The nearly-unprecedented power of private corporations is one of the central characteristics of US society. It’s no coincidence that those corporations, the best-organized and wealthiest interest groups in our society, have long funded economists, think tanks, and politicians who promote the economic doctrines that will serve their interests. The well-funded demagogues who have dominated current debates over budget deficits and the national debt are the latest manifestation of this influence, and have helped usher in what Nobel Prize-winning economist Paul Krugman calls a “Dark Age of macroeconomics” where many of the most basic facts of economics have been drowned out by ridiculous but useful myths. The country’s news media have lent credibility to these myths. For instance, at the most liberal end of the media spectrum, New York Times coverage implies that tax cuts for the rich are just as likely, or maybe more likely, to create jobs as the alternative route of increasing social spending—a claim recognized as false by most independent economists.
What follows is intended as a brief primer for countering the most dominant myths about budget deficits and economic policy currently circulating within the corporate media and halls of government. Most working people around the world have an intuitive grasp of how neoliberal globalization and fiscal austerity have hurt them. For instance, most people in the United States—Democrats and Republicans alike—are strongly opposed to any cuts to Medicare or Social Security, and no amount of corporate-funded propaganda is likely to change their minds in the near future. But a clear understanding of the economic fallacies of the deficit debate is prerequisite for countering those who won’t be content until the United States is converted into a Dickensian dystopia.
Current budget deficits are the result of too much government spending on education, health care, welfare, Social Security, and benefits for public-sector unions
One can barely turn on the TV these days without hearing politicians and commentators shouting about “out-of-control spending.” The main target of their venom is government spending on social programs like Medicaid, public schools, public housing, welfare, and unemployment benefits, plus “entitlements” like Social Security and Medicare. The implication is that these types of spending consume the vast majority of the government budget (and also that they mainly benefit lazy and undeserving minorities—e.g., the iconic racist image, popularized during the Reagan era, of the pregnant black woman who rolls into the welfare office in a Cadillac).
The Federal Budget Deficit
Single-minded preoccupation with “cutting the deficit” is dangerous, since the US government should increase its deficit spending in the short term to help stimulate job creation (see below, Myth 3). But if the deficit itself is the topic of debate, its actual sources are not difficult to understand. Three stand out as contributors to the long-term “structural deficit,” meaning the portion of the deficit resulting from factors other than the economic recession that struck in 2008 due to Wall Street’s recklessness:
- Wars and military spending
- Tax cuts for the wealthy
- Skyrocketing health care costs
The horrific human consequences aside, spending on the Iraq War alone had contributed to a massive increase in the national debt prior to the financial crisis, and conservative estimates of the financial costs of the war surpass $3 trillion. When the Afghanistan and Pakistan wars are included, the total may be more than $4 trillion.