The Federal Budget Deficit is Too SMALL

Professor Bill Black (author of The Best Way to Rob a Bank is to Own One) is outraged over the phony “fiscal cliff,” because there seems to be a bipartisan consensus (including President Obama) that the solution to that “crisis” is to engage in austerity measures, to cut government spending by various means, including the shredding of the safety net (Social Security, Medicare).

Black explains at length why this is an economically illiterate and “suicidal” approach:

Keynes has again proven correct.  Europe adopted austerity and needlessly and destructively hurled the Eurozone back into recession.  We would have to be insane to engage in such financial suicide.


The federal budget deficit is too small. You did not misread that sentence. It is a logical consequence of the CBO’s reasoning in warning in its November 2012 report against the austerity of the “fiscal cliff.” We would have recovered more quickly from the recession if we had increased more substantially our governmental spending and reduced (net) taxes. Both parties’ leaders purport to understand (hence their embrace of the CBO report) the suicidal nature of austerity, but both pander to the electorate by railing at the deficit. It is as dishonest as it is economically illiterate and it has created a massive barrier to getting the public to back rational policies. The U.S. has had much larger deficits (relative to our GDP) during and after World War II. Those deficits allowed us to defeat the Axis powers, recover from the Great Depression, attain full employment, extend the safety net, and achieve robust economic growth without destructive inflation.


Obama needs a real jobs guarantee program for every American able and willing to work. There is no greater waste than leaving over 20 million Americans underemployed, and Republicans’ ideological fantasies about the unemployed cannot survive a jobs guarantee program. The administration should also fund revenue sharing. The original stimulus plan had a major revenue sharing component, but a coalition of conservative (“blue dog”) Democrats and Republicans killed it. This was a travesty. A national government with a sovereign currency is not like a state or local government [or like an individual household either – ed]. It can and should run a deficit in response to a recession. A state or local government cannot do so. It was certain that state and local governments would suffer severe drops in revenues at the same time that the need for increased state spending to help the unemployed. The inevitable result was that state and local governments would have to fire over one hundred thousand workers and add to unemployment during the Great Recession. The win-win is revenue sharing – a Republican policy initiative. The federal government transfers hundreds of billions of dollars to the state and local governments, which allows them to avoid firing the workers and cutting social services when they are most needed. All of this allows the economy to recover more quickly and eventually reduces the deficit. It also makes America vastly more humane.

Read the full article here: “Why Jobs Should be Obama’s Top Priority — Not Suicidal Austerity

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5 Responses to “The Federal Budget Deficit is Too SMALL”
  1. RL Crabb says:

    Sounds reasonable, but how would propping up local and state governments address their future pension liabilities? Is keeping the status quo the answer, as long as the Feds can borrow money?

  2. Don Pelton says:

    I don’t know, RL, good question.

    But at some level I assume that since the pension funding problem first became acute only with the arrival of the Great Recession, the best solution to that funding problem is the economic stimulus required to pull us out of the recession.

    I’m just asking: In a booming economy with a low unemployment rate, is there still a pension funding problem?

  3. Don Pelton says:

    Economist Dean Baker of the Center for Economic and Policy Research, while he acknowledges that there has been some underfunding, suggests:

    “Most states face pension shortfalls that are manageable, especially if the stock market does
    not face another sudden reversal. The major reason that shortfalls exist at all was the downturn in
    the stock market following the collapse of the housing bubble, not inadequate contributions to
    pension funds.”

    From “The Origins and Severity of the Public Pension Crisis

  4. RL Crabb says:

    Making assumptions on future stock earnings is what got us into this fix, for sure. During the tech bubble, economists were projecting the Dow topping 20K by 2012. The housing bubble led people to believe that their homes were ATM machines that would finance their retirement, and we know how that turned out.
    George Rebane has posted some interesting thoughts on the future of employment in the U.S. (I know, it’s Rebane so it must be some crazy right wing blather.) I have many differences with the right’s train of thought, but he does have a point in predicting that the current trend of technology and mechanization would point to more, rather than less, unemployment. Even a crusty right winger like George thinks that there will have to be a redistribution of wealth unlike any we’ve seen in history. The trick is how can can it be done without draining the well?
    I don’t have the answers, but it’s something we should probably look at when making plans for tomorrow.

  5. RickD says:

    Certainly there were homeowners who (unwisely) used the real estate bubble as a cash cow. But to blame them for the greedy manipulations of the financial community which sliced and diced mortgages, selling them in blocs and slicing them again and again and reselling ad infinitum is simply to ignore the facts.

    When mortgage brokers erased home appraisals and wrote in higher numbers to gain higher commissions, when they lied to home buyers about balloon payments and mortgages that screamed disaster the small minority of unwise homeowners cannot be blamed for the greed and illegalities of an industry.

    Our Govt’s. regulatory institutions have failed us in many areas, the home buying industry being only one such. The lack of prosecutions by our Justice Dept. is, in itself, a criminal lack of action. Our democracy has been corrupted by corporate influence and no longer even seeks to represent we the people. Mussolini correctly noted that the merging of corporations and government is the very definition of fascism.

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