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Town hall on deficit: all the facts?

[Corrected 7-21-10]   The sponsor of a “national town hall meeting” on the nation’s fiscal policy – which claims to be nonpartisan and inclusive of all viewpoints – dismissed a local budget expert who had been asked to serve as a moderator after he suggested that the group’s background materials were incomplete.

America Speaks expects hundreds of Chicago area residents to discuss fiscal policy at a town meeting at Navy Pier on Saturday, June 26 from 10:30 a.m. to 5 p.m.  They’ll be connected by internet hookup with similar meetings in cities across the country.

Small groups will consider a range of options for reducing government spending and increasing revenues – the goal is to reduce the nation’s deficit by $1.2 trillion in the year 2025 – and their responses via keypad polling will be tabluted by America Speaks. A report on the recommendations will be delivered to the President’s Commission on Fiscal Responsibility on June 30.

In preliminary discussions with staff and other expert moderators, Ron Baiman of the Center for Tax and Budget Accountability suggested that a basic macroeconomic reality – the interrelation of public and private deficit spending with the trade deficit, and the consequence that cutting the federal deficit alone would increase unemployment – needed to be included in the forum’s discussion guide.

A few days later, Baiman says, America Speaks told him he wouldn’t be needed as a moderator.

“You can’t look at the federal deficit in isolation,” Baiman said. “If you just cut public deficits without trying to do something about the trade deficit, you’re going to increase unemployment,” he said.  “You can try to offset [reductions in public spending] with increased deficit spending by the private sector, by businesses and households, but that’s not sustainable, as the last two bubbles have shown.”

Baiman says cutting the trade deficit would require a comprehensive industrial policy to restore some of the economy’s productive capacity. It could be part of a large-scale national jobs program funded through a tax on financial transactions – which Baiman maintains is the only way the country can get back to near full employment in a reasonable time period.

The U.S. lost over a third of its large manufacturing plants in the past decade, and “we can’t get back to a sustainable U.S. economy without becoming competitive in at least some manufacturing sectors,” he said.  (Baimain spells out these issues in a paper on the website of the Chicago Political Economy Group.)

Without considering this larger context, he fears, the forum could become a largely meaningless “accounting exercise.”.

After much back-and-forth, he said, the president of America Speaks agreed to mention the issue in her opening remarks.  He’s not sure whether she’ll draw out the full implications.

Others have questioned the lack of context for the discussion of the deficit.

According to economic Dean Baker of the Center for Economic and Policy Research, the informational booklet “discusses the budget in almost complete isolation from any larger discussion of the economy,” notably how the budget fosters economic growth, and how such growth in turn impacts the budget.

“The way the problem is outlined for these meetings virtually guarantees that most of the participants will opt for big cuts in Social Security and Medicare,” writes Baker, calling the town halls a “propaganda exercise” and part of the campaign to cut Social Security.

Meanwhile, at US Action’s Aggressive Progressive blog, David Elliot writes that while the issue of long-term deficits is important, the America Speaks forums “may not encompass the entire conversation we should be having.”  That would “start with an acknowledgement of the crisis we now face” – and include the intrinsic link between the budget deficit and the massive “jobs deficit.”

Elliot offers several suggestions to “simultaneously address the deficit and take on what should be our nation’s most compelling and urgent priority: putting people back to work.”  These include allowing the 2001 and 2003 tax cuts for the wealthy to expire (this is estimated at $400 billion a year by 2014) and restoring the estate tax.  Neither of these is among the options proposed by America Speaks.

(In the program’s Options Workbook, participants are given a limited number of choices for deficit reduction strategies.  After an extensive discussion of health care spending and possible methods of reducing it, for example, participants are told: “You may choose to reduce Medicare and Medicaid spending by 5 percent, 10 percent, 15 percent, or not at all.”

(The options are attached to projected savings, with no explanation; a security transactions tax could raise $30 billion year, according to America Speaks. CPEG has estimated that a financial transaction tax covering instruments traded on and off exchanges could raise $1 trillion a year.)

Elliot argues that stimulating the economy now with a “robust jobs bill” and a stronger safety net for laid-off workers would reduce the deficit in the long run.

Some concern over the forum reflects the current political dynamic in Washington, where “deficit hawks” hold sway and are preventing not just spending on jobs programs but even an extension of unemployment benefits.

America Speaks stresses the long-term focus on the forum; the Options Workbook frames its “challenge” with these words: “Once the economy recovers….”

But some supporters of the forum – including writers at Fiscal Times, a project of the Peterson Foundation, which is providing major funding for America Speaks – are arguing that the recession has already ended, and that “you can’t wait until the cyclical deficit has resolved itself to address the structural one.”

And the net effect of the forum is to gather some hundreds or thousands of people to demonstrate their concern over the federal deficit, at a moment when politicians are using such concern as a roadblock to spending on economic recovery.

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Category: economy


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