Interesting take on the Supercommittee from Dean Baker
Dean Baker, the economist, in the Guardian:
Congress gave us a wonderful Thanksgiving present when we got word that the supercommittee “superheroes” were hanging up their capes. While many in the media were pushing the story of a dysfunctional Congress that could not get anything done, the exact opposite was true. The supercommittee was about finding a backdoor way to cut social security and Medicare, and create enough cover that Congress could get away with it.
It is important to remember the basic facts about the budget and the economy. Contrary to the conventional wisdom in Washington, it is easy to show (by looking at the website of the Congressional Budget Office) that we do not have a chronic deficit problem. In 2007, prior to the collapse of the housing bubble and the resulting economic downturn, the deficit was just 1.2% of GDP.
The deficit was projected to remain near this level for the immediate future, even if the Bush tax cuts did not expire, as originally scheduled in 2011. If the tax cuts were allowed to expire, then the budget was projected to turn to surplus.
All this changed when the collapse of the housing bubble wrecked the economy. The story is simple, the housing bubble generated over $1tn in annual demand by stimulating record levels of construction and causing a home equity-driven consumption boom. This demand disappeared when the bubble burst. This is what created the large deficits that we are now seeing.
The $1tn-plus deficits are replacing lost private-sector demand. Those who want lower deficits now also want higher unemployment. They may not know this, but that is the reality – since employers are not going to hire people because the government has cut its spending or fired government employees. The world does not work that way.
While this is the reality, the supercommittee was about turning reality on its head. Instead of the problem being a Congress that is too corrupt and/or incompetent to rein in the sort of Wall Street excesses that wrecked the economy, we were told that the problem was a Congress that could not deal with the budget deficit.
To address this invented problem, the supercommittee created an end-run around the normal congressional process. This was a long-held dream of the people financed by investment banker Peter Peterson. Their strategy was derived from the conclusion that it would not be possible to make major cuts to social security and Medicare through the normal congressional process because these programs are too popular. . .
