If Stiglitz wants to counter Rubin's policies that all to the good, but how about looking at the 800 lb gorilla? It's not the wars, its the overall military spending.

Neither political party is willing to address the issue. In fact both are pushing for more military spending. When the wars end most likely spending won't decrease much then either, there will be a need to restock all the materiel being expended currently.

Rubin and the neo-cons want to shrink social insurance programs. They use faulty projections to scare people into thinking there is an impending disaster, but this isn't true.

Other advanced societies get along with military budgets which are a small fraction of ours. They then can use the government revenues for social programs. They also get all the raw materials they need, they just pay for them. Why do we need 750+ military bases. Does this ensure a supply of oil?

The federal deficit is on the order of $500 billion, the military budget is on the order of $650 billion. And people still want to talk about tweaking tax policy...

Here's a nice graphic to show where our taxes go:

Federal Pie Chart

--- Policies not Politics
Daily Landscape

Deficits, accumulated debt, misuse of debt... 

Oh it is current priorities (the WAR) that is the problem... Who would of thought that? 

What we need to do is rebuild our economy, and while leftist proponents of globalization might not like to hear it, it means rebuilding our manufacturing base. It means supporting and subsidizing family farms. We do not have to accept globalization based on third world standards. That doesn't help the poor in the third world, it's corporate welfare.

Once we've grown our economy, we have to pay off the debt, in a slow and steady way. We also have to eliminate tax cuts to the wealthy, we have to for example, end social security and medicare for the wealthiest.. they do not need their incomes and healthcare subsidized.

We also need to bring back tariffs and levies on the importation of goods. We also need to impose a tax on American corporations who manufacture overseas (they, as well as the rest of the world rely heavily on American consumption). We also need to levy taxes on foreign nationals who own businesses here and seek to evade paying American wages and evade American workplace laws by relying on importing workers through visas.

We have to get tough, and start calling the bluff of corporations and foreign governments and nationals who are attemptin their own empire building on the backs of suffering American worker's and taxpayers.

of course this is one view. another view, which I actually find compelling, is that Americans shold simply take advantage of the trade deficits to become more dominant than ever.

that is, if imports are really produced more cheaply abroad-- then businesses in the US can snap them up and build the next generation economy very cheaply.

the protectionism you suggest might actually make things worse because nobody actually knows how healthcare will be delivered to the growing population of eldery and we really need to improve our medical technology so medical care becomes less dependent on labor.

unfortunately, I see some economists worrying because they didn't realize how much knowledge would be lost when manufacturing operations went over seas.

but, at least initially, they thought that Americans should be designers not producers since being higher up on the food chain was a better place to be-- but now we see that everybody wants to be on top.

So America can win the war and solve all it's problems by just printing more dollars and flooding the markets with US Treasury IOU's?

Take a look at the recent budget proposed by the Democratic Progressive Caucus--ie, check out the link from this piece whereing we heap praise.  They go after wasteful defense spending in a way that's way beyond the industry standard, which is not at all...

Isn't the key control? When Clinton and Rubin came to office it looked like the deficit was permanently out of control. The bond market showed that it would and could punish other nations by driving up their interest rates to impossible levels. The U.S. escaped that kind of punishment because not only has it never defaulted on its debt but it is provides the world's reserve currency and is the most power economy on the planet.

The budget does not need to be balanced but to some extent be countercyclical. Not only would this help support or remove demand but it woudl by its very nature show that the government is in charge of the deficit not the other way around.

However the one question might me about the coming need for funds for both Social Security and Medicare. Back in the 1980s Reagan, based on the Greespan-Moynihan Commission, passed the largest tax increase in history. This money was largely to have Baby Boomers to prepay their own retirment. To some extent Bush has pulled a bait and switch. Boomer prepayments have helped disguise the transfer of money from FICA payers to Treasurey interest collectors. If defictis aren't pared won't Boomers have had their taxpayments converted for used not intended by this large tax increase?

Daniel A. Greenbaum

Tax me now or tax me later. Better yet!  Don't tax me; tax my children.

I agree re control, balance and countercyclicality.  In fact, the problem with the Bush deficits--not today's, which are small relative to GDP, but tomorrow's (assuming he gets his tax cuts extended)--is that they are 'structural,' meaning that even with the economoy growing at full tilt, deficits will rise--that's what happens what you cut revenue and ignore spending obligations.

RE Soc Security. it's true that we borrow the surplus in the trust fund and spend it today, but I don't think most analysts view that as a bad thing in and of itself--one branch of gov't lending to another.  Of course, if you waste the money, that's another thing.

I think it's widely agreed that the Soc Sec fiscal shortfall is not necessarily a problem.  One quarter of the war, the Bush tax cuts for the top 1%, and raising the salary cap--all of these could make up most of the 75-yr shortfall.  Hth care entitlements...now that's also another story.

Prepayment was always a bad idea . . . low and moderate income boomers were snookered into regressive taxes on the false claim that their social security taxes were being put aside.

While there was some propaganda to that effect, sophisticated analysts back in the early 1980s never expected to see the FICA surpluses we've experienced lately. They were used to very high inflation and very low productivity growth. And they were trying to solve a political problem that can only be addressed once each twenty years or so.

The Greenspan-Moynihan Commission members expected that the COLA increases would, within twenty years, not only outrun FICA receipts but would exhaust the trust funds built up over that time frame. But due to higher productivity, a decrease in inflation, and a reduction in unemployment -- all taking place in the Clinton years -- their expectations didn't come to pass.

If we want to blame anyone for failing to handle the changed situation it should be Gore and the Democrats. In 2000 we should have been promoting a big middle class tax reduction; instead, we called for a "lockbox."  Dumb idea.

SeeDee
Bernstein: "...I haven't spent enough time looking into this, was whether he's dealing successfully with the corruption of leadership in some of these countries."

Yeah, and not just in 'other countries'.

When it comes to dealing with corruption, has anyone 'looked into' the huge amounts of corrupt contracting procedures RE funds spent in the Iraq war? Has anyone REALLY 'looked into' the corrupt Pentagon bribery exposed by the Abramoff investigations?

When it comes to fiscal matters, should Federal budget gurus simply add a certain percentage as an allowance for crooked spending by the various Federal (and State) programs, and increase taxes as necessary to fund such skull-duggery.

This has got to be one of the most one sided looks at the whole issue I have seen in a long time. There is a whole list of things you are not considering that go in the face of this argument, such as the high cost and debt of medicare which pays for medicine for a lot of people who can afford it on their own, a lot of military spending is on medical for vets, and disability pensions, we have massive debt including unfunded liabilities for Federal employees that are bigger than the social security debt, etc, etc. This idea that we can just wave a wand and say all this debt isn't going to affect is insanity. The Bush tax cuts for the wealthy mean, what, $200 billion a year in taxes? I am all for restoring those tax breaks for the wealthy but we have a huge budget problem that is getting worse that restoring the Bush tax cuts isn't going to come close to fixing. This seems more like liberals wishing for more programs and spending and working backward from there. Pretty scary. Are you sure this is the reality party?

Re: The point of his comment was you don't reduce deficits in weak economies-

The economy of the early 90s was weak-- remember the recession of 91?
Now I agree that we should not make deficit reduction the be-all and end-all of Democratic policy. Nevertheless, I don't agree with anyone who says we dare not rescind the Bush tax cuts lest we sink the economy. That's just BS served up on a silver platter, and this is almost the last website I'd expect people to be boosting GOP talking points.

By Jared Bernstein | bio

What’s the magnitude of the deficit relative to GDP (it’s now a very manageable 2%)?

It seems I've been hearing people refer to
"the percentage of GDP" for years, but no one has ever explained how this comparison is relevant to every day living.

Explain to me, as though I'm a 10 year old, why comparing anything to the GDP is meaningful to me.

What does "2% of GDP" mean to me in relation to the price of a loaf of bread. To the cost of medicine, to the cost of electricity.

When I pay my local taxes does some item's relation to the GDP mean anything to the check I'm writing to my township?

If the payments on the federal deficit
are "X" % of GDP, how does that directly affect me? Do I pay more....or less, for everyday products if the deficit payments are 2% as compared to 3%?

You missed the key point: the too-often mindless focus on austerity by both parties has blocked precisely the way forward, which I think is in sync with where you want to go:

"These two options have crowded out the third: raise the revenue we need to support that which will make our economy and country stronger."

The agenda is not to have everything you want for free: it's to get us outside the restrictive set of current options:

1) cut taxes, raise spending--let the kids worry about it (GW Bush)

2) cut taxes, cut spending--conservatives, including the R candidates for pres

3) raise taxes on some people, cut spending and balance the budget--many D's.

4) (and this is the one that's off the table): raise the resources we need to solve the problems we face

I agree--that's the smart way forward.  The point is to not to abandon fiscal discipline (as the current regime has done) for the very reasons you say.

The other point is not to automatically assume that S10 billion spent on deficit reduction is your best option, if a) the economy's weak, and b) you're forgoing need inverstments.

Don’t you realize that raising the payroll tax and cutting income taxes is the equivalent of setting aside money?

If that allowed the rich to get richer, their assets are invested in some store of value that can be more easily taxed in the future. When the payroll tax no longer meets the obligations to retirees in a few years, the treasury now has an obligation to make up that shortfall with the progressive income tax which the rich will pay a disproportionate share of, effectively recovering the money “set aside” by a higher than needed FICA tax.

The alternative would have been a steep hike in the FICA taxes on the baby boomers children to meet their retirement, rather than shifting some of that burden onto the boomers themselves. Would that seem fairer to you?

I think this is a recipe for economic stagnation and an over all lower standard of living. Now you may think that that may result in a more economically just society, but you should be aware of what you are doing.