

        Mr Rich was one of those whose view was obstructed by the seawall, and he had applied political pressure to have it removed. Remember, no superstorm had happened in about 80 years. And his insurance (government guaranteed) will rebuild his 5-story beach “cottage”.

        (But I’m only submitting my first entry.)

  15. Ted says:

    I think you are mistaking the smoke for the fire – the rallying cry for the real motivation. The real issues for most Rs is not the deficit. It never has been. The real issue for most is that taxes are too high. For a couple of decades during and after President Reagan, the rallying cry was that to return the economy to the golden path we had to get government off our backs — a populist cry with broad appeal. The primary goal, however, was not a reduction in the level of government activity but a reduction in taxes. It’s not that government is too big and so taxes are too high but rather that taxes are too high and so government is too big.
    The “smaller government” rallying cry gave us the Bush era tax cuts.
    That strategy failed when the tax cuts didn’t create the promised growth and so did not produce adequate revenue. It’s hard now even for Rs to argue that lower taxes are what is needed. So a new rallying cry emerged. We have to “live within our means”. We have to stop accumulating debt. It sounds fiscally prudent. And it is much more politically popular to propose a reduction in deficits than a cut in government programs.
    When will the deficit no longer be the focus of attention for Rs? When it is clear that it is no longer a popular rallying cry and has to be replaced by something more popular — probably less government and lower taxes again. The prime objective will not have changed.

  16. Jan K. says:

    Deficit obsession is strongly supported even by normal people because their gut feeling is that you have to treat excesses by saving, deficits by cutting expenses. They don’t understand how deficits could become smaller by actually running larger deficits. They don’t trust that higher deficits will be actually used for good things. Since politics didn’t change, how can something that was bad in the past be good in the future. Procyclical behavior is the most direct reponse possible. And the GOP is probably using the immediate threat to push through a longer term agenda of having a minimal sized government.

    Yes, balanced budgest are important in the long run. But saving in a crisis is foolish and suicidal. If unemployment is very high then the economy is in an unhealthy state and resources are wasted, wealth is not created that could have been, skills are lost over time. The longer this continues, the larger the damage. The amount of spending has to increase. Either the government provides some stimulus or interest rates have to get negative (by inflation maybe). We all have to think more in longer terms. And we simply have to decide what government size we want to have in general. We should not base this decision on actual economic state since it fluctuates so drastically. Motto should be: save in good times, so you have something in bad times.

  17. Robert Goldschmidt says:

    Personal and federal deficits have been necessary to keep our economy afloat during a period of stagnant payrolls and rising productivity. Rapid technology development is allowing us to automate, outsource and off-shore jobs. These financial pressures on our work force have been increasing for four decades. We will continue to see US payrolls falling farther behind productivity until we implement federal inducements for corporations to bring US payrolls back into historical balance with profits.

    The only sustainable way to control private and federal credit growth is with higher payrolls!

  18. JSI says:

    Full explanation for both the reason for the obsession and the way to put into perspective:

    You know, for kids!

  19. readerOfTeaLeaves says:

    I think there is more than one reason for obsessing on the debt, which means that each motive has different roots, and each motive needs different solutions to putting concerns about the debt into perspective.

    One motive for obsessing on ‘the debt’ appears to come from people (‘Tea Partiers’) who remain outraged and alienated over the 2008 government bailouts of the banks.** The logic as I hear it goes like this: the banks made bets with ‘borrowed money’. This ‘borrowed money’ was (stupidly!) backed by the government, which enabled bankers to ‘short’ Credit Derivative Obligations by using a bizarro legal fiction called Credit Derivative Swaps. However, the Tea Partiers who have spent hours trying to figure out what happened to all those government bailout billions began to realize in 2009, 2010, that a ‘swap’ is basically just a kind of insurance. A ‘swap’ was not ‘real stuff’ like a car engine or a load of groceries. Consequently, the banksters who made the bets didn’t actually own anything other than an insurance contract. The upshot was that the government got punk’d, and then it acted like a dupe and a patsy, giving bailouts to a bunch of obscenely rich people who had — in essence — committed insurance fraud against the US housing market. But despite this level of criminal fraud, the government has not charged, fingerprinted, nor enforced justice on people who committed premeditated, rampant, deliberate fraud — AND who did it in a way that gave them ‘plausible deniability’ because they could claim the CDOs were too complex to understand.

    In this view, railing about ‘the debt’ and cutting off the government gravy train is what any right-minded patriot would do; this is because government delegitimized itself by: (1) failing to administer justice, and then (2) handing the perps money to get away with the heist. **By helping the perps get away with the billions, and by failing to break up those banks and put people behind bars**, the government is now perceived as an enabler to massive criminal fraud. Indeed, if the dots connect this way for you, taxes become a form of ‘extortion’ because the government — by enabling obscenely wealthy perps — is acting more like a Mafia enforcer shaking down us poor taxpayers (on behalf of the perps) than a protector (of me and mine, who play by ‘the rules’ of civil society and Main Street).

    For this motive, it would be necessary to: (1) actually investigate, charge, prosecute, and hold responsible people who committed the financial fraud. (Lanny Breuer need not apply. And don’t let Eric Holder show up on my streaming video.) This ‘Tea Party’ obsession with debt represents a symptom of de-legitimized government. (2) In addition to actually delivering some justice, you’d have to completely revamp campaign finance and the way that political campaigns are run in the U.S. in order to rebuild the legitimacy of the political system. (3) You’d also have to break up the banks. And (4) you’d probably want to turn banks into utilities and rethink the financial system and get it (and its profits) back to a reasonable segment of GDP.

    The second group who *obsess on the public debt* are what I call ‘Business GOPers’, whose ideology derives from US business schools the past 30+ years, where Manly Men earn their chops by ‘cutting budgets’ and ‘downsizing’ so that they can keep their shareholders and Wall Street patrons happy. This mindset views ‘cutting’ as ‘efficiency’. Pathetically, this claim is almost never unpacked and exposed as short-sighted. This kind of thinking leads to opportunities for people like Romney to loot publicly held companies and use the laws and accounting regs to function like financial ‘chop shops’ that extract profit *for investors and owners*, even if that means ruining companies and laying off workers. This group of so-called “business conservatives” absolutely cannot tolerate any real examination or scrutiny of what they call ‘capitalism’ (which is actually *crony* capitalism). (Recall that Joe Scarborough scolded us all in Jan 2012 on Lawrence O’Donnell’s show that it was acceptable to talk about ‘tax rates’, but that the fundamental system of ‘capitalism’ could never, ever be questioned.) This group obsesses on ‘the debt’ because their economic views are not actually shaped by having to produce goods and services, but rather by manipulating sums of money. These ‘finance conservatives’ obsess on debt because they were so completely socialized in B-School to focus on budgets that they never actually had to do the sloggy, tough work of trying to build a business or service and support a customer base over an extended period of time.*** These people (both male and female) have been socialized to obsess on budgets, on ‘spending’ and their default solution to every problem is to ‘tighten belts’ — generally not their own, but other people’s. They tend to view campaign donations and lobbying costs as ‘investments’ and they are deeply entrenched in American politics and media. They honestly don’t cost out the public infrastructure pieces involved in getting products to market, or in producing America’s GDP; they have intellectual blinders when it comes to public goods and public investment. Their social contacts share their views, so they get a lot of reinforcement for their economic ideology.

    To stop their obsession with ‘the debt’, you’d have to: (1) require different accounting systems that include a social impact parameter (triple-bottom line), (2) you’d have to completely revamp campaign finance laws (a direct threat to their influence), (3) you’d have to clean up the mess that is a lot of current B-School curricula, (4) you’d need to enhance MPA (Masters in Public Policy) programs, including public finance classes, and (5) you’d need to point out that precious few of these earnest strivers actually ever built a business or service, thereby defrocking their inflated claims to business expertise.

    Well, sadly my contest submission is probably too long, but it certainly got me thinking!

    ** It is worth noting that George W Bush and Dick Cheney were never, ever photographed giving a speech about the Meltdown; people associate that with Paulson, Bernanke, Harry Reid, and Nancy Pelosi because those are the images they retain. Then, in January 2009, Geithner and Obama.

    *** I think if Steve Jobs or Bill Gates had ever completed B-School, they would not have been nearly as successful in actually building businesses.

  20. Peter K. says:

    The obsession with deficits (and supposed out-of-control government spending) is driven by the right-wing message machine and other deficit scold outfits like those supported by Pete Peterson. Most Americans are too busy with work and raising kids to pay attention to politics and economics. Those who identify themselves as conservative or Republican believe what is being said by the leaders of their tribe regardless of the evidence and historical record. They believe the government is engaged in out-of-control spending. They believe we are reaching a point where too much government debt will become a problem for the country and that we can’t continue on our current path.

    How to put their concerns in perspective? Continue to argue the facts and the historical record whenever possible. Ultimately I believe these people are a lost cause and we need to educate the next generation on the facts and history. Max Plank wrote that science advances one funeral at a time and I believe that is the case here. We need to be patient but a good, growing economy would help alleviate the anxiety of Americans.

  21. Ron E. says:

    I can explain the deficit/debt obsession in one sentence: a Democrat is President. With a Democrat in office suddenly even emergency disaster relief needs to be “paid for” while a decade ago tax cuts, wars, drug benefits, and more could just be charged on the national credit card because the President then was a Republican. Deficit obsession is just an excuse to block any new policies proposed by the President that might actually work, become popular, and help his party win elections. The most important goal was making him a one term President. Well that obviously failed but the same logic applies to the 2014 mid-terms and the 2016 Presidential race. Impose austerity, make the economy weak or even go back into recession, and win back the Senate and the White House because sour voters generally throw out the party in power when the economy is bad.

    • MDP says:

      Very true. Republicans love deficit spending. The collective amnesia with respect to the Reagan presidency is astounding. Obama makes Reagan look like Salvador Allende.

  22. MDP says:

    In order to obviate the harmful and irrational obsession with budget deficits and the national debt, we need to identify its disparate sources. Essentially, they are comprised of the theoclassical clergy and its droves of ‘Very Serious’ devout followers. This defunct breed of faith-based economics is espoused most forcefully by oligarchs like Pete Peterson, who talk the talk not because they believe that the mystic animal spirits of the market will right the ship if they have their way, but because they stand to gain immense financial wealth as a result of thier influence. Investing marketing dollars to highlight the national debt as an exigent potential catastrophe throws the ball into the politicians’ court, allowing them to propose cuts to social welfare programs and push for privatization as a cure for an economic malaise that isn’t actually there. Would you send your father to an MD who prescribed him cigarettes for cervical cancer? We can’t limit Peterson’s freedom of speech; men and women died to protect his right to defecate in reverse. However, we can limit the sway that special interests have on our media and thereby (hopefully) foster a more organic national dialogue. You would think PBS had it right, but seeing Scarborough (Dead Body, Office) invited to the same table as Krugman (Nobel Prize, Economics) made me through up in my mouth (more than) a little. Fix the media, not the debt.

    As for the second group, (the Fundies, the Flock, the ‘Very Serious’, etc.) why don’t we start seriously teaching economics in public schools? Most who took trigonometry or calculus in high school probably don’t remember anything about these subjects, which are relatively complex compared to basic macroeconomics. Surly a bit of Keynesianism sexified with smart-board courseware and an ipad app or two will have kids eager to advocate for counter-cyclical government spending…or maybe not. With the caveat that I do fear I’m overestimating conservatives’ ability to make decisions based on reality, perhaps the best way to teach the unteachable is to step back and let them learn the lessons of the past from their own first-hand experience. Maybe something worse needs to occur. This whole boom and bust thing is repetitive for a reason.

  23. Smith says:

    The obsession with the deficit is present because of two factors. First, Republicans have effectively used the recession induced deficit increase as a means to counter increased spending and promote cuts to lessen pressure to raise taxes on the rich. No surprise. Second, there has been no effective opposition to the Republican’s campaign against the deficit because the Democrats’ strategy has been to offend the least amount of rich people possible, avoiding tax increases wherever possible.* Yet some tax increases were necessary because the deficits were so huge. After all, the Democrats couldn’t harm the economy by cutting spending since by controlling the presidency and the Senate, they would be blamed for continued stagnation. But do Democrats really make the calculation I’m claiming, that lower deficits mean they won’t be forced to vote for tax increases? Doesn’t matter because they know Republicans will be only too happy to frighten voters with exactly that point. “Who is going to pay for the deficit?” Republicans ask. If the Democrats answer “Just rich people”, they still end up alienating a very important constituency and donor base. Hence recent Democratic proposals for tax increases only on $1 million (settling on the $400,000 country club poverty level). Solution? Challange Democrats from the left, finance Democratic campaigns without rich people, put Republicans on the defensive by proposing 90% Eisenhower era top rates to cut the deficit, and explain the Krugman Curve (it’s a Liberal Laffer) Spending and growth leads to smaller relative debt magically, painlessly, and unlike Reagan cuts, historically proven.

    * witness 2010 and 2012
    Other factors: Congressional salary, $175,000 and median net worth of Congressmen, $966,000 is also a significant impediment to raising taxes on the top 10%

    I had another story about the deficit being so large because it actually is, because GDP dropped 3.5% even after 800 billion stimulus, and though the depth of the recession remained hidden, 3.5% was still largest since the great depression (only 1982 1.9% came close).

    Also, kudos to the kitchen table mortgage story, I’d previously thought of something similar and simpler (admittedly, easy to claim). Why not think about debt-GDP ratio as mortgages would be compared to income, student loans and car loans too for many (plus the Govt never loses their job)