September 13, 2009
Out-of-control juggernaut or manageable necessity? Those are the two camps into which a hodgepodge of economists, activists, lobbyists and politicians fall on the question of the ballooning U.S. deficit.
The issue has elicited concern since the administration of U.S. President Barack Obama raised its projection for the 2010-2019 budget deficit to about 9 trillion dollars -- the largest since World War II. While the non-partisan Congressional Budget Office pegged the 10-year deficit at 7.14 trillion dollars, that figure is still considerable, experts said.
Some remain calm about the numbers, but others are in a tizzy over the ramifications. Recently, the Employment Policies Institute, a non-profit advocacy group, launched the first stage of a high profile ad campaign to tackle what it called the "threat posed by unsustainable borrowing and spending."
In a nationally televised commercial airing on a slew of cable TV stations -- CNN, Fox News, MSNBC and CNBC -- children in a classroom recite a pledge of allegiance not to the U.S. flag but to the country's swelling debt.
"I pledge allegiance to America's debt ... And to the interest ... for which we pay ... compoundable ... with higher taxes ... and lower pay ... until the day we die," goes the refrain.
Some economists, however, expressed a less apocalyptic viewpoint.
"Nine trillion dollars seems like a shocking number, but we can deal with it with a combination of tax increases and spending cuts," said Ben Carliner, director of research at the Washington-based Economic Strategy Institute. That would make sense, he added, given that the deficit's sharp upward growth stems partly from lower tax revenues.
Carliner said the numbers are manageable and must be viewed in context -- European Union nations such as Italy, France and Sweden incurred a much higher debt load during the early to mid 1990s, he noted.
The long-term deficit, he believed, will be dealt with when the time is right. At present, however, the government needs to spend money to arrest the country's economic decline and prevent it from spiraling out of control, he said.
"When you are in a recession like this, you don't want to cut spending," he said. "It would be irresponsible to start dealing with the deficit by drastically cutting spending now."
Other economists, however, have echoed the same type of alarm expressed in the Employment Policies Institute's commercials. Irwin Stelzer, senior fellow and director of economic policy studies for the Washington-based Hudson Institute, said the numbers could turn out to be even worse than current predictions.
The White House's estimate, he argued, assumes cuts in Medicaid and Medicare -- government health plans for low income families and the elderly -- will be implemented and that cap and trade – a bill requiring companies to pay to emit carbon -- will hit projected revenues.
It also leaves out the costs of Obama's health care reforms, which experts say could exceed 1 trillion dollars. Those factors could raise the deficit to 76 percent of the nation's gross domestic product by 2019 -- nearly double this year's 41 percent, he said.
Brian M. Riedl, senior policy analyst at the Washington-based Heritage Foundation, described the new budget spending estimates as "alarming" and "absolutely unsustainable."
"The result will be the highest level of spending -- and debt -- in American history," he said. "Within a decade, Washington would have to spend nearly 800 billion dollars annually just to pay the interest on the national debt."
How official projections grew to current levels is a matter of debate. The White House said it inherited the bulk of the debt from the previous administration.
Peter Orszag, director of the White House's budget office, said the deficit "underscores the dire fiscal situation that we inherited."
Others say everyone is to blame -- from the previous to the current administration, as well as Democrats and Republicans in Congress.
Carliner said tax cuts and heightened spending during the Bush administration are to blame.
"It would have been more prudent for the government to have put its finances in order during the economic expansion of the last ten years," he said. "It was spending increases and tax cuts under Bush that put us here."
David Rosnick, an economist at the Washington-based Center for Economic and Policy Research, said the current deficit has little to do with Obama's policies and has more to do with issues such as the long-term cost of health care, which presents a significant danger, he said.
Also problematic, he said, is that no jobs have been created during the last nine years, he said.
"We had 132 million jobs in July 2000. We lost half a million total," he said, adding that the losses stemmed from the last two recessions - in 2000 and 2008 -- that book-ended Bush's two terms in office.
But he remains unperturbed about the deficit's long-term impacts.
"We can get a handle on it if we have (economic) growth so there is no reason to think we can't work our way out of this."