Truth, thruthiness and the US deficit and debt
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In March, I wrote in this column about the folly of US budget sequestration - the policy of automatic, across-the-board cuts in discretionary spending - that is, spending that excludes welfare programmes like Social Security and Medicare. This was part of
The budget sequester will continue until a new budget is enacted. Fiscal year 2014 begins on October 1, and this will provide an opportunity to bring in more sensible fiscal measures and a new budget. That will require the US Congress and the administration to agree on the budget. The Obama administration submitted its 2014 budget proposal in April. The bill has lingered but both the administration and Republicans are gearing up for another fiscal cliffhanger when Congress reconvenes in two weeks.
The Republicans want to de-fund or repeal the Affordable Care Act (ACA), popularly known as “Obamacare”, which they claim will reduce the deficit and debt by about US$1 trillion over a 10-year period. There have been 40 attempts to legislatively repeal the ACA. Each has failed.
Now, the focus appears to be on de-funding or delaying its implementation. The threat of not raising the debt ceiling and the risk of shutting down the government are seen as levers to force the administration to cut more spending.
In opposing the administration’s proposed budget, the Republicans and Eric Cantor, House majority leader, repeatedly pointed out runaway deficits and debt. He told Fox News that we have a “growing deficit”, while Senator Rand Paul told Bloomberg Businessweek that we are running “a trillion-dollar deficit every year”.
The Obama administration, on the other hand, maintains that significant progress has been made in terms of deficit reduction and slowing the growth of debt to a manageable level. The administration refuses to include the debt ceiling in the budget talks. It insists on a slower pace of spending cuts and a more balanced path to fiscal adjustment. It believes that fiscal policy has been a drag on economic growth, recovery and employment. The stage is set for another debt ceiling standoff. Which side is telling the truth?
The facts and the truth are on the side of the Obama administration. According to the Congressional Budget Office (CBO), government spending has fallen from its peak of $3.60 trillion in 2011 to $3.45 trillion in 2013, a decline of 4 per cent. Together with an increase in revenue, the deficit for 2013 has gone down from $1.09 trillion in 2012 to $642 billion, a reduction of 41 per cent.
The International Monetary Fund also concludes that the US needs a more balanced approach and a slower pace of fiscal adjustment to reduce the negative impact on growth and the global economy.
While President Obama has the truth, the Republicans’ claim of runaway deficit and debt has truthiness, to borrow the formulation of Stephen Colbert, a popular American comedian, that is something that seems like truth or the truth one wants to exist. And they may be right politically.
Voters are absorbing the “truthiness” message. In a recent poll conducted by Google, 2,500 people responded to the question of whether the yearly deficit has increased or decreased since January 2010. Fifty-two per cent of respondents said the deficit has increased, with 40 per cent saying that it has increased a lot. Twenty-five per cent said it stayed the same, and only 12 per cent said it has gone down a lot.
We don’t expect people to sit down and read the CBO reports. They have lives, jobs and families. They rely on what they hear from political leaders. Unfortunately, a lot of what they hear is misleading if not outright untrue.
Yes, America faces long-term fiscal challenges as a result of demographic changes, unforeseen factors, two wars, the financial meltdown and previous tax cuts. But enough progress has been made to provide some fiscal space over the next three years to address the real and present problems of accelerating growth and employment, reviving manufacturing, rebuilding infrastructure and enhancing America’s competitiveness. All while deficits continue to decline and the ratio of debt to GDP stabilises based on the CBO forecast.
Let’s hope that America will avoid its fiscal folly.
Kiertisak Toh is a member of the economic faculty at Radford University in Virginia and a senior fellow at the Centre for International Development at the Sanford School of Public Policy of Duke University in North Carolina. [email protected].
