Sunday, August 21, 2011

FACT CHECK: Recession is culprit in high US debt

From CNBC courtesy of Digg:

It's the loud and clear consensus of Republicans in Congress and on the presidential campaign trail: Runaway government spending is the problem, not taxes.

But the math isn't so simple.

The number at the heart of the battle cry of the Republicans and their tea party allies — that federal spending has risen to an alarming 25 percent of the economy — is skewed by recession dynamics.

In recessions, federal spending always goes up and tax revenues go down. And the economy contracts in recessions, shrinking the gross domestic product, which is the total output of goods and services and the broadest measure of the economy's health.


But it also reflects the mathematical reality that during recessions, tax revenues go down sharply because people and companies make less money and so pay less in taxes. Federal spending goes up, even before stimulus programs, with an increasing demand for government help from food stamps and unemployment compensation and other safety-net programs.


Economist Bruce Bartlett, who worked in the administrations of both Reagan and President George H.W. Bush, said some of the statements by Republicans make him cringe. "And what sometimes makes me cringe more is the silence from their competitors."

More here.

Keep in mind that CNBC, unlike its sister cable news network MSNBC, is fairly right-wing, and definitely pro-business.

So what we have here is a situation where the entire US political establishment either doesn't understand the actual economics underlying current deficit spending, or simply doesn't care--it's very likely a combination of both. In the end, it doesn't really matter: the Washington zeitgeist is all about cutting spending in order to improve the economy, even though we're spending more relative to GDP because of the shitty economy. That is, the way out of this is not by contracting the economy with Draconian spending cuts, which is obvious, but rather by improving the economy with more spending, lots more spending, which will eventually pay off by shrinking the federal deficit while at the same time increasing tax revenues, which will also shrink the deficit.

But none of our leaders are interested in this. The Republicans talk about business "uncertainty," which keeps businesses from expanding and hiring more people. I'm not really sure what businesses are supposed to be uncertain about, federal regulations perhaps, or inflation, which deficit spending might cause some years down the road, even though it is nowhere on the horizon right now, what with the inflation rate currently hovering around 3.5%. It is far more likely, and rational, to boot, that businesses aren't expanding because people aren't buying their products--after all, it isn't as though businesses don't have the capital on hand to expand; indeed, US business is sitting on buttloads of cash at the moment, waiting for demand to pick up so they can increase production.

In other words, it's a demand problem, not an "uncertainty" problem, whatever that means. And you know what else a demand problem is? An unemployment problem. Or, if you prefer, a shitty economy problem. Whatever. The point is that the Republican rationale for their preferred package of economic policies, embraced as well by President Obama and most of his party, totally falls apart with even the vaguest scrutiny. Indeed, such scrutiny also mandates heavy federal stimulus spending so as to increase unemployment and therefore demand. Do that, and the deficit, by and large, takes care of itself. I mean, it would be nice to get rid of those Bush era tax cuts for the rich, but my optimism can only go so far.

At any rate, our leaders and their fucktardedness are literally destroying our great nation. I'm getting tired of hearing myself saying this.