Say, Dean Baker, what do we really need to know about the fiscal-cliff deal?
When CNN asked economist Dean Baker to sum up in one pithy piece what folks needed to know about the then-merely-proposed (but soon to be enacted) "fiscal-cliff compromise deal," they probably weren't expecting what they got, which would have been more along the line of some swift crunching of numbers (extra credit if the numbers are mostly imaginary) showing that as a result of the "deal" most people will be (a) better off, (b) worse off, or (c) the same.
Something along the lines of, say, the jackassery puked up by WaPo's Robert "No Relation to Paul" Samuelson, better known as the Village Idiot of Economics Reporting, who summed up the deal as "Obama's leadership failure." Hmm, you say, that could be interesting? Come on, be serious. We're talking about "No Relation to Paul" Samuelson, the Dumbest Slug on the Finance Beat. The presidential failure, you see, was his refusal to persuade the country to understand that what's bringing the country to its knees is extravagant Social Security and Medicare payments!
But no, Dean didn't get sucked down that blind alley. Instead he suggested ("Look beyond the fiscal cliff") that the one possibly truly useful thing about the fiscal-cliff deal is that just possibly it may put "the distractions created by the debate over the fiscal cliff behind us." That debate, he says, "has been part of a larger distraction -- the concern over budget deficits at a time when by far the country's most important problem remains the economic downturn caused by the collapse of the housing bubble."
It's clear what's going on here. We don't need any conspiracy theories.
CEOs from both political parties have openly come together to demand cuts in Social Security and Medicare, two programs that enjoy massive political support across the political spectrum. The wealthy are joining hands without regard to political affiliation to cut benefits that enjoy broad bipartisan support among everyone who is not rich.
When the housing bubble burst, annual spending on residential construction fell back by more than 4% of GDP, which is $600 billion in today's economy. Similarly, consumption plunged as people drastically curtailed their spending in response to the loss of $8 trillion in housing bubble generated equity.
There is no easy way for the private sector to replace this demand. Businesses don't invest unless they see demand for their products, regardless of how much love we might shower on the "job creators." In fact, if anything, investment is surprisingly strong give the large amount of excess capacity in the economy. Measured as a share of GDP, investment in equipment and software is almost back to its prerecession level. It is hard to envision investment getting much higher, absent a major boost in demand from some other sector.
This is why it is necessary for the government to run large deficits. Ideally, the money would be spent in areas that will make us richer in the future: Education, infrastructure, research and development in clean energy, etc. There is just no way around a large role for the government given the economy's current weakness.
Obama needs to explain this simple story to the country. The rich of both parties will hate him for going down this route. They will use their powers to denounce him. But the American people support Social Security and Medicare, and they support an economy that creates jobs for ordinary workers.
Obama needs the courage to tell the truth.
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