Wednesday, June 23, 2010

Don't Look, Ethel!

Dean Baker peruses a "budget guide" produced by an organization funded by billionaire deficit scold Pete Peterson and finds it...characteristically wanting.

The "Federal Budget 101," the guidebook for the discussion, follows a predictably shoddy path. The book discusses the budget in almost complete isolation from any larger discussion of the economy. There is virtually no discussion of the ways in which the budget fosters growth, for example by funding education, research and infrastructure, nor the way in which the pattern of growth affects the budget.

For example, the booklet never discusses the extent to which the economic mismanagement that allowed the unchecked growth of an $8 trillion housing bubble contributed to the debt that is its central concern. The downturn caused by the resulting economic collapse will eventually add more than $3 trillion to the country's debt, according to the Congressional Budget Office's projections.

The booklet also neglects to point out the extent to which the long-term budget disaster story is driven by our broken health care system. If per person health care costs in the United States were the same as in any other wealthy country, we would be looking at enormous budget surpluses in the long-term, not deficits.

Incredibly, the booklet does not even point out the fact that income is projected to grow over time. The average hourly wage is projected to buy 20 percent more in 2025 (the year for which participants are supposed to design a budget) than it does today. This knowledge might affect how people view things like tax increases. For example, if we know that people will be on average 20 percent richer, we might be less concerned if their tax rate were to rise by one to two percentage points.

The booklet also never mentions the plunge in wealth that older workers have suffered as a result of the collapse of the housing bubble and plunge in the stock market. This has left the bulk of near retirees (those in their late 40s and 50s) facing retirement with almost nothing other than their Social Security and Medicare.

The booklet even gets its basic economics wrong, warning participants at the very beginning that rising deficits can lead to a weaker dollar. In the real econ 101, students learn just the opposite - that budget deficits can jack up interest rates, leading to a stronger dollar. This is how a budget deficit can be tied to a trade deficit - by raising the value of the dollar. A higher dollar makes US exports more expensive to foreigners and imports cheaper for people living in the United States.

People who want to see our trade deficit fall want a lower dollar. Getting the value of the dollar down (not up) is an argument that more serious people would give for a smaller budget deficit. Peterson should have been able to get a better product for his millions.

Finally, it is striking that not a single person connected with this project was among those who warned of the housing bubble before its collapse wrecked the economy. Ostensibly, America Speaks tried to include a diverse range of economists and policy analysts. Yet, in the category of people who recognized the biggest economic disaster of the last 80 years, America Speaks came up completely empty.

One wishes that Mr. Peterson would find some solid gold toilet seats or something to spend his billions on instead of using them to increase the already formidable level of ignorance and deception in American life.

Well, *I* wish that, anyway.


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