Dear fellow liberals, the GOP is flat out wrong about the deficit. It's time for liberals to stop buying into GOP rhetoric and make their own story.
Early this month, I received this letter in my inbox from CT Democrat Representative Elizabeth Esty:
Dear Friend,
Deficits matter. We need to balance the budget, but we must be smart about it. We shouldn’t balance the budget on the backs of seniors or at the expense of investments in infrastructure to create jobs In Congress, I’m working for smart, targeted cuts that take a few steps in the right direction.
She goes on to explain how she's cutting 11 billion in subsidies for Big Ag and getting rid of 79 million in wasteful defense appropriations. The mantra is the same as the GOP’s: reduce the deficit, reduce the deficit, reduce the deficit. Esty and other liberal Democrats like her would be smart to stop repeating it, and start pushing real progressive reforms, or at the very least reforms based on sound data.
Let's breakdown how ridiculous all this is—how the GOP is wrong about deficits and how liberal Democrats like Esty are unwittingly propping up GOP rhetoric while effectively doing nothing to change America’s economic situation.
First, Esty is talking about 0.89 billion and 11 billion dollar cuts as if these numbers were relevant to a debt worth 11,500 billion. If the overall debt was actually important, we wouldn't be trifling over such tiny bread crumbs.
Second, Esty is flaming debt fears in the presence of a stable debt. Countries label their debt and deficit as a percentage of GDP, since the only long-term target that matters is to ensure the debt does not grow faster than the GDP. In fact, countries rarely ever pay their debt down. More often they simply grow their GDP until the debt becomes small in comparison.
Before the debt debates began, the US's debt-to-GDP ratio was stable, with both the debt and the GDP growing in concert by 4% per year. The key word is stable. The people who claimed the debt was exploding on us were lying -- they were mostly all Republican. In her letter, Rep. Etsy is unwittingly playing the same con game as the Republicans: she is using the presence of debt as an excuse to pass legislation that's politically convenient to her. In order words, she is riding the coattails of the Republican's disaster capitalism.
The third is that the correct diagnosis for the current American economic woes is not that it has debt problems, it is rather this: American is stuck in a demand-slump recession so deep the central bank interest rate is slammed against the zero lower-bound, and thus the central bank has lost the primary lever they normally use to regulate unemployment. The short word for this is "depression". The United States is in a economic depression, though this one is not as deep and great as The Great Depression, economically speaking, it is the same phenomena.
In a depression, since the lever of interest rates is so-to-speak broken, economies behave in a powerfully counter-intuitive manner. It is one of the great achievements of Economics as a discipline to have been able to capture and demonstrate exactly how.
The main takeaway from these economic studies is this: In a depression, reducing government spending by 1% reduces GDP by more than 1%, making your economy worse. If your GDP is reduced more than your debt, your debt-to-GDP ratio begins to increase, and you are now in a worse place than you started. This is the catastrophe that has been unrolling across Europe as a result of austerity policies. It is a catastrophe so powerful, it is tearing the social fabric of Europe apart and leading to a re-emergence of nazi-ism (in Greece) and Totalitarianism (in Hungary). Very scary stuff. Trying to reduce deficits is a very dangerous and unnecessary path to go down, and the road to recovery is only made worse by cuts in government spending.
One reliable way to end a depression is to arrange a spending impulse which can quickly be rolled down once the economy gets out of depression territory. This is best accomplished with a short spike in infrastructure spending -- which would be perfect for our current situation, since the United States has overall failed to maintain its infrastructure to the tune of 2.2 trillion dollars. Our bridges are out of repair, our trains are outdated or outright missing, our energy sector needs to switch off of coal, etc.
Unfortunately, getting out of a depression is more usually accomplished by going to war (indeed, this is how the Great Depression ended) simply because most countries lack the political maturity to debate and act on the relationship between depressions and short spike in infrastructure spending.
Representative Etsy should be trying to explain this to her constituents, rather than letting herself be wrapped by the GOP's disaster capitalism narrative.
Diary by Linnea Paton and Guillaume Marceau.
