Dean Baker skewers “The Great Deficit Scare”

One of the nation’s foremost progressive economists, Dean Baker of the Center for Economic and Policy Research, is out with a powerful new report (pdf) this morning that debunks some of the current myths about federal deficits and debt.

This is from the Executive Summary:

This paper corrects some of the misperceptions being fostered by the anti-deficit campaign.
It points out that:

1) The extraordinary level of current deficits is overwhelmingly the result of the economic crisis. There is little reality to the claim that Congress is out of control in its tax and spending policies.

2) The budget deficit does not pose an economic problem at present. If the budget deficit were smaller, we would simply be seeing higher unemployment. There would be no short-term or long-term benefit from reducing the current deficit.

3) The size of the longer-term deficit problem has been both exaggerated and misrepresented. Projections show that debt-to-GDP ratios will be well within manageable levels at least a decade into the future, even if there are no major changes from baseline scenarios. As a long-term issue, the United States must fix its broken health care system.

4) The wealth of near-retirees has been devastated by the collapse of the housing bubble and the plunge in the stock market. Any substantial reduction in Social Security or Medicare benefits will likely leave large segments of middle-income workers with near-poverty level incomes in retirement.

5) Concerns about foreign ownership of the government debt are offensive jingoism. There is an issue about foreign indebtedness because this implies that an increased portion of future output will be paid out as interest and/or dividends to foreigners rather than being available for domestic consumption. However, this is driven by the trade deficit, not the budget deficit. The trade deficit, in turn, is attributable to the over-valuation of the dollar.”

FYI, be on the lookout for an announcement of a Baker appearance in North Carolina in the coming weeks.