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It's hard to overestimate just how foolish is Marco Rubio's assertion that the deficit causes higher unemployment. Those with basic macroeconomic literacy already understand this, but it's a pretty simple concept easily explained in four steps.

1. Nations are not like households. If a nation goes into debt it can print more money, or float deficits indefinitely. However, there are potential problems with each. They are, in order:

1a. If a nation prints too much money, it can lead to inflation, which decreases the value of the money a nation prints.

1b. If a nation floats too much debt for too long, it can lead to higher interest rates on the nation's bonds. This is sort of like an individual's credit score going down, making it more expensive for them to hold debt on their credit card. If a nation finds it difficult to borrow then it cannot invest in creating government or private sector jobs, which leads to forced austerity.

2. However, The United States is not experiencing either inflation or high interest rates on its debt. The dollar is not inflating at a rapid pace. Meanwhile, treasuries are cheaper than they've ever been--i.e., the interest rate on the nation's credit card is better than ever before. Put in personal terms, there are several agencies that control a nation's bond rating, just like there are several agencies that control your personal credit score. S&P is like Experian in that sense, and the investors and nations buying U.S. debt are like credit card companies. But what if Experian lowered your credit score, but VISA and American Express starting giving you even better rates on your credit card? It would mean that VISA and American Express don't trust Experian. That's what happened when S&P downgraded U.S. credit supposedly because of our deficits: the buyers of U.S. debt didn't care. So the deficit hasn't impacted inflation or borrowing costs. It might so do at some point in the future, but it's not doing so currently nor do we have any reason to believe it will do so in the near future.

3. The deficit is actually shrinking as we speak. Ezra Klein has the stats:

Remember also that the biggest driver of the deficit is the poor economy: fewer consumer purchases lead to fewer revenues in the form of taxes, which in addition to a greater need for social welfare spending to keep people on their feet leads to bigger deficits. In fact, deficits and recessions are intrinsically linked throughout U.S. history. As economic activity and more importantly civilian employment pick up, deficits inexorably shrink.

In addition to the weak economy, our modern deficit is also a product of George W. Bush's tax cuts for the wealthy and the multiple wars overseas.

Why is the deficit shrinking? Mostly, because of the pickup in economic activity. The elimination of some of the tax cuts for the wealthy will also help. The Affordable Care Act will also be taking a bite out of our extravagant healthcare costs.

4. None of this has any impact on unemployment. Generally speaking, there are two kinds of jobs: public sector and private sector. Even though the private sector is doing better, public sector jobs are still declining due to conservative policies theoretically designed to reduce deficits. Private sector jobs, meanwhile, depend on consumer demand--not corporate profit. American corporations are experiencing record profits, but they aren't hiring because there's not enough middle-class consumer demand for them to hire workers.

4a. The lack of consumer demand leading to poor private-sector job growth in spite of record profits has nothing to do with deficits or uncertainty in the investing climate. It has everything to do with income inequality and economic insecurity among the middle and lower classes.

4b. The obsession over deficits among conservative politicians is directly responsible for public sector job cuts that are helping to drive up the unemployment rate and kill consumer demand.

All of which means that politicians like Marco Rubio who insist that the deficit is directly hurting employment are either so ignorant of economics that they shouldn't be handling public policy, or so cynically manipulative that they shouldn't be handling public policy.

And no "reporter" in Washington or elsewhere should be covering Rubio's statements without providing a basic lesson in macroeconomics as context for his fact-free response.

Cross-posted fromDigby's Hullabaoo

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Comment Preferences

  •  Rubio's assertion is a "Big Lie". (4+ / 0-)

    It's disprovable, sure, but it sounds like it makes sense, so it sticks.  That's just human nature.  The only thing that'll unstick it is a similary sticky idea pointed in the opposite direction.  Like:

    "Rubio doesn't know what he's talking about! American companies don't care about the deficit.  American companies are making higher profits than ever but they're still not hiring.  Deficits aren't the problem - companies not hiring is the problem."

    Another Big Lie is the idea that the government is like a household with respect to budgeting.  Proposed response: "Yeah - It's like a household that can print it's own money.  How many of those in your neighborhood?"

    It's sad, but more an idea can fit on a bumpersticker, the more powerful it is.

    Your points are very well taken, however.  Nice diary.

    The road to Hell is paved with pragmatism.

    by TheOrchid on Tue Feb 12, 2013 at 04:18:17 PM PST

  •  Facebooking. (0+ / 0-)

    Thank you for writing it.

    Poverty = politics.

    by Renee on Tue Feb 12, 2013 at 04:58:30 PM PST

  •  Rubio: 1 of 22 votes against VAWA (1+ / 0-)
    Recommended by:
    Calamity Jean

    I really don't see the "savvy politician" that some in this community are cautioning us about. All I see and hear is TEA Party rhetoric coming from a conveniently packaged, telegenic spokesmodel.

    When you are right you cannot be too radical; when you are wrong, you cannot be too conservative. --Martin Luther King Jr.

    by Egalitare on Tue Feb 12, 2013 at 05:11:02 PM PST

  •  Just tell those flat-earthers something like this: (0+ / 0-)

    Imagine a country, somewhat like the US.

    This country is in economic doldrums. Unemployment is high, deficit is high, etc.

    Now, to lower deficit, the country fires all the people it employs: fire the teachers, fire the firefighters, fire the police officers.

    So what happens now? Well now, we have more people unemployed.

    What should the country have done? It should try to put more of its citizens to work, of course, even if it means increasing the deficits.

    Now, some Conservatives don't want the US to do this. Conservatives want Americans to be unemployed. Conservatives want Americans to be poor and desperate. Conservatives want Americans to eat dogfood from its can.

    Is this what you want, to be unemployed, sitting in a house with the electricity and water cut off, eating dog food from a can? That's what you want when you keep supporting Republicans.

     Or something like that. Just keep it simple, and as "bumper-sticker-y" as possible :-)

  •  Good point (1+ / 0-)
    Recommended by:

    I also touched on this, and went into detail of where this claim that the debt is causing unemployment comes from in this entry:

    I'll quote from my own entry (with utmost modesty):

    To support this, he repeated a talking point that he has pumped out there for years now, insisting that the national debt is costing a million jobs a year.

    This is based on the flawed idea that the conservative think-tank AEI has been supporting in its press releases. It cites a Reinhart Rogoff study of dozens of economies historically, which suggests that, in general from their sample, growth slows after national debt exceeds a certain level. This is merely an empirical observation of a number of economies that have very different underlying fundamentals and composition. than that of the United States. Beyond that, at issue is the causality vs. correlation. The slow growth in the US came because of a major bubble bursting, not from piling on of debt. In fact, debt has shot up due to spending to help address the fall in GDP, and has helped enormously in that area. The negative effect on growth was already there before we crossed the magic 90% threshold cited in Reinhart & Rogoff, so the suggestion by the AEI that this is a causal relationship that lives on and affects us today is downright wrong.

    That slow growth translates to lost jobs is not what is being disputed. The growth/employment correlation is a fairly strong empirical relationship. This point is uncontroversial, but the R&R study is where the details get dirty.  To take an empirical observation of non-monetary sovereigns and make untrue causal links for the American debt situation to high unemployment is dishonest.

    There's lots of criticism of the Reinhart/Rogoff study, which has caused the two authors initially to soften and then later even change entirely their claims from there being a causal relationship to there being a mere correlation, which tends to break down actually for systems that have fiat sovereign monetary systems. Paul Krugman has been instrumental in pointing out the shortfalls of their initially strong claims.

    But these revelations don't change the tone of a right-wing think-tank like AEI. They will continue to misinterpret studies to push their anti-government agenda despite retractions/clarifications from authors of the studies.

    Deficits don't matter, jobs do.

    by aguadito on Tue Feb 12, 2013 at 10:31:06 PM PST

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