COMMENTS ON STIGLITZ'S SEVEN DEADLY DEFICITS

In his article “The Seven Deadly Deficits,” Dr. Joseph Stiglitz (Nobel Prize Winning Economist and co-author of "The Three Trillion Dollar War”) lays out the causes of our economic crisis and the action we must take to extricate ourselves. Stiglitz begins where we all began-- in January 2000. We were upset at the inconclusive election, and unhappy with the two candidates (Bush and Gore) and uncertain of the future, but not too worried. We were secure in the structure of our government’s internal checks and balances and in the traditional Democratic-Republican gridlock in Washington which would prevent even Bush from causing too much havoc. I remember thinking that Bush seemed unprepared for the task, lacking in curiosity and not too bright, but he seemed a nice guy—but then, he had a strong VP in Cheney! Wow how wrong could we be?

Seven Deadly Deficits explains how the federal money squandered on the wars, wasted on the housing pyramid scheme, lost as a result of the recession, as well as the gap between what our economy actually produced and what it could have produced..say under a Gore administration was enormous. Had we not suffered through “Bush Years” we might be now sitting pretty, our people working productively in “green technology”, our citizenry all insured by a universal health care system, cars running efficiently on natural gas and our infrastructure (bridges and roads),our schools (and teachers) in shape to face the 21st century. Compare that to where we are today and you get the picture of what I call the “Bush Deficit”.

The following are Stiglitz’s Seven Deadly “Bush” Deficits. I have freely interspersed my own comments.

The Values Deficit. Is the difference between what Bush-Cheney meant by “innocent until proven guilty”, and what the rest of us thought: that government can’t just throw someone in a cell and forget about them (and throw out“habeas corpus”) as well the” rule of law”.

The Climate Deficit: The difference between Bush's statement: “global warming is fiction”, and what the rest of the world and US scientists thought:“its real”!

The Equality Deficit: The difference between rich and poor has grown immensely under Bush due to tax codes that reward those at the top.

The Accountability Deficit: Bush’s encouragement of deregulation of markets led to high risk practices which were supposed to “disperse” risk (by mortgaged based securities and hedge funds, the latter have grown over the Bush years from a thousand funds to ten thousand). instead they disguised and hid risk. Thus the markets did not function properly as a vehicle to direct funds into the economy, but only as a means of enriching the moguls—then when the system failed..they walked away (with their golden parachutes) leaving the taxpayers to pay the bill.

The Foreign Deficit: With both US citizens and the government unable to save money, the US is forced to seek cash on the foreign markets. The foreign deficit is the money we must beg for over-seas now at about ten billion dollars per day!

The Budget Deficit: In just eight years the Bush Deficits have grown the national debt by a third, from $6 trillion dollars to $9 trillion. But Stiglitz reminds us that these numbers do not include yet to be paid Iraq war bills (i.e. life benefits, rehabilitation of injured, payments to survivors, etc.) and the trillion dollar bail-out of late 2008, and the social-security and Medicare bills for “boomers” yet to retire. But why did Bush grow the deficits with such abandon?

Stiglitz gives two theories, one is based on the fantasy of “supply-side economics” (a Reagan pet-theory..sometimes called the “trickle down” theory) which states that if the “engines” of the economy..i.e. big business…are growing and prospering they will generate forces which buoy the entire nation’s economy. Of course this theory is tied in with the other side of this fantasy equation, the idea that lower taxes for the wealthy generate economic stimulus..for all. The last nearly thirty years of government policy slavishly followed such policies and have demonstrated the wrongheadedness of this idea to everyone’s satisfaction.

The second theory is known as the "Starve the Beast theory, but I've added a bit of my own. I believe it is less just an economic theory and more to do with political infighting-- a strategy of political power. Republicans see domestic spending as a source of political power for the Democrats. After-all, better schools, roads, levees, bridges and health care probably do encourage citizens to vote for the party which encourages such expenditures…but they also are a “good” for the nation as a whole, and its citizenry too. (And then let's remember that no one prevents Republicans from encouraging expenditure in those areas. Do they?) Thus at least in recent Republican theory..domestic spending is an option that must somehow be denied the Democrats. How can that be accomplished? One way is through generating public fear. If the nation is threatened by real attack, or simply by fear of an attack (perhaps engenered by creative use of CIA information), legislators are much more likely to pass bloated defense budgets. The ballooning defense spending squeezes domestic expenditures out of the budget. (Just see a summary of our recent budget in my blog entitled:"About those big numbers" below.) Since the executive branch of governement prepares the budget, it can, by manipulating “necessary” defense side of the budget, an executive like Bush can squeeze the Democrats into the unpleasant choice of having to either cut useful and needed domestic spending to the bone (and deny their constituents) or spend for those projects anyway, and grow the deficits. Thus big big deficits were a “plus” to Republican political power theorists…since it limited the power of their adversaries , while at the same time shoveled massive funds—by way of government military procurement contracts-- toward industries and institutions which were natural constituents of the Republican Party. Thus, the ballooning annual budgets were a “win-win” for Republicans, but a disaster for the nation as a whole.

The Investment Deficit: Good government investments help reduce budget deficits. For example, investment in in better schools and education helps generate new ideas and new technologies, while sound levees in New Orleans might have reduced or prevented the disaster there and had a similar result in the Minneapolis bridge collapse. But the government did not make that type of positive investments in US infrastructure. Partly for reasons outlined above. But it can! To do so, it can either cut expenses or raise taxes. Wealthy corporations and individuals can afford higher rates. European rates are higher than ours--the GDP of the EU at $16 trillion dollars is greater than ours at $14 trillion, yet we have similar sized populations and their industires compete with ours very effectively. But higher taxes alone can’t do it. Expenditures must be cut. But where? Under Bush, domestic spending has been cut to the bone. According to Stiglitz the only area to cut is defense spending. Our so called defense budget is by far the biggest in the world, accounting for one-half of all the world’s military expenditures. Bush’s last budget had military spending (Defense spending plus war costs) at 700 billion dollars (See my blog below “About those Big Numbers”) out of a total $2.8 trillion dollar budget. That’s about one quarter of the total budget and its biggest component in direct costs, Stiglitz calculates that we spend 42 cents of each federal dollar on direct or indirect defense spending. “With so much money spend on weapons that don’t work against enemies that don’t exist, there is ample room to increase security at the same time that we cut defense spending,” states Stiglitz in the Mother Jones piece. And I agree with that whole heartedly.

Stiglitz adds: “The laws of nature and the laws of economics are unforgiving. We can abuse our environment, but only for a while. We can spend beyond our means, but only for a while. We can free ride on the investments made in the past, but only for a while. Even the richest country in the world ignores the laws of nature and the laws of economics at its peril.”
Read the entire article at http://www.motherjones.com/news/feature/2008/11/the-seven-deadly-deficits.html