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EconomicPolicyInstitute April 30, 2010

In a week that saw growing concern over the federal deficit, EPI stressed that the country’s first priority must be job creation.

Deficit reduction begins with getting people back to work
“The large deficits of the last couple of years are largely a result of the recession, which has dramatically reduced tax receipts and increased the need for many government services,” EPI President Lawrence Mishel said in a statement on April 27, issued ahead of the first meeting of President Obama’s National Commission on Fiscal Responsibility and Reform.

“The first step toward reducing the deficit, therefore, is getting Americans back to work. It is shameful to permit concerns about the deficit to stop much-needed investments in job creation at a time when so many Americans want and need a job.”

On April 28, Mishel participated in a panel discussion about the federal deficit at the Peter G. Peterson Foundation’s 2010 Fiscal Summit, also attended by former President Bill Clinton, former Federal Reserve Chairman Paul Volcker, and other policy makers. Mishel stressed that overheated rhetoric is a feature of too much of the discussion surrounding the federal deficit. “It is important not to let the rhetoric outrun the facts,” Mishel said in a statement.

The New York Times quoted Mishel at the summit calling the current economic situation a crisis and stressing the need for more jobs.

What’s at stake? “A massive transfer of resources” to the nation’s wealthy
While those present at the Peterson Foundation’s summit presented a wide range of views, they also offered a glimpse at what was at stake in the handling of the federal budget deficit. Rep. Paul Ryan (R- Wisc.), who also participated on the panel with Mishel, argued that the country’s existing social insurance system would not be sustainable in the 21st century.

Ryan, a member of the National Commission on Fiscal Responsibility and Reform, is the author of the Roadmap for America’s Future, which outlines a series of budget reforms, including large cuts in Social Security and Medicare benefits. In March, the Center on Budget and Policy Priorities published an analysis of Ryan’s budget proposals finding that they “would result in a massive transfer of resources from the broad majority of Americans to the nation’s wealthiest individuals.”

During Wednesday’s panel, Mishel stressed that the federal deficit needed to be discussed “in the context of the larger forces shaping our economy,” such as increased income inequality, diminished retirement security, and rising healthcare costs. Recent EPI research has shown that the families with the highest incomes are enjoying a disproportionate share of income growth, while also seeing tax rates fall.

The Huffington Post quoted Mishel arguing that cutting Social Security benefits would hurt lower-income people disproportionately.

Deficits and interest rates: No clear connection
Another argument commonly cited in the discussion of budget deficits is the claim that rising deficits will lead to rising interest rates and choke off an economic recovery. In his new paper, Budget Deficits and Interest Rates, EPI economist Josh Bivens explains the fallacy of that argument and shows that, as long as private demand for new borrowing and spending is weak, higher interest rates are not likely to result.

Reuters cited Bivens’ research in a story about the deficit, which noted that not all economists believe that the current deficit is too large given the need for continued public investment in job creation during the worst economic downturn since the Great Depression.

Upcoming events
On Tuesday, May 4, EPI will host Executive Compensation: What should we do? a lunchtime discussion of the enormous rise over the last few decades in pay for CEOs and other top executives, and how this rising wage inequality has impacted lower wage workers. The event, which is sponsored by EPI along with the Center for the Study of Poverty and Inequality at Stanford University, will run from 12:30 p.m. until 2 p.m., at EPI’s offices. To RSVP, please visit our Web site

EPI in the news
In a story about the challenges faced by minority entrepreneurs, The Washington Post cited EPI research on the massive disparity in net worth between whites and African Americans. Median net worth, including home equity, was $11,800 for African Americans and $118,000 for whites in 2004. When home equity was excluded, the median African American net worth dropped to just $300. The Kansas City Star cited EPI research in a story that showed why a lower minimum wage would not benefit the economy.

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