Actually, it will probably be several decades. While details of the budget ceiling negotations haven’t been released, the initial reports sound pretty awful, with $2.4 trillion of cuts over ten years with $1 trillion in discretionary cuts (that’s stuff like NIH and NSF, by the way). It’s pretty clear, at this point, that Obama wants massive cuts to happen, in part because he doesn’t really understand how the deficits arose:
While I am reporting this, I should note that the President made news regarding his understanding of the origins of the deficit and our slow growth recently when he said:
“For the last decade, we have spent more money than we take in. In the year 2000, the government had a budget surplus. But instead of using it to pay off our debt, the money was spent on trillions of dollars in new tax cuts, while two wars and an expensive prescription drug program were simply added to our nation’s credit card. As a result, the deficit was on track to top $1 trillion the year I took office.”
This is patently false. In fact, this is scary. Dean Baker tells us:
This is seriously mistaken.
The Congressional Budget Office’s projections from January of 2008, the last ones made before it recognized the housing bubble and the implications of its collapse, showed a deficit of just $198 billion for 2009, the year President Obama took office. In other words, the deficit was absolutely not “on track to top $1 trillion.”… Obama does not have the most basic understanding of the nature of the budget problems the country faces. He apparently believes that there was a huge deficit on an ongoing basis as a result of the policies in place prior to the downturn. In fact, the deficits were relatively modest. The huge deficits came about entirely as a result of the economic downturn…. This misunderstanding of the origins of the budget deficit could explain President Obama’s willingness to make large cuts to core social welfare programs, like Social Security, Medicare, and Medicaid…
…In sum: The President has no idea why the deficit exploded, we are in jeopardy of default, and we will cut spending in into the teeth of a serious growth slowdown. America is rudderless. God help us.
And it’s not just President Obama either. This column by pollster Stanley Greenberg has been making the rounds (boldface mine):
Finally, progressives have to be serious about reducing the country’s long-term deficits, constraining special interest spending and tax breaks and making government accountable to the ordinary citizen. The deficit matters to people and has real meaning and consequences. A government that spends and borrows without the kind of limits that would govern an ordinary family is going to have big troubles. Voters I’ve studied say things like, if “we keep spending like this, we’re going to be bankrupt and there won’t be anything for anybody,” especially “our children.”
This is the real problem: the deficit per se does not have real meaning. People may think that it does, but that makes that statement no more true than creationists claiming that ‘Darwinism’ is false. Right now, most people still act as if we are on the gold standard (even as many ‘progressives’ mock goldbug conservatives). We are not. Government creates wealth by spending it into existence: either the government directly pays someone to provide a good or a service, or it gives someone money which he or she can use to purchase goods or services. Government destroys monetary wealth through taxation.
While ‘destroys’ seems harsh, it can be useful: it can limit inflation, reward certain kinds of behavior (e.g., financial transaction tax, ‘sin’ taxes), and prevent misallocation of resources. But the key point is this: these two functions are not linked. We don’t withhold the pay of the sailors of the Sixth Fleet because the Mad Biologist’s income tax check was held up in the mail. Moreover, because we’re not on the gold standard, we can’t go ‘bankrupt’: we can print currency whenever we need to. Yes, this could be inflationary if we were resource limited (either human and physical), but with industrial capacity hovering around eighty percent, one out of six Americans un- or underemployed, the only thing that is limiting is currency. Let loose with the money presses! (actually, it all happens electronically, but it’s a nice image). Besides, it’s not as if our infrastructure is especially sound these days. We would hardly be digging up holes and filling them in again, despite whatever the slavering Uruk-hai of the political right might claim.
What is so incredibly foolish about imposing artificial spending limits–and they are artificial–is that it defeats the major advantage of a fiat currency. We will have needlessly reduced the budget to a zero sum game, especially since we will not be increasing revenues (that is, taxes. AAAIIIEEE!!!). If we spend money on wars, we really won’t have the money to spend on schools (right now, the major issue, besides the rampant murderous stupidity of unnecessary wars, is that we are misallocating resources and rewarding war profiteers). If we increase science budgets, we have to cut something else.
As long as we are trapped in this pre-1933 mindset–and importantly, incorrectly so–those who want to rebuild the nation and put people to work will always be dealt a losing hand. The ersatz shibboleth of deficit reduction will always be looming in the background.
There’s a second key concept that needs to made clear to people: the balance of accounts. Reducing the deficit requires a decrease in aggregate private wealth. While some of that reduction might be good on its own, some of the reduction will inevitably occur through lowered wages, increased personal debt, and unemployment. Given the dysfunction of our political system, I would argue most of any reduction in private wealth will be visited on those who have the least to lose. We can’t cut our way to prosperity.
What is so personally frustrating about our nation’s deficit fetish is that this agreement is supposed to last for a decade. And it will take longer to fix all of the harm this agreement will have caused: $100 billion of spending translates into roughly three million jobs. Cutting that spending is essentially increasing future unemployment and driving down future wages. The result will be an entire generation that has lifetime depressed earnings (on average, what you make in your twenties is a good predictor of what you’ll make thereafter). Sucks to be you, I guess. And hell, I’ll be well into middle age, or even elderly before we right this ship–if that is even possible at that point. Basically, my entire adult life will have consisted of watching a never-ending parade of economic futility and needless suffering due to a failed understanding of basic monetary operations.
We have a lot of educating to do.