Open secret

If a deficit falls in the political forest and nobody hears it (or some pretend not to), is it still good economic news?

May 10, 2014 

One of the most important economic developments of recent years is sitting there in plain view but hardly anyone is talking or writing about it, although it has been the crucial point of political debate for years; has brought the government to a standstill as recently as six months ago; caused the U.S. credit rating to be downgraded; and is still hotly debated although the facts have changed.

What is it? It's the national deficit, or the amount of money the government is spending more than it collects. All of a sudden - well actually for the past three years -- the spending gap has closed significantly, but critics of government spending don't seem to have noticed.

For this past fiscal year, the deficit is on track to drop to 4.1 percent as a share of the overall U.S. economy, down from a high of more than 10 percent at the depths of the Great Recession.

The decline is the sharpest in a single year since the end of World War II, and the overall deficit is the lowest in total dollars since 2008.

To put it simply, spending in the first half of 2014 fell to about 20.8 percent of the national economy while receipts grew to about 16.7 percent, according to the Treasury Department. This is a significant change from a few years ago, and 20.8 percent is the average amount of GDP spent annually by the government during the past 40 years.

But any comment made on the welcome change has mainly been criticism that the government still spends too much and the federal budget should be in complete balance each year, which it seldom has been. Politicians and fund-raising groups with a long and intense stake in the issue of federal spending aren't going to stop gnawing on that bone as long as there is a shred of meat left on it.

The problem is that while the federal budget figures look better and the stock market is at an all-time high, the nation is still in a recession. Many Americans are still hurting even though the economy is creating more money per capita than ever in its history.

The question must be asked, of course, why and how has the deficit gap closed to less than half of what it was just three years ago, and why partisans on both sides of the economic issues are not claiming more credit?

Several months ago when the path to closing the budget gap was already clear President Obama devoted just one sentence in his State of the Union speech to the lower deficit. The Republican responders didn't mention it.

What's the reason? Are the Treasury Departments figures not credible? Has the deficit as a flaw in our national character become so ingrained that it can't be discussed in polite company?

Most of the supposedly insoluble issues facing our divided Congress evolve in one way or another from the assumption that the country doesn't have the means to deal with them and that the budget deficit is an immovable barrier to any solutions that cost more money.

But that simply isn't true, and most politicians know it. The deficit is shrinking. It's always just been an excuse to keep from dealing with problems that members of Congress use, either because of sincere frugality or because they don't like the solutions.

Tea partiers and others longing for a return to the 18th century like to cite the Constitution.

But the Constitution, as adopted in Philadelphia in 1787, had little to say about the budget except that the government should "insure domestic tranquility, promote the general welfare, provide for the common defense and secure the blessings of liberty."

The 16th Amendment states: "Congress shall have power to lay and collect taxes on income, from whatever the source derived."

Taxes today as a percent of the national income are at a low point for the past 60 years, which is one reason the nation has any deficit at all. As for the damage the deficit does, the nation started with a deficit of several million left over from the Revolutionary War and it was not erased until 40 years later when President Andrew Jackson abolished the National Bank. The main result was the nation's first severe recession in 1837, which led to the defeat of Jackson's successor, Martin Van Buren.

To sum up, the deficit for 2014 will be about $680 billion, down from $1.1 trillion in 2010, thus providing some $400 billion that could be used to stimulate the economy and, not incidentally, further enhance tax revenue. The Treasury Department estimates that a major reason for the lower deficit is the increase in working Americans who now pay taxes into the Treasury instead of taking it out in unemployment pay. Another factor cited is a surprising slowdown in federal health spending.

So the deficit is shrinking, although that is largely ignored. You'd think Democrats would be out trumpeting the news before the midterm elections. One explanation given is that politicians don't believe the average voters feel any effects yet, and many Republicans are obviously leery of the figures.

A beneficial way to confirm them would be to put some of the "saved" money into the economy in such ways to help the unemployed, such as extending jobless pay; restoring food stamp funds; sending more money to states that have had to lay off employees, including teachers and workers on construction projects.

But first spread the news! The national deficit is half what it was two years ago. It fell more in the last year than in any year since World War II, and if it had fallen any more the nation would be in worse economic shape than it is.

It's time for the government to spend more money.

Millard Grimes, editor of the Columbus Ledger from 1961-69 and founder of the Phenix Citizen. is author of "The Last Linotype: The Story of Georgia and Its Newspapers Since World War II." A profile of Grimes can be found in the Georgia Encyclopedia, www.georgiaencyclopedia.org.

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