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Home Publications Blogs Beat the Press NPR Sets Straight All Those Silly People Who Thought Unemployment Was the Country's Biggest Problem

NPR Sets Straight All Those Silly People Who Thought Unemployment Was the Country's Biggest Problem

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Monday, 22 October 2012 13:38

Almost five years after the start of the recession we still have close to 25 million people who are unemployed, underemployed, or who have given up work altogether. Given that this is ruining the lives of millions of workers and their children we might think that this is the country's most important problem. Fortunately, we have National Public Radio (NPR) to set us straight.

NPR presented a segment this morning that is largely based on the views of Nariman Behravesh, the chief economist of the forecasting firm IHS Global Insight and author of Spin-Free Economics: A No-Nonsense, Nonpartisan Guide to Today's Global Economic Debates. The last part of the segment told listeners:

"But going forward, America's role in the world will be largely shaped by how well Congress handles the budget deficit problems in coming months, he [Behravesh] said. As other countries, especially in Europe, grapple with the problem of too much government debt, people around the world are looking to the United States for moral leadership, he said.

"If the United States shows that it's possible for democracies to discipline themselves and control their debts, then its economic and soft power may surge ..."

Wow, isn't that impressive. So Europe, China and the rest of the world will be really impressed if the United States throws even more people out of work as long as it reduces its budget deficit! That's interesting, had it not been for NPR I never would have known people in the rest of the world thought this way. 

It is an especially bizarre way to think since the large budget deficits of the last few years are almost entirely due to the downturn that followed in the wake of the collapse of the housing bubble. The chart below shows the actual deficit for 2007 and the projections for 2008-2012 that the Congressional Budget Office made in January of 2008, before it recognized the impact of the collapse of the housing bubble on the economy. It also shows the actual deficits for these years.

deficits-share-gdp-10-2012

Source: Congressional Budget Office.

As can be seen the deficit was actually quite modest prior to the collapse of the housing bubble and was projected to remain small in the year ahead. In fact, it was projected to turn to a surplus in fiscal year 2012 after the expiration of the Bush tax cuts, although even if the tax cuts had remained in place, the deficits would still have been consistent with a declining debt to GDP ratio.

There were no big new programs that exploded the deficit in 2008 and 2009, rather the collapse of the economy caused tax collections to plunge and spending on transfer payments like unemployment insurance and food stamps to increase. In addition, the one-time spending and tax cuts in the stimulus also added to the deficit. However, there were no substantial permanent changes to underlying tax and spending policies that would have led to permanently larger deficits.

In short, NPR wants its listeners to believe that a deficit that is attributable to a collapsed economy is a bigger problem than the collapsed economy itself. That takes great insight!

 

[Thanks to Joe Seydl for calling this one to my attention.]

 

Comments (5)Add Comment
...
written by fuller schmidt, October 22, 2012 4:41
Brilliant response!
unemployment & the deficit
written by mel in oregon, October 22, 2012 6:53
npr always seems to be on the wrong side of most issues. they seem to like the romney plan, whatever the heck it is. it sounds like he will increase the defense budget, cut ss & medicare, drill everywhere for oil no matter how it affects the environoment, & cut taxes for the wealthy. he will increase funding for prisons, but not education. how could any thinking person believe the deficit is america's no. 1 problem? the corruption of america's corporate, political & media leaders knows no bounds.
...
written by skeptonomist, October 23, 2012 9:11
Deficits are usually higher than projected, especially when the projection is made during an up-cycle. In effect lawmakers and Presidents do not take proper account of the cyclic nature of the economy. Since little has been done in the form of regulation to prevent cycles - specifically there have been almost no curbs on excessive speculative leverage - cycles will continue. Since tax rates are in principle based on revenue and expenditure projections, this means that those rates are almost always too low, except during major bubbles themselves (and deficits were still being run during the housing bubble). The reason for chronic deficits which increase debt/GDP is not recessions, which any sane economist should know will occur, it is failure to maintain realistic tax rates.
...
written by kharris, October 23, 2012 10:21
Headline from today's NYT:

"Despite Push for Austerity, European Debt Has Soared"

Who'd have guessed?
...
written by jas, October 24, 2012 12:05
"Noone Could Have Predicted..." should be the official motto of the world's ruling elites.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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