{"id":13494,"date":"2011-02-15T18:02:47","date_gmt":"2011-02-15T07:02:47","guid":{"rendered":"https:\/\/billmitchell.org\/blog\/?p=13494"},"modified":"2011-02-15T18:02:47","modified_gmt":"2011-02-15T07:02:47","slug":"misusing-public-information","status":"publish","type":"post","link":"https:\/\/billmitchell.org\/blog\/?p=13494","title":{"rendered":"Misusing public information"},"content":{"rendered":"

\t\t\t\tThis blog is about right-wing distortion of evidence and how opinion formation in the US appears to be, as expected, inconsistent and ill-informed. The US President brought down his 2012 Budget yesterday and as expected he promised very large public spending cuts at a time when the US economy cannot afford them. In doing so, the President was bowing to the extremist conservative views that get all the airplay and column inches in the mainstream media in the US. Fox News pumps this extremism out all day every day. But if you sought to understand what the “main street” American actually thought about deficits you might be surprised. The New York Times and CBS sponsor a regular poll and recently they delved into the issue of budget deficits. One right-wing journalist actually had the audacity to use this Poll as a vehicle for her claim that even larger cuts are required to balance the budget. It is easy to show how she misused this public information.
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\nTo see the scale of the problem we are dealing with at present in the battle of opinions I refer to an article (syndicated by News Limited’s The Australian newspaper) published February 15, 2011 – Obama will have trouble balancing the budget<\/a>.<\/p>\n

The author is from the Hudson Institute<\/a> which claims it is a “nonpartisan policy research organization dedicated to innovative research and analysis that promotes global security, prosperity, and freedom”. There is that non-partisan claim again – yes, nonpartisan as long as everyone is neo-liberal. They also claim to challenge “conventional thinking” which I found odd given that there publications are all conventional in thought and not innovative at all.<\/p>\n

Anyway, the Hudson Institute is just another of these right-wing outfits in the US which has been lucky enough to get solid funding which allows it to pump out its relentless propaganda that undermines prosperity.<\/p>\n

The first thing I said to myself when I saw the title was yes he will but why would he want to.<\/p>\n

Apparently, Americans are being implored not to:<\/p>\n

\n… hit the panic button just yet. But keep it handy. Without drastic, and I mean drastic, spending cuts, and tax increases, and continued bond buying by the Federal Reserve board to suppress interest rates on the federal debt, America will not be able to balance its budget.\n<\/p><\/blockquote>\n

I venture to note that with drastic spending cuts and tax increases, low interest rates notwithstanding, the US government will also not be able to “balance its budget”. The sheer damage such a fiscal contraction would cause to spending and output in the US would drive the automatic stabilisers (lost tax revenue etc) south and increase the deficit. Don’t these characters ever understand that.<\/p>\n

Growth is needed for the deficit to fall. Growth comes with spending. If the private sector doesn’t want to spend in sufficient volumes to promote growth then the public sector has to. Otherwise you get stagnation and large deficits.<\/p>\n

But moreover, does this writer actually understand what a balanced government budget would imply for the rest of the economy. Under current circumstances where the external balance is negative and not going to be positive any time soon (if ever), a balanced budget means that the private domestic sector (households and firms) would be in constant deficit overall. That is not my opinion.<\/p>\n

It is a statement of fact derived from the System of National Accounts. The rule is simple – government surplus (deficit) equals non-government deficit (surplus). The non-government sector is comprised of the external sector and the private domestic sector. If the government sector is in balance, then the non-government sector is in balance. If the external sector is in deficit (that is, the economy is spending more abroad than it is earning from abroad) then the private domestic sector has to be in deficit (spending more than it is earning) to achieve balance. Dollar for dollar.<\/p>\n

What does that imply? A continual private domestic deficit means continued increases in private domestic indebtedness. The financial crisis and subsequent real recession was, in part, caused by private debt reaching unsustainable levels (and proportions). It simply cannot be a sustainable economic strategy for the government to run a balanced budget under existing circumstances – even if it could.<\/p>\n

Can any one provide an example of a fully sovereign government which did not issue debt in foreign currencies ever causing a crisis such as we are enduring at present? You will not find such an example.<\/p>\n

Please read the suite of blogs – Deficit spending 101 – Part 1<\/a> – Deficit spending 101 – Part 2<\/a> – Deficit spending 101 – Part 3<\/a> – for more discussion.<\/p>\n

Also, notice the use of the term America here as if the country owns the budget deficit. This blurs government and households and firms all into some sort of common-status sharing of this accounting balance. Like those stupid debt clocks – every man, woman and child now owes $X where X is some stupendous monetary amount. Well I owe none of the Australian government’s public debt. Not a single cent. I am not liable for it. I don’t have to repay it any time and all I can see are the benefits that the public spending has provided me over my life.<\/p>\n

Anyway, the article just sets up the stereotypical political debate between Obama’s “liberal base … [which] … continues to call for more government spending” and the Republicans who first of all wanted to hold government “spending to $US35bn below 2010 levels” but since the November elections want “an additional $US26bn of spending cuts”. Somewhere in there are the extreme conservative congress members who say “We have to go for significantly more” cuts than ever imagined.<\/p>\n

I actually don’t hear many US politicians calling for more spending cuts and the President’s 2012 Budget<\/a> which was brought down yesterday (February 14, 2011) promised:<\/p>\n

\n… more than $1 trillion in deficit reduction – two-thirds of it from cuts — and puts the nation on a path toward fiscal sustainability so that by the middle of the decade, the government will be paying for what it spends and debt will no longer be increasing as a share of the economy.\n<\/p><\/blockquote>\n

The President promised to “bring this spending to the lowest level since President Eisenhower sat in the Oval Office”. So it seems the “cutters” (aka vandals) are dominant in the US as they are in the UK and elsewhere. I think the President should monitor the UK Office of National Statistics more closely to see what effect fiscal austerity will have on his nation’s economy.<\/p>\n

Anyway, all this talk about the politics driving the deficit reduction lead me to think about what the American people actually think. There was an Bloomberg article (February 14, 2011) – Egypt Protests Hold Lesson for U.S. Wastrels<\/a> by known right-wing commentator Caroline Baum. The article was anticipating the 2012 US Budget.<\/p>\n

Baum said:<\/p>\n

\nFreezing domestic discretionary spending for five years, as Obama proposed in his State of the Union address last month, isn’t going to cut it … The president and Congress are going to have to look elsewhere and dig deeper if they want to put the U.S. on a sound fiscal course.\n<\/p><\/blockquote>\n

Please read my (other) suite of blogs – Fiscal sustainability 101 – Part 1<\/a> – Fiscal sustainability 101 – Part 2<\/a> – Fiscal sustainability 101 – Part 3<\/a> – for an alternative view of what a “sound fiscal course” might look like, independent of a mindless obsession with financial ratio.<\/p>\n

Baum provides some analysis of a recent New York Times\/CBS poll<\/a> on reducing the deficit which had a sample of 1,036 randomly selected adults throughout the US and was conducted between January 15-18, 2011.<\/p>\n

She concludes the following:<\/p>\n

\nThe American public is all for smaller government — as long as it doesn’t affect their specific benefit. This conflicted sentiment is borne out in various opinion polls … In a Jan. 15-19 New York Times\/CBS poll, 75 percent of the 1,036 randomly selected adults throughout the U.S. said the federal deficit was a very serious problem. Twenty percent said it was somewhat serious …\n<\/p><\/blockquote>\n

That was not an accurate depiction of the result. If you consult the Actual Publication<\/a> you will read that “70% of Americans say the budget deficit is a very serious problem for the country”.<\/p>\n

Further the size of the deficit is not an indication of the “size of government”. Knowledge that someone is concerned about the deficit doesn’t allow you to conclude they are in favour of smaller government.<\/p>\n

You could get a much larger government by increasing spending and matching it with tax increases but with a smaller overall budget balance.<\/p>\n

Baum then looked at the question of what to do about this concern and reported that the poll showed that:<\/p>\n

\nMore than half (56 percent) of the respondents said we need to take action immediately …\n<\/p><\/blockquote>\n

Which was accurate with 38 per cent thinking that it “(c)an wait for better economic times”.<\/p>\n

But then you dig a little further.<\/p>\n

Baum didn’t bother putting this concern about the budget deficit into context. The CBS Poll report provides the following analysis:<\/p>\n

\nAlthough concern about the deficit is widespread, that issue pales in comparison to concerns about the economy and jobs. As they have throughout President Obama’s first two years in office, Americans volunteer the economy and jobs as the most important problem facing the country today — 51% name that. The budget deficit and national debt (6%) and health care (6%) are far behind … 41% of Americans are very concerned that someone in their family will be out of work and looking for a job in the next 12 months, and another 25% are somewhat concerned. These numbers have changed little over the past two years.\n<\/p><\/blockquote>\n

So the correct reporting would have been to say people are concerned about budget deficits (even if they do not understand them – more on that later) but this is a trifling concern relative to their fear of unemployment.<\/p>\n

What do people know about the budget deficit? The Poll asked them this question:<\/p>\n

\nAs you may know, the budget deficit is the shortfall when the amount of money the government spends is more than the amount of money it takes in. How much have you heard or read about the federal government’s current budget deficit — a lot, some, not much, or nothing at all?\n<\/p><\/blockquote>\n

The answers were stunning.<\/p>\n