Most of the elite definitely want the public to be scared about the deficit. They are constantly filling the newspapers and airwaves with the horrors of the huge debt. (Never mind that the reason we are running up huge deficits is entirely because these elites were too incompetent to see an $8 trillion housing bubble.) The elites want to cut Medicare and Social Security. They also want a national sales tax. These measures will lead to serious declines in the living standards for middle class people, a group that has seen its wages stagnate for the last three decades. Everything goes to push the anti-deficit agenda, including just making things up. In this category, the NYT has an article today telling readers how Japan is strangling under its enormous debt burden. At one point the article tells readers that: "Just paying the interest on its debt consumed a fifth of Japan’s budget for 2008, compared with debt payments that compose about a tenth of the United States budget." That would be news for the folks in Japan. They think that they only spend 11.2 percent of their budget on interest (page 4). (The interest burden peak in the U.S. at 16 percent in 1991.) The article is full of shrill warnings about the dangers of Japan's deficit, but it includes almost no facts to support these warnings. For example, it quotes Carl Weinberg, chief economist at High Frequency Economics: "public sector finances are spinning out of control — fast,... We believe a fiscal crisis is imminent.” The article tells readers that: "The fall in public and private savings could eventually reverse Japan’s current account surplus, possibly driving up interest rates as the public and private sectors compete for funds. Higher interest rates would increase the cost of servicing the debt, and raise Japan’s risk of default." It continues: "In a worst case, Japan’s currency could suffer as more investors switch away from Japan to other assets. And if Japan were to print more money and set off inflation to reduce its debt burden, the supply of yen would shoot up, lowering the currency’s value further." Of course the markets refuse to be as worried about Japan's collapse as the NYT wants them to be. The people who actually are putting their money on the line are willing to hold 10-year bonds issued by the Japanese government at interest rates just over 1.0 percent. As the article notes, the yen has been rising, not falling. And, Japan's main concern for over a decade has been deflation (price are again falling in Japan), not inflation. The article even raises the terrifying prospect that Japan's current account surplus will turn into a deficit as its population ages. Actually, this is what would be expected. That was the point of running a current account surplus. This surplus allowed Japan to build up a huge supply of foreign assets that it can draw upon as its population ages. In short, there is no story here. The NYT apparently doesn't want the U.S. to run deficits and it is prepared to fabricate stories about Japan to help push its agenda for the U.S.
--Dean Baker
