The Great Recession has left tens of millions of families facing unemployment, underemployment and the threat 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."