Liberal Activists Say Focus on Long-Term Debt is ‘Misguided’

Liberal Activists Say Focus on Long-Term Debt is ‘Misguided’

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While President Obama's fiscal commission and the Peter G. Peterson Foundation have held meetings this week to sound alarms about the United States’ long-term fiscal position, some economists and educators say their focus is misguided. The crux of the argument from these largely left-leaning organizations is that economic policy should focus on building prosperity and job growth now before turning to issues like the long-term deficits and health care costs. Even as Obama and other lawmakers said they must begin planning soon to narrow the long-term budget gap, they also pledged to stay focused on improving the current economic environment.

"At a time of 10 percent unemployment, there's a real danger that the White House commission and Peterson's conservatives could cause the president and Congress to pivot away from job creation and stimulus even as the economy remains fragile, and that would be disastrous, both economically and politically," said Roger Hickey, the co-director of the Campaign for America's Future.

Other critics of Washington's view of the debt take that a step further: Not only are today's deficits of little importance, they say, but the federal deficit itself is no measure of the country's fiscal condition.  All Life is Problem Solving blogger Joseph Firestone, bloggers affiliated with the Corrente blog and others organized a meeting in Washington designed to respond to the summit and to preach this gospel, known as Modern Monetary Theory.

"We need to get the message across more vehemently that … our national governments can spend whatever they want," Bill Mitchell, director of the Centre of Full Employment and Equity at the University of Newcastle in Australia, told about two dozen bloggers, students and others gathered at their summit on the campus of George Washington University.

Mitchell calls the concept that the federal ledger should be balanced like a household budget "flawed at the most fundamental level.”  Because the U.S. debt is in its own currency ― dollars ― Treasury can simply create more money to pay the bills when they come due, the theory goes. Rather than reducing debt, the government should "spend" into the economy to drive down unemployment. In this view, tax policy need not aim to balance revenues with spending but can instead be used to control demand for goods and services. Inflation, they say, won't be a worry until the economy gets back to full employment.

"Fiscal sustainability is actually about running good deficits to get full employment," Mitchell said.

While some mainstream economists acknowledge that the government has spent more than $1 trillion on stimulus and aid to the finance and manufacturing industries with little sign of inflation, few say that deficits won't matter in the long term.

"If you start printing trillions of dollars, you're going to be like Germany before World War II," said Fariborz Ghadar, a senior adviser at the Center for Strategic and International Studies. "We're okay up to now, but we can't sustain this in the long run."

To read the full Debt Watch series, go here.

CORRECTION: This post has been corrected to reflect that the blogs Firedoglake and New Deal 2.0 were not involved in the counter-conference. The story also should have been clear that the presenters at the conference included academics and businesspeople, not activist organizations mentioned in the piece such as the Campaign for America's Future.

The Fiscal Times, an independent business venture, is funded by Peter Peterson, but is not affiliated with his foundation.