The NY Times ran the following story: In Greek Crisis, Some See Parallels to U.S. Debt Woes by David Leonhardt. The deficit hawk talk is getting stronger since the Greek crisis flared. As I wrote yesterday in Canadian Deficit Hawk Bobbleheads, the deficit hawks are intellectually bankrupt. They do not have a comprehensive solution for our current circumstances. Following them will only lead to disaster.
See my response to Leonhardt below. I need to apologize to him, as I spelled his name wrong in my email to him. Sorry buddy.
"But the main issue isn’t the near-term deficit — the one created by the recession, the wars in Iraq and Afghanistan, the Bush tax cuts and the Obama stimulus. The main issue is the long-term deficit. "
The deficit talk is increasing now, as expected. Friedman wrote on it over the weekend and Charlie Rose had Byron Wien, Barton Biggs and Roger Altman on his show for a discussion. The debate, including your piece is missing several key points:
1) at least with respect to the U.S., the long-term budget situation was well in hand prior to President Bush's budget management. Over the course of the past decade the vast majority of tax relief went to the élite. In addition, while aggregate household income increased by about $3 trillion during the last decade, the vast majority of households saw almost nothing because the richest 20% gobbled up nearly 100% (and even then the gains were skewed towards the highest percentiles). This merely punctuates a 30 year period during which government policies have tilted toward the wealthiest, enabling them to scoop up much greater shares of market and after tax incomes. Following on the bailouts, there is a question of tax fairness - should average households be expected to shoulder an even greater burden? Thus far the assumed answer is yes.
2) Given that most average households are already overburdened, there is a very real risk that additional taxes and/or transfer cuts will only lead to anemic economic growth, with constant threat of crisis.
3) There is no point discussing deficit/debt challenges without also considering the challenge of Peak Oil (and its cousin climate change). Discussion of Peak Oil has not made it into the mainstream yet, but there are many of us who worry that this is the next cause of crisis and, just as with the bubbles, we are sleep-walking into a problem that we blissfully ignore. Under even a moderate Peak Oil scenario average households will face even greater burdens - they simply will not be able to shoulder the burden of rescuing the government from its existing debt as well as shouldering the hundreds of billions of dollars in annual costs required to transition through Peak Oil.
The richest among us are not willing to acknowledge it yet, but I will bet that is where the funding will come from to bridge the budget and energy challenges. The élite will do so because it will quickly become apparent that if they do not the entire system may collapse. And then all bets are off.
I place up to a 50% probability on a Peak Oil, half to each of the worst case and moderate scenarios. I hope the NY Times will be a leader in introducing the energy challenge into the budget/debt/deficit debate.
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