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A Key Concept the Media Are Missing About the Economic Crisis

It is not only possible but potentially necessary to increase public investments in spite of a large deficit.
 
 
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Earlier this week I expressed some hope that the traditional media would accurately cover the debate over how to best get our economy back on track: robust public investment that pays off long-term, or a short-term focus on balancing the budget that clamps down on investment.

While much of the media has been making a false presumption that new public investment is fiscally impossible, several economic experts have been trying to correct that notion, and Monday's New York Times noted that "the extra spending, a sore point in normal times, has been widely accepted on both sides of the political aisle as necessary to salvage the banking system and avert another Great Depression."

Yet today we see a backslide in the Los Angeles Times , with an article titled, "Obama and McCain in Denial About Deficits, Economists Say."

The article fails to inform on several fronts:

1. The first sentence falsely asserts: "Despite harsh scrutiny from economic analysts, Barack Obama and John McCain remain reluctant to admit what is becoming obvious -- that the nation's economic crisis will take a heavy toll on their ambitious tax and spending plans." But it is not a certainty that the current economy "will take a heavy toll" on their plans. Both could execute their stated plans, even if they add to the deficit in the short-term, in hopes of stimulating the economy. Obama could proceed with additional public investment, tax cuts for working families and tax increases for families earning more than $250,000. McCain could proceed with his corporate tax cuts (although McCain would need deeper spending cuts, as yet unstated, if he is to meet his pledge of a balanced budget in four years.) In fact, the article contradicts itself later on when it says: "a growing number of economists, including some free-market-oriented experts, say the nation faces massive deficits over the next several years no matter who is elected president." In other words, both could choose short-run deficits as a response to the economic crisis, far from the crisis taking a "heavy toll" on their plans. They both have choices. Nothing is preordained. A professionally reported article would explain the pros and cons of those choices so people can make informed decisions.

2. The article repeatedly assumes budget deficits as unequivocally bad, but never actually offers a reason why they would be bad. In fact, as I noted above, many economists support deficit spending in response to economic recessions.

3. Numbers from the bipartisan Committee for a Responsible Federal Budget are cited to show how the candidates' plan would increase the deficit, and its president, former McCain Social Security adviser Maya MacGuineas, is paraphrased. Yet the article completely ignores MacGuineas' comments to the New York Times from Monday. The NYT reported: "'Right now would not be the time to balance the budget,' said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a bipartisan Washington group that normally pushes the opposite message."

4. An even deeper contradiction is found in this excerpt:

Facing such a steep wall of debt at the same time the economy is teetering would hamstring any immediate efforts to balance the budget, leading economists predict. "It's highly likely we're already in a recession," said Alan J. Auerbach, director of the Robert D. Burch Center for Tax Policy and Public Finance at UC Berkeley. "That suggests policies aimed at short-term help for the economy will have much greater importance than concern about the deficit." Free-market advocate Alan D. Viard, a former senior Federal Reserve Bank economist and resident scholar at the American Enterprise Institute, agreed that "in either case you will have demands on government resources that will crowd out the amount of money available -- whether it's for reducing tax rates, as McCain wants, or adding programs, as Obama wants."

But Viard's remarks do not inherently agree with Auerbach's.

Auerbach is saying the deficit will take a backseat to stimulus, meaning the president and Congress may invest in energy, infrastructure and health care to create jobs, or cut taxes to give more money to workers (or more profits to business executives, in the case of McCain.)

He is explicitly disagreeing with Viard, who claims that it will be impossible for either McCain or Obama to pursue their plans. (Viard also misleads about Obama's agenda, ignoring his proposals to cut taxes for working families earning less than $250,000.)

But by blurring the disagreement, the LA Times glosses past the real debate over our short-term priorities between public investment or budget balancing, and continually makes the presumption that only short-term budget balancing is the responsible course.

It is critical debate to have. Both presidential candidates are actually trying to have it. But the media isn't helping.

Reporters often revert to "pox on both houses" mode as it helps protect from charges of partisan bias. But it is biased to presume that balanced budgets should be a policy goal during any economic circumstance.

The media's job is to shine a light on policy disputes, blow the whistle on misinformation, and draw contrasts between legitimate differences of opinion.

No policy dispute may be more important than this one. Yet the media so far has largely failed to do its job to cover it.

 
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