Something doesn’t make sense. The process is askew. Shouldn’t aim come before fire? The media and Congress are operating today, based on their actions, as though a debt crisis is our great national problem. The people don’t believe that; poll after poll find jobs and the economy are more important than the federal deficit. We are constantly told that Congress went against the wishes of the people when they voted for health care reform. The same polls tell Congress that jobs matter more than the deficit; where is the drumbeat for action on that front?
I can hear folks thinking already; the people say jobs, but what do the professionals say? Economists have been beating the drums for real stimulus for over a year now. The collapse of the housing bubble blew a $2 trillion hole in the economy; a hole that resulted in precipitous falls in state and federal income tax and local sales tax collections. Better than half of our current federal deficit is a direct result of the recession; a fact which means once people go back to work, that potion of the deficit will no longer be an issue. The professionals are calling for federal action on jobs, the people are calling for federal action on jobs, the media are being led like sheep towards the false idol that is debt crisis.
Taking a cue from the majority of economists not employed by Wall Street, I have written often on the false debt crisis and its real goal; the elimination of Social Security and Medicare. The sheer scope of the numbers associated with the federal budget is enough to get most folks blood boiling; added to the often poorly reported news about Greece’s financial difficulties, and one can understand the fears. But it is the media that accelerate and misdirect those fears and assumptions. The debt crisis in Greece is a real phenomena, but it is not related to social structures like schools, health care, pensions, and unions. The crisis in Greece is due to structural factors that are similar, not to our federal budget, but to state budgets.
Greece, like a U.S. state, can’t take structural steps during a downturn like the federal government. The United States can restart an economy by the very act of deficit spending; U.S. states and countries in the Euro-zone (like Greece) cannot. The risk for deficit spending is not national insolvency, it is inflation. As an economy begins to move towards full employment, the pace of spending picks up. All of the extra money in an economy (injected by deficit spending) begins to overwhelm the supply. Inflation is, by definition, too much cash chasing too few goods and services. Deficit spending might very well inject too much cash into the economy, but with 9.7% unemployment, it isn’t chasing anything.
As an economy moves towards full employment, the United States (through the Fed) will begin to slowly soak up the excess cash via open market processes. Inflation should be taken seriously, but economies do not restart on their own. It is important to get people back to work first. For these reasons, the Senate’s move to kill job-creation because it would add to the deficit were both ridiculous and dangerous. Spending freezes in a household addicted to credit cards make sense; spending freezes at the federal level just make Great Depressions. We need to use federal deficit spending to fund state shortfalls in education, police protection, and health care. We need to use the lower prices of the down economy to jump start clean energy infrastructure building. We need to get the economy moving, then use tried and true currency policy to head off inflation down the road. Ready, Aim, Fire…that is the correct order friends.
The Rational Middle is listening…