AP Starts Running Editorials on the Deficit As News Stories

AP broke with standard news practices by circulating what can only be considered an opinion piece on the deficit as a news story. The article exclusively presents the views of deficit hawks and misrepresents many fundamental issues about the budget.

After noting the Greek budget crisis, the second sentence tells readers: "In the world's largest economic and military power, there's a far more serious debt dilemma."

The piece continues:

"For the U.S., the crushing weight of its debt threatens to overwhelm everything the federal government does, even in the short-term, best-case financial scenario — a full recovery and a return to prerecession employment levels.

The government already has made so many promises to so many expanding "mandatory" programs. Just keeping these commitments, without major changes in taxing and spending, will lead to deficits that cannot be sustained.

Take Social Security, Medicare and other benefits. Add in interest payments on a national debt that now exceeds $12.3 trillion. It all will gobble up 80 percent of all federal revenues by 2020, government economists project."

Actually, if there is a full economic recovery, there is absolutely nothing in the next decade that suggests that the deficit will not be sustainable. The United States has experienced higher debt to GDP ratios in the past and other countries, like Japan and Italy, already have higher debt to GDP ratios. There is no one cited in the article who makes the assertion that the debt to GDP ratio will be unsustainable in the short-term. In other words, this strong assertion is entirely the invention of AP.

The article implies that there is something especially troubling about Social Security, Medicare and other entitlement programs, plus interest, taking up 80 percent of tax revenue. These programs involve the vast majority of what the government does. It's sort of like car sales taking up the bulk of Ford's revenue. Ford is a car company. In the United States we have chosen to run a retirement program (Social Security), a retiree health program (Medicare), a low-income health program (Medicaid), along with unemployment insurance and several other items through the government. Most other areas have been left to the private sector. The article apparently disapproves of this decision, but that doesn't make it a crisis.

The article also includes the statement: "The Social Security system, the biggest social spending program, has begun paying out more in benefits than it collects in payroll taxes. For the past quarter-century, Social Security had produced a surplus that helped finance the rest of the government."

There is nothing problematic about Social Security paying out more in benefits than it collects in taxes, this was exactly the point of building up the Social Security trust fund. The tax rate was deliberately set at a level higher than necessary to pay current benefits to help defray the cost of the baby boomers retirement. This means that the program would at some point start paying out more in benefits than it collects in taxes. The alternative case would imply that we raised the dedicated Social Security tax to finance the defense budget. No public figure has claimed that this was the point of the 1983 increase in Social Security taxes.

The article also implies that the $1.3 trillion 2010 deficit is due to profligate spending rather than an economic crisis caused by the collapse of the housing bubble:

"The budget he submitted to Congress this month proposes record spending of $3.8 trillion for 2011. Taxes in next year's budget will support only $2.5 trillion of that spending, leaving $1.3 trillion to be borrowed.

The president's budget is a best-case outlook, from the administration's vantage point.

It doesn't take into account future liabilities from the growth of entitlement benefits and is based on projected economic growth that depends on a solid recovery."

In fact, given the weakness of the economy, there would be no point in trying to reduce the deficit from the levels projected for 2011. This would lead to higher unemployment. Also, contrary to the article's assertion, the baseline growth projection for 2010 and 2011 is extremely weak, around 2.5 percent. Usually, when the economy has a severe downturn the economy grows very rapidly in the recovery -- around 6 -8 percent. So, this is absolutely not a "best-case outlook."

Finally, the piece confuses the budget deficit and trade deficit, telling readers: "The U.S. debt crisis also raises the question of how long the world's leading power can remain its largest borrower." The U.S. is the world's largest borrower because it has an over-valued dollar. The budget deficit has no direct impact on how much the government borrows internationally. Remarkably, the over-valued dollar is not mentioned once in this article.

Given the over-valuation of the dollar, the United States must have either a large budget deficit or very-low private savings, or extremely high unemployment. This is an accounting identity. People who report on the economy for AP should know this.

--Dean Baker

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