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Posted by: Michael Mandel on November 28
My regular readers know that I’m not terribly worried about the budget deficit, at least at current levels (see for example this piece here). Nor am I particularly worried about entitlement spending, which has been overhyped as a problem because of a weird forecasting methodology (see here)
So I was very happy to see a new post from Max Sawicky on “deficit dementia.” Max writes:
Let us recap ten fallacies of deficit dementia:
1. Lumping debt service, Social Security and other “entitlements” with the only genuine fiscal problem — Medicare and Medicaid.
2. Obsessing over retiree to worker ratios, instead of total population to worker ratios.
3. Exaggerating the tax adjustments required to finance Social Security.
4. Presuming that deficit reduction will spur capital formation and economic growth.
5. Assuming the Federal budget ought to be balanced, as a matter of course.
6. Treating tax increases to finance entitlement growth as “unprecedented” and politically impossible, but considering draconian benefits cuts as politically feasible and inevitable.
7. Assuming taxes could not be higher, for economic reasons.
8. Pretending we have a clue as to the nature of the economy forty (thirty? twenty?) years or more in the future.
9. Comparing the rate of return of equities over extended periods too long to be susceptible to prolonged slumps that would plague an actual investor to a program that a) paid the legacy costs of elderly who never contributed to Social Security, b) has lower risk than equities, c) provides an inflation-proof annuity with zero conversion cost at retirement, d) has minuscule administrative overhead, e) provides disability and survivors insurance, and f) provides insurance against low earnings over one’s lifetime.
10. Comparing accumulations of program deficits over 75, 100, or eternal time horizons to this year’s GDP.
To this I would add…counting government spending on as R&D, education—and yes, part of health care—as consumption rather than essential long-term investment that can be and should financed by borrowing.
Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.