Deficit Scaremongering Undermining Economic Recovery

[Hannah Bell]

Reining in Health Care Costs of Far Greater Consequence in Long-Term Budget Picture

For Immediate Release: February 16, 2010
Contact: Alan Barber, [phone] x115

Washington, DC - The Great Recession has left tens of millions of families facing unemployment, underemployment and the possibility of losing their home. However, concerns over the deficit threaten to derail efforts to turn around the economy and spur employment. A new report from the Center for Economic and Policy Research (CEPR) corrects many of the misperceptions about the deficit that have brought the issue to the center of national debate.

"There would be no short-term or long-term benefit from reducing the current deficit," said Dean Baker, co-director of CEPR and the author of the report. "If the budget deficit were smaller we would see higher levels of unemployment."

The report, "The Budget Deficit Scare Story and the Great Recession," shows that the most-cited claims of leading deficit hawks are driven by unfounded fears and misrepresentations of basic economic relationships.

One such example cited in the report is that the worsening of both the short- and long-term deficit picture was driven not by a spendthrift Congress, but almost entirely by the economic crisis brought on by the collapse of the housing bubble. The small portion of the budget deterioration driven by legislative actions was primarily the result of increased defense spending associated with the wars in Afghanistan and Iraq.

As well, the study demonstrates that the true long-term deficit problem is skyrocketing health care costs and any meaningful attempt to deal with deficits would start with reining in health care.

"The nation does not really have a long-term deficit problem," Baker writes. "What we have is a long-term health care problem."

The study also refutes the notion that the budget deficit is the source of concern over the threat of foreign government ownership of U.S. debt. If budget hawks were truly worried over the prospect of foreign ownership of debt, they would focus on the trade deficit. Given that the trade deficit is driven by a high dollar, this should be a focus of their attention, but the people raising this concern almost never discuss the over-valued dollar.

These misrepresentations and others are more than diversionary arguments of no consequence. In a time when cogent, effective policies are needed to address the suffering stemming from the economic downturn, the tactics of the deficit hawks distract the public and policy makers from the policies necessary to bring the economy back to full employment.

The full report can be found here.

http://salsa.democracyinaction.org/dia/track.jsp?v=2&c=6hL7rsrgc5izOz6K2Acj7FK8XbyAJxmB

[Hannah Bell]

1. kick

[Hannah Bell]

12. k

[Subdivisions]

2. Tell me, Hannah...What was CEPR saying in the lead up to the

current financial crisis? Did they warn of the impending collapse, or did they deny there was a problem? Did they warn the public about CDSs and what subprime mortgage could do to the ecomomy?

[Subdivisions]

3. Kick. n/t

[Hannah Bell]

4. Dean Baker was talking about the mortgage bubble well before the collapse.

The Bubble Sitters: Dean Baker
-- Posted: Aug. 25, 2005

Dean Baker, a macroeconomist and a believer in the scientific method, is so confident that a housing bubble exists that he is performing an experiment on himself.

In May 2004, Baker and his wife sold their two-bedroom condominium in the Adams Morgan neighborhood of Washington, D.C., and rented a similar unit a couple of blocks away. They owned the condo for seven years and almost tripled their money.

"I felt like a fool holding onto it," Baker says. "I'm pretty sure that prices around here will plummet."

As co-director of the Center for Economic and Policy Research, a liberal-leaning think tank, Baker has been warning about a housing bubble for years. Scientists welcome disagreement as a way to improve knowledge, and Baker has invited debate: At the beginning of 2004, he sponsored a $1,000 essay contest to solicit the most convincing argument against the existence of a housing bubble. CEPR posted the winning essay by economist Hilary Croke, along with a rebuttal by Baker.

http://www.bankrate.com/brm/news/mortgages/BakerFamily.asp

[Subdivisions]

5. So, that's the best the

CENTER FOR ECONOMIC AND POLICY RESEARCH could come up with leading up to a crisis that has devestated millions of lives and cost trillions of dollars in middle class wealth to evaporate?

Sorry, but that's hardly enough warning from something calling itself the CENTER FOR ECONOMIC AND POLICY RESEARCH. Why should I trust anything they say? Really?

[Name removed]

6. Deleted message

Message removed by moderator. Click here to review the message board rules.

[Subdivisions]

8. What comments? I only asked questions. Oh, and using the word "idiotic" to

describe the thoughts of another member here is un-civil and, as such, a violation of the rules.

[Hannah Bell]

10. Dean Baker loudly, repeatedly, & in the absence of much support,

called the housing bubble.

These are your comments in response to that information. They are idiotic. Calling a poster's comments "idiotic" is not a rules violation.



So, that's the best the CENTER FOR ECONOMIC AND POLICY RESEARCH could come up with leading up to a crisis that has devestated millions of lives and cost trillions of dollars in middle class wealth to evaporate?

Sorry, but that's hardly enough warning from something calling itself the CENTER FOR ECONOMIC AND POLICY RESEARCH. Why should I trust anything they say? Really?

[johnaries]

7. Common Dreams seems to trust them.

http://www.commondreams.org/progressive-community?filter0=thinking

I never thought I would defend Hannah Bell, but this research pretty much says what I have heard before. The current deficits are not the long-term problem. Once the economy recovers Federal Revenues will be up. Health Care costs are the long term problem. Obama has said this many times.

[Subdivisions]

9. I haven't denied the premise of the article cited in the OP. I just don't remember

CEPR being out front in warning of the then-impending crisis. And, one article certainly doesn't qualify as a warning no matter who wrote it.

I really am interested in what they had to say about it because I genuinely don't remember seeing them sounding the alarm bells.

[Hannah Bell]

11. Because Baker, like most economists who nay-say the "prevailing wisdom," rarely get guest-editorials

in the "opinion-setting" media.

But I assure you, Baker was well-known for calling the bubble.

http://bubblemeter.blogspot.com/2009/03/dean-bakers-new-book-on-housing-bubble.html

Dean Baker was one of the few professional economists who recognized the housing bubble before its peak. Click the image to visit its page on Amazon.com.

From the product description:

Dean Baker argues not only that competent economists should have recognized the developing housing bubble, but also that policy makers and the media cheerfully neglected those economists who did predict danger. The really sad thing is that not only did policy makers and the media ignore those who predicted danger, but they largely continue to ignore those who predicted danger. The Huffington Post has a new interview with Dean Baker here.


Moreover, Baker thinks we're *still* in a housing bubble:

January 26, 2010, 11:22 AM ET.Dean Baker: We’re Still In a Housing Bubble
.Article Comments (14) Developments HOME PAGE ».EmailPrinter FriendlyPermalinkShare:

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By Nick Timiraos

Bloomberg
Rows of houses stand in Las Vegas, which has been hit hard by the housing downturn.Home prices have posted six months of gains, according to the Case-Shiller home price index, released this morning. But some housing bears say that the fundamentals don’t support those price gains and that, even once the market finds a bottom, home prices aren’t likely to show significant appreciation for many years to come.

Housing economist Dean Baker, the co-director of the Center for Economic and Policy Research, laid out his case at a risk conference last week for why we still have a housing bubble. Adjusted for inflation, home prices are still 15-20% higher than they were in the mid-1990s. “There’s no plausible fundamental explanation for that,” he says.

Why? Simple, he says: Economic fundamentals are all going in the other direction. Rental apartment vacancies are reaching record highs. Many segments of the housing market are still oversupplied. And the core demographic in the country—the baby boomers—are reaching the age where they’re more likely to downsize, buying less house in the years to come.

Far from some rosy estimates that housing is going through a temporary, once in a lifetime downturn, and that once the market bottoms, homes will again appreciate well beyond the rate of inflation, Mr. Baker argues that home prices are far more likely to increase annually at the rate of inflation, at best.

“If anything, I expect housing to be weaker than normal rather than stronger over the next decade,” he says. “People who say this is a temporary story, there’s no real reason to believe anything like that.”
http://blogs.wsj.com/developments/2010/01/26/dean-baker-were-still-in-a-housing-bubble/tab/article/.