The Deficits Question

Do Deficits Matter? It depends on where you sit--and on which type of deficit you're talking about.
by Irwin M. Stelzer 02/15/2005 12:00:00 AM

On the political level, treating deficits as a non-issue also proved a successful strategy.

Which brings us to the economic level. The deficits that Bush ran up in the years in which the country was teetering on the verge of a serious recession had the beneficial effect of righting the economy. In that sense, deficits not only didn't matter, but were a force for economic good.

But that was then, and this is now. The economy, growing at an annual rate of 3.5 percent to 4.0 percent, is hardly in need of further fiscal stimulus. Yet the budget that the president sent to Congress last week promises deficits. . .

Moreover, the projected budget deficit is not threateningly large, relative to GDP. Larry Lindsey, Bush's former chief economist, points out in his latest client advisory that "The projected 2006 budget deficit of 3.0 percent of GDP is reasonable if the economy continues to grow."
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Has Bush been able to treat Deficits as a non-issue? Certain realities may deny this: George W. does not realize he is already a 'Lame Duck' President, but this reality will be forced home month after month until the next Inaugeral. Republicans have only one Interim Election, before they need a new Presidential Candidate to carry them; this Candidate must rise in prestige, and Bush Budgets will not bring such prestige. No Presidential Candidate, of any Party, can accept the 'Bill coming Due in 2009' philosophy of the Bush initiatives: Proscription Drugs, Private Accounts, etc. ad infinitum. The final note comes in Bush leaving Everything out of the Budget; if all Bush initiatives were passed into law, and attributed to him(averaging over his eight Budgets), Bush would have to claim an additional trillion dollars of Debt per Budget year.

Stelzer gives Bush credit for forestalling a Recession, but did he? Bush Tax Cuts not only created the fiscal Deficit through lost revenue, but sponsored a Tax environment which promoted offshoring by deduction of Production operations flight Overseas to advoid Environmental regulation and high Wages. Was George W. Bush the competent Doctor, or the infectious disease?

Does the Economy need the economic stimulus of Bush Budget deficits, and did it ever need them? Economic growth is attributed to be 3.5-4%, but nominal Inflation is over 3%, and real Inflation is in excess of 5%. Volitile Items can be taken out of the Inflation-Index basket, if and only when such Items are expected to decrease in price. Truth states American Retail pricing for Corporate Tech items endure excessive Markup and Profits-taking ratios; the drop in Sales with retraction of Special Offers, Rebates, and Price reductions prove this(Sale Markdowns average a 7% increase in Sales 1945-1980s, a 19% increase in Sales 2001-05). No one but this Author still mentions that George W. Bush has the worst Jobs record since Herbert Hoover.

The projected Deficit is supposed to reduce as a percentage of GDP, if and only if the Economy continues to grow at its present rate. Is the Economy going to continue to grow at its present rate? There may be too much structural distortion. Materials pricing has not heard of the Bush Inflation-Index basket of Goods; they are matching the Doctors' bills. The Windfall Profits for American business Overseas are facing far more strident demands for Wage increases. Foreign Exporters to this Country find they dislike paying 2005 Production Costs with 2003 Product pricing. The Economy enjoys a Model formula of failure to keep up with the Inflation rate. lgl