Fears About Trade Deficit Are Overblown
At the recent Group of 20 (G 20) meeting, U.S. Treasury Secretary Timothy F. Geithner called upon the largest industrialized economies to get their current account balance — whether a surplus or a deficit — below 4 percent of their gross domestic product by 2015. Four countries have current account surpluses exceeding 4 percent: Saudi Arabia (6.7 percent), Germany (6.1 percent), China (4.7 percent) and Russia (4.7 percent.) Countries like Russia and Saudi Arabia that are "structurally large exporters of raw materials" would be exempt from the 4 percent limit, so the pressure of the U.S. proposal falls mainly on China and Germany. Our annual trade deficit of $ 500 billion is less than 4 percent of our GDP.
Acting on behalf of various interest groups, politicians fret over trade deficits but is it something that ordinary Americans ought to worry about? What politicians and inept people in the news media, whose duty is to inform, never bring up is that in the international trade arena, there are two accounts. One is called the current account, which consists of goods and services exchanged between Americans and foreigners. That's the account where we have a large trade deficit. Americans buy more goods and services from foreigners than they buy from us.
Deficit commission members call for action
(CNN) – If the United States is to remain a preeminent economic power, it will have to swallow a strong dose of fiscal belt-tightening to ease the country’s staggering deficit, two members of President Barack Obama’s deficit commission said Sunday.
A list of draft recommendations presented by the commission stated a goal of reducing the debt by $ 4 trillion by 2020. Among the ideas proposed to accomplish this are cuts to Social Security and Medicare, as well as tax increases.
Likely Armed Services Chairman And Defense Contractor-Funded McKeon Blasts Deficit Commission’s Defense Cuts
On Wednesday, the co-chairs of President Obama’s Deficit Reduction Commission released their report outlining their recommendations to reduce the budget deficit. While many of the recommendations were met with criticism from leading progressives — like raising the Social Security retirement age — the commission also had some positive proposals, like recommending nearly $ 100 billion in cuts to the defense budget.
Yesterday, Rep. Howard McKeon (R-CA), the likely incoming chairman of the House Armed Services Committee, responded to the proposed defense cuts in an interview with Bloomberg News. McKeon told Bloomberg that he is opposed to “cutting defense in the midst of two wars” and that he thinks the Department of Defense is not “in a position to absorb cuts“:
Representative Howard McKeon, a California Republican who is likely the next chairman of the House Armed Services Committee, said he opposes “cutting defense in the midst of two wars.”
“The commission mistakenly assumes that years of war funding have put the Department of Defense in a position to absorb cuts; this is simply not the case,” he said. “The department faces a train wreck in procurement and maintenance accounts.”
McKeon is wrong on the merits of his case. Defense spending has accounted for 65 percent of the discretionary spending increase since 2001, making it a major factor in the growth of the U.S. budget deficit. Without even accounting for the wars in Iraq and Afghanistan, the defense budget for FY2010 is a whopping $ 533.8 billion, larger than the 2008 GDP of 116 countries. It is a very difficult to argue that the Department of Defense is not in a “position to absorb cuts.”
But McKeon has other reasons to oppose defense cuts in defense spending. Defense contractors are the most generous contributors to his election campaigns. Using data from the Federal Election Commission, the nonpartisan Center for Responsive Politics (CPR) notes that he received at least $ 274,200 from the defense industry during the 2010 election cycle, the bulk of it from Political Action Committees — which are explicitly designed to influence members of Congress. CPR has illustrated this through a campaign spending graph:
Here is a short list of some of the defense contractor PACs who funded McKeon’s 2010 re-election campaign, compiled using CPR data:
– Aerojet & GenCorp Inc: The California-based conglomerate is a major armaments producer. Its PAC donated $ 10,000 to back McKeon’s re-election.
– BAE Systems: BAE Systems is the world’s second largest defense company. Its PAC donated $ 10,000 to McKeon’s 2010 campaign.
– Boeing: Boeing’s Defense, Space, and Security division is an industry leader in producing defense equipment. The company’s PAC also donated $ 10,000 to McKeon during the last election cycle.
– General Dynamics: General Dynamics is a “market leader” in producing combat vehicles, munitions, and systems. Its PAC gave $ 5,000 to McKeon over the last election cycle.
– General Electric: General Electric is a leader in producing nuclear weapons technology. Its PAC gave $ 5,000 to McKeon for the last cycle.
– Lockheed Martin: Lockheed Martin, the defense giant which was formed in the 1990′s era merger between Lockheed and Martin Marietta, boasts that they “never forget who we’re working for.” They apparently want the same promise from McKeon, donating $ 10,000 to him for his most recent campaign.
– Raytheon: Raytheon, a defense tech company that boasted $ 25 billion in sales worldwide in 2009, donated $ 6,000 through its PAC to McKeon’s campaign committe for the last election.
This money is just a small snippet of the funding McKeon received from the defense industry. For example, if donations from industry employees are included, the congressman has recieved over the “past two election cycles…$ 40,000 from General Atomics, $ 34,000 from Lockheed Martin, and $ 32,500 from Northrop Grumman.”
But even beyond the donations he has received, McKeon has gone above and beyond to court the favor of the defense industry. He is one of the co-founders of the Congressional Unmanned Aerial Vehicle Caucus, “which is interested in…[an] aircraft Northrop Grumman manufactures in his district.” His former legislative assistant Hanz Heinrichs has “lobbied on behalf of Alcoa, Boeing, and Ashbury International Group.”
Neil Cavuto: Why aren’t tea party senators talking about the Deficit Commission report?
Fail?
Yes, granted, they haven’t even been seated yet, but Neil knows a golden opportunity when he sees one and he also knows what tends to happen to budget hawks once they’re sworn in and have special interests to answer to. That’s how we got from the 1994 wave to a GOP Congress passing Bush’s Medicare […]
Fred Thompson: The Deficit Commission chairmen’s proposal is “breathtaking”
“I am shocked and amazed that they have come out with something that contains so much common sense.”
Listen to the clip here. It’s not that he’s sold on each and every particular, mind you, it’s just that he’s stunned to see any sort of sweeping proposal for entitlement — and tax! — reform emerging from any member of a governmental body. (Paul Ryan excepted, of course.) I’m thunderstruck too, not by all […]
Tales of 57 States: The Deficit Wizards Speak
Deficit Wizards asked to apply their knowledge of coin, commerce and Congress to the Realm’s deficit problem
American Thinker Blog
The Deficit Commission: A Good Try That Falls Short
By Michael D. Tanner
My colleagues, Dan Mitchell, Jagadeesh Gokhale, Michael Cannon and Chris Edwards have already provided their thoughts on the chairman’s mark released yesterday by the bipartisan deficit reduction commission. A few additional thoughts:
The commission provides a good-faith look at the magnitude of the problem we face, and the magnitude of cuts necessary to bring spending down to even 21 percent of GDP (and it really should be far lower). In doing so they show just how unserious Republicans are in proposing a paltry $ 100 billion in spending cuts. And the commission makes it clear, unlike Republicans, that both entitlements and defense spending must be on the table.
The commission also starts the debate in a useful direction by implicitly acknowledging that their need to be some limits to government spending—that government cannot consume an ever-increasing proportion of GDP. (Without a change in policy, the federal government will consume 43 percent of GDP by 2050.)
But ultimately the report falls short because it fails to address the proper role of government. In fact, it tacitly accepts the idea that government should be doing everything it is doing now. It even acquiesces to the new health care law. As a result, it fails to reduce the size of government sufficiently to avoid tax hikes, let alone permit tax cuts in the future.
Moreover, because the commission leaves the basic structure and role of government intact, it raises questions about the future viability of its proposed mix of spending cuts and tax increases. History demonstrates that it is far too likely that tax hikes will be permanent, while spending cuts will last as long as the next year-end emergency appropriations bill.
As the commission moves toward a final report on December 1, members would be advised not to focus just on the details of these proposals, but to have a serious and deliberative discussion of what the federal government should and should not be doing.
The Deficit Commission: A Good Try That Falls Short is a post from Cato @ Liberty – Cato Institute Blog
Draft deficit plan launches likely grueling political battle
Washington (CNN) – The release Wednesday of a draft proposal for reducing the federal deficit made clear how hard it will be to devise a sustainable plan that can win the necessary political support.
Erskine Bowles and Alan Simpson, co-chairmen of President Obama’s federal deficit commission, offered up a wide-ranging set of ideas that would bring $ 4 trillion in deficit reduction over the next decade.
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Draft deficit plan launches likely grueling political battle
Washington (CNN) – The release Wednesday of a draft proposal for reducing the federal deficit made clear how hard it will be to devise a sustainable plan that can win the necessary political support.
Erskine Bowles and Alan Simpson, co-chairmen of President Obama’s federal deficit commission, offered up a wide-ranging set of ideas that would bring $ 4 trillion in deficit reduction over the next decade.
Their package touched every aspect of government, combining deep spending cuts with tax increases to eventually bring both expenditures and revenue to 21 percent of gross domestic product.
Heritage Reacts to Simpson-Bowles Deficit Reduction Panel Proposal
The draft proposal issued Wednesday by the co-chairmen of
One great flaw in the proposal is the massive tax increase proposed by the co-chairmen, former Sen. Alan Simpson (R-Wyo) and former Clinton Chief of Staff Erskine Bowles. They would hike taxes to 21% of America’s economic output (i.e., gross domestic product or GDP), well over the historical average of 18% of GDP. The debt and deficit problems America faces stem from too much spending, and not too little taxes. We need to cut spending, and not raise taxes.
The co-chairmen did not go far enough in proposing spending cuts. For example, the $ 100 billion in cuts to domestic spending are a good start, including their ban on earmarks. But, they should go further.
But perhaps the worst flaw in the co-chairmen’s proposal is the substantial reduction to defense spending. A strong defense of America and its interests is the first obligation of government. Instead of cutting defense spending, the country needs to provide for defense an average of $ 720 billion per year (to be adjusted for inflation) for each of the next five fiscal years.
We’d be remiss, of course, not to mention the strengths. The Heritage Foundation has long recognized, as the chairmen’s proposal also recognizes, that the ultimate solution to a government that is too large and spends too much is to get entitlement program spending — especially medicare, medicaid, and social security spending — under control.
Watch this spot for a more in-depth analysis in the days to come.
