Solve the Budget Deficit - NY Times interactive

It's just like with sports, BTE. There's a very finite period between being experienced enough to know how to do the job properly and so experienced all you care about is keeping the damn job.

 

PS: Rick. There's nothing about the budget that 4 percent annual GDP growth and a decline of about three percent in the unemployment rate wouldn't cure. 1. Added tax revenues would drive the deficit down. 2. Any presense the public cares about the deficit would be abandoned.
I have yet to see any evidence that proposals from the political elite (both parties) to cut the deficit amount to anything more than shifting the tax burden further from the wealthy to the middle class while cutting expenditures on the middle class and poor. None.
It's just another indication that we are ruled, not governed, ruled, by organized wealth, a fact obscured by the tribal nature of our political system.

 

4 percent GDP growth and 6% unemployment would help, but it wouldn't be enough to outpace this level of debt.

But the problem is this:

Right now, the government is pumping 10% of GDP into the economy by borrowing it, and we *still* have 9.6% unemployment and tepid growth. If the economy were left to its own devices and not propped up by government borrowing, it'd be much much worse.

Meanwhile, we are also losing something like 4% of the economy every year to interest on the debt, and that's growing at about 10% per year right now. That's a millstone around the neck of the economy, pulling back growth and slowing it down.

How on earth are we going to get back to strong growth and low unemployment in this catch-22? You stop government borrowing, the economy crashes back to the bottom of the hill. You don't stop government borrowing, the hill gets a little steeper every year.

Post WWII, we survived this level of debt by being the only world economic power left that didn't destroy its manufacturing infrastructure with a devastating war. This time, we face strong global competitors.

 

One solution would be protectionism. Our debt is intimately related to the balance of payments deficit. Protectionism is of course a bad word in economics, although all the booming economies of Asia practice it vigorously. "Free trade" is another one of those code words, like "balanced budget," for "subservience to the interests of organized wealth." Free trade platitudes are how a Democratic candidate indicates he deserves corporate financing.

 

Protectionism would be *very* bad for those middle classes you are so concerned about. Wait till they find out how far their middle-class wages don't stretch when faced with American-made prices.

 

The theory is, if American companies are selling goods at American-made prices, they must offer their employees higher wages or nobody buys their products and they go broke. Again, we can't have it both ways. If the trade balance is bad, then the deficit will continue to be large no matter what else we do, or the dollar will decline in value to match the trade deficit -- a/k/a solving the problem through inflation.

 

I don't think American-made prices would skyrocket so much. There's the whole supply/demand thing. Would people want to pay $1,000 for a pair of sneakers made by a worker paid $7.50 an hour? Probably not. The prices would go down to what the market demands.

The prices there are now would probably go up a little bit if there was protectionism. But a lot of the prices have remained relatively the same, taking into account the growth of inflation.

Whatever money that has been saved sending the jobs overseas has gone right into the company's pocket. If the company could get away with selling $1,000 sneakers, they would.

 

Supply/demand cuts both ways. If Americans won't demand the more expensive goods, then no one will supply them and all the jobs we are supposed to be gaining will disappear. The reason companies can't get away with $1,000 sneakers is both that Americans won't demand them and that their competitors would supply them cheaper. You take away suppliers but keep the same demand, prices will go up. (I hate being so simplistic about it, because the real world is often more complicated, but that's the basics).

Meanwhile, the world's largest manufacturer (us) would face retaliatory actions by all the purchasers of our goods. The manufacturing jobs we've lost so far have been bad enough, the ones we'd lose in addition would be disastrous. And you think the Chinese would keep generously funding our deficit spending once we stop buying their goods? The government would be forced to stop propping up the economy.

Protectionism would be disastrous for just about everyone. It just doesn't work.

Exactly. There's nothing that can be done to avoid the coming economic pain. We borrowed our way to growth in the 90s when we didn't have to, we lived it up, and now things are going to suck. Our choices are to accept it now, or try to fight it off with short-sighted policies that will only make the inevitable comeuppance that much worse.