Addressing the Deficit

According to Noam Chomsky in his recent book Who Rules the World?,

For the public, the primary domestic concern is the severe crisis of unemployment. Under prevailing circumstances, that critical problem could have been overcome only by a significant government stimulus, well beyond the one Obama initiated in 2009, which barely matched declines in state and local spending, though it still did probably save millions of jobs. For financial institutions, the primary concern is the deficit. Therefore, only the deficit is under discussion. A large majority of the population (72 percent) favor addressing the deficit by taxing the very rich. Cutting health programs is opposed by overwhelming majorities (69 percent in the case of Medicaid, 78 percent for Medicare). The likely outcome is therefore the opposite.

Reporting the results of a study of how the public would eliminate the deficit, Steven Kull, director of the Program for Public Consultation, which conducted the study, writes that “clearly both the administration and the Republican-led House are out of step with the public’s values and priorities in regard to the budget … The biggest difference in spending is that the public favored deep cuts in defense spending, while the administration and the House propose modest increases … The public also favored more spending on job training, education, and pollution control than did either the administration or the House.”

The deficit crisis has largely been manufactured as a weapon to destroy hated social programs on which a large part of the population relies. The highly respected economics correspondent Martin Wolf, of the Financial Times, writes, “It is not that tackling the US fiscal position is urgent.… The US is able to borrow on easy terms, with yields on 10-year bonds close to 3 per cent, as the few non-hysterics predicted. The fiscal challenge is long term, not immediate.” Significantly, he adds: “The astonishing feature of the federal fiscal position is that revenues are forecast to be a mere 14.4 per cent of GDP in 2011, far below their postwar average of close to 18 per cent. Individual income tax is forecast to be a mere 6.3 per cent of GDP in 2011. This non-American cannot understand what the fuss is about: in 1988, at the end of Ronald Reagan’s term, receipts were 18.2 per cent of GDP. Tax revenue has to rise substantially if the deficit is to close.” Astonishing indeed, but deficit reduction is the demand of the financial institutions and the superrich, and in a rapidly declining democracy, that’s what counts.

​Not even mentioned is the possibility, discussed by economist Dean Baker, that the deficit might be eliminated if the dysfunctional privatized health care system were replaced by one similar to those in other industrial societies, which have half the per capita costs and at least comparable health outcomes. 23 The financial institutions and the pharmaceutical industry, however, are far too powerful for such options even to be considered, though the thought seems hardly Utopian. Off the agenda for similar reasons are other economically sensible options, such as a small financial transactions tax. (pp. 61-63)

Obviously, none of the above is in line with what is likely to happen in the near future. As the link above to my recent article on Dean Baker's ideas shows, much of the deficit is fixable with changes to policies that govern the "free markets".

However, none of that matters as Republicans are very likely to try gutting education, pollution regulations, and medicare, while giving huge tax breaks to the rich. These would all seem to be the exact opposite way in which the majority of Americans would wish to see this done.