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Why Should We Worry About Deficits Anyway?

Thursday, November 10, 2011

The Deficit Reduction Super Committee holds meeting. (Chip Somodevilla/Getty)

Welcome to Politics Bites, where every afternoon at It's A Free Country, we bring you the unmissable quotes from the morning's political conversations on WNYC. Today on the Brian Lehrer Show, Bill Frenzel, visiting scholar at the Brookings Institution, 20-year Republican Congressman from MN, and ranking minority member on the House  Budget Committee, talks with Heather Boushey, Senior Economist at the Center for American Progress, about how concerned we should be over the long-term deficit, and how the positions differ among various Democratic party factions.

The deficit reduction super-committee, a small group of people charged with creating a ten-year plan worth at least a trillion dollars, is due to reveal their recommendations this Thanksgiving. It will be gridlock! It will be pandemonium! How will they ever succeed? And should you even care?

Boushey has said that the importance of deficits is overrated. While over the long run deficits are a real issue, she said the immediate focus ought to be on job growth.

We are not going to be able to get our fiscal house in order until we deal with our unemployment problem... The real issue is getting our economy back on track.

Frenzel disagreed. He said that the president and Congress probably “consider themselves job-creation committees,” but he said a settlement of the debt problem cannot wait. 

We’re sitting herewith our debt down-graded by one rating agency, and while we’re paying very low interest rates now, the prospect of higher interest rates in the future gives a frightening possibility that we will have to subdue other part s of our budget as interest rates rise. We don’t have the luxury of waiting for our economy to get wonderful.

Debt as a measure of GDP has grown from five percent in the eighties to eight percent now. If deficits climb too high, markets become concerned about repayment, so they raise interest rates, which increases the cost of borrowing and slows growth. Boushey said that while slow growth means fewer jobs, the markets are focusing not just on interest rates, but on whether or not the economy is growing.

If you have an economy with slow growth and high unemployment that appears to be stagnating, the probability that you  are going to be able to pay that backing the future is lower than if you have a high-growing economy, because you’ve made smart investments with those government resources to get your economy back on track.

Boushay said there is a tipping point, but it is not measured in deficit as a percentage of GDP. 

We need to be focused on what is the role of fiscal and monetary policy in getting our economy moving, and then we can focus on our long-term plan.

Frenzel said he does not think the economy in the United States is stagnant, and pointed to federal stimulus programs as “singularly ineffective in boosting employment.”

Our problem is not tomorrow, it’s now, and we cannot sit around and wait until our interest costs are totally out of control.

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Comments [13]

"If everybody is in debt to each other -- is anybody really in debt?"

Yeah, the middle class is in debt to the ultra-rich. We have been successfully putting back together a feudal system and destroying the middle class in the US [while building quite a good one in China]. 1% owns 40% of the country's wealth, up from 20% in the late 70's. 500 individuals, known as the S&P 500, (which we've given legal status as "individuals"), control almost 80% of GDP. And the upper middle class making a couple 100K to a couple million, (which I'm part of), just go along with it cause we don't want to loose our piece of the "trickle down" pie.

Nov. 15 2011 10:12 AM

There is an unmistakable serenity which obtains when one is a 'true believer.'* There should be no reason to sound the tocsin and raise alarums over the deficit if one has full trust in the efficacy of the 'free market.' Correction will be automatic. The decision of Capitalism will be just.

Perhaps the Senator isn't quite sure of his faith.

* Used in the Hofferian sense.

Nov. 11 2011 08:08 AM
Harrison Bergeron from NYC

I suspect the main thing that will save us is that much of the world is at least or even more screwed up than we are. Look at the Europeans. China's prosperity has been based on ours.

"Debt" is relative. If everybody is in debt to each other -- is anybody really in debt?

Nov. 10 2011 08:21 PM
Jason from Brooklyn

We can use Japan in the '90s as what not to do.

Nov. 10 2011 10:41 AM
Scott

Could you please insist on economic literacy, including from congressmen?

Nov. 10 2011 10:40 AM

So the Congressman wants to go the Herbert Hoover route? Nice!

Nov. 10 2011 10:40 AM
Mike from manhattan

I say call the bluff of the bankers. When the world is in a recession, there will be no where for them to go and earn ridiculous returns on money that is making money on interest and financial manipulation alone. When our "ratings agencies" "downgraded" our debt, money flooded into US debt anyway. Growth is more important, especially for an economic super power. Debt is a measure to temper irresponsibility. Period. It is not the measure by which we restrict the shell game of capitalism. The main point is that it is a matter of priorities and the super rich becoming comfortable with doing with less while the peons that they hold dominion over are able to work their way out of economic serfdom.

Nov. 10 2011 10:39 AM
ericf

A cancer patient gets into a car crash and is rushed to the ER bleeding from multiple lacerations. Do we give him chemo immediately or stitch him up first ?

Nov. 10 2011 10:39 AM
Barbara from New York City

Discussions such as this about resolving the current economic situation in the United States with the Special Committee really are a waste of time and air. Why just go to the point that the Republicans' goal is to prevent the re-election of the current president. Nothing positive do they want that will help the President look good, so why is that not the matter under discussion?

Nov. 10 2011 10:39 AM

Governments economic role should [and has been] stepping in to smooth the bottoms caused by the business cycle. The real problem is that when times are good government should be stepping back and getting its books back in order. Instead in good times Dems want to spend more and Republicans want to cut taxes further, as was done this past decade.

Ordinary Americans know we need to bring spending down and bring taxes back up a little, (at least so the very, very top pays as much as those below them). But politicians don't work for ordinary Americans, they work for the lobbyists and special interests who get them elected and keep them in office.

Nov. 10 2011 10:38 AM
Ron Fletcher from Yonkers

What is the difference between US taxpayers bailing out the banks because of unwise investments so that their investors don't lose money and asking for austerity programs affecting the 99% of taxpayers to bailout investors that unwisely loaned to governments around the world. The investors are supposed to take in worst case scenarios or lose money.

Nov. 10 2011 10:38 AM
Todd from Lower East Side

Please ask about how in the 90s Japan attempted to balance its budget by cutting spending and increasing taxes and instead increased the deficit because the cuts weakened the economy to such an extent that tax revenue fell further. We are currently living in a balance sheet recession so conventional macroeconomic policy might not have the expected result.

Nov. 10 2011 10:37 AM
Ken

So the congressman admits that the downgrade did nothing to our borrowing costs, but then insists that interest rates are the real problem anyway? And this is a good enough reason to continue to cripple our economy by obsession over something that hasn't happened. Sadly, this seems to represent the very greatest heights of republican thinking.

Nov. 10 2011 10:34 AM

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