Deficit Hawks Stampede Lawmakers and the Public Using “Smart for One, Dumb for All” Morality

http://politics2100.wordpress.com/2011/05/31/smartdumbmorality/

As I have argued here in earlier posts, the debate about budget deficits is a monumental one, determining in its outcome the shape of society and the type of economy that will prevail in the US and other developed nations.  The debate is fundamentally about for whose benefit and in what way government will operate and spend money, and what are the ultimate purposes of government and by extension society as a whole.  This debate is complex but is not beyond comprehension.  In this post, I will attempt to explain how this debate in the public sphere has been conducted in a way that misleads and bars the way to a more prosperous, sustainable, and just future.

One Native American hunting technique was stampeding buffalo over a cliff. Using somewhat more sophisticated techniques, the campaign of exaggerated fears about budget deficits is steering the public and lawmakers in the wrong direction with potentially disastrous consequences.

Most important to understand is that the clash between fiscal “austerians” or deficit hawks and their opponents is a clash of moral systems that underlie the most important decisions we make as a society as well as individuals.  These moral systems co-determine both what we think is economically valuable as well as what we think is socially valuable.  They even influence how we think in general, a.k.a. our cognition.  These moral/“meta-ethical” frameworks operate most of the time outside the frame of our conscious awareness, but at this critical time, we must focus on these frameworks themselves.

Before outlining how our thinking and our moral systems interact around these issues, I want to make a quick sketch of the public debt debates as they have proceeded in the United States and in other developed countries.  In doing so, I would like to bring as much as possible to awareness the nuances of the arguments being made before offering an explanation for them.

The Public Deficit Debate Summarized

Advocates of fiscal austerity (“deficit hawks”) generally argue:

1. Government budget deficits and public debt (i.e. net result of yearly budget deficits as opposed to surpluses) in the developed world are rising in an out-of-control manner.
2. Public debt and government budget deficits are in themselves signs and causes of economic weakness, as grave, or graver than, high unemployment or weak aggregate demand (i.e. overall wishes to buy and financial means to buy goods and services).
3. A large portion of public debt and government budget deficits are due to out-of-control “entitlement” spending, i.e. social welfare payments
4. As deficit spending requires governments to issue securities to pay for the spending, bond market investors will either refuse to lend to or charge exorbitant interest on government securities issued by governments that spend on deficit, especially (for some reason) if this spending is on social welfare
5. While some advocates of fiscal austerity, claim consistency in their argument by suggesting that they would also cut non-social welfare spending such as on national defense or bank bailouts or suggesting that taxes should be raised to cover expenditures, the general trend has been to push for and the enactment of real actions to cut social welfare programs.

The opponents of the austerity campaign, armed with a fair amount of economic data from neutral sources, have outlined how the current deficit debate and in particular its designation as a urgent, top priority, is based on false premises:

1.  Bond markets are currently not raising lending rates on most developed countries with large pre-existing public debts and substantial budget deficits.  Nor does it appear as though the trend is upward despite rising public debt; there appears to be a weak relationship between the amount of public debt and the willingness to lend to a government.
2. The private economy remains weak and core inflation (outside of oil and other commodities) remains low independent of the effects of public spending and deficits.  Private consumers are unable to contribute substantially to economic growth because their buying power is diminished due to stagnant or lowering incomes and substantial private debt, all unrelated to public spending and deficits.
3. Future deficits will balloon more if economic growth is not restored via, among other things, deficit spending by governments that stimulates the economy.  Deficit spending first for public recovery programs (the New Deal) and then for war expenditures was the prime means by which the US pulled out of the Great Depression.
4. Against the fears of deficit hawks, moderate inflation will ease current debt burdens in both the private and public sectors.
5. Prospectively all economies are facing major energy and climate challenges which cannot be addressed without decisive government action, financed by either tax revenue or deficit spending.
6. In a country such as the United States, actions to cut social spending as envisioned by deficit hawks would bar the way to the most efficient means to pay for healthcare in the first place, via taxes or tax-like premiums for basic mandatory coverage, which would run through public accounts via a single entity like Medicare or alternatively highly regulated non-profit insurers.   Single-payer or all-payer systems have much lower administrative costs on both the provider and the insurer sides.  Deficit hawks openly express or imply a preference for “market-based” solutions even where these solutions have been shown to increase costs, administrative burdens, and thereby combined public and private medical debt.
7. Deficit hysteria and government budget-cutting under false premises inhibits governments’ abilities to design programs that contain healthcare costs long term without diminishing health outcomes.  Government action via comparative effectiveness research, and supervision of basic health insurance has been in cross-national comparisons one of the few means by which health care expenditures have been kept low with maintenance of a high level of care.  As above, health market actors, patients and providers have either no incentive or insufficient information to effectively rein in costs.  No one has yet a complete solution to rising future healthcare costs but the deficit hawks are putting faith in tools that go in exactly the opposite direction to what data indicates.
8. Deficit hawks tend to ignore or downplay the role of the private sector in the 2007-2008 financial crash, an event which is the proximate cause for governments presently to spend more to help distressed economic actors, thereby temporarily increasing budget deficits.  By implication, ignoring the role of these private sector actors excuses them of any culpability in those events.