Budgets & Debt: Where The Truth Lies

"We are, quite bluntly, broke. We don't have the money to sustain the dreams and experiments of liberalism any longer. We have a $400 billion a year budget deficit and a $4 trillion debt."

Rush Limbaugh
The Way Things Ought To Be (1992)
Former Treasury Secretary Paul O'Neill was told "deficits don't matter" when he warned of a looming fiscal crisis.

O'Neill, fired in a shakeup of Bush's economic team in December 2002, raised objections to a new round of tax cuts and said the president balked at his more aggressive plan to combat corporate crime after a string of accounting scandals because of opposition from "the corporate crowd," a key constituency.

O'Neill said he tried to warn Vice President Dick Cheney that growing budget deficits-expected to top $500 billion this fiscal year alone-posed a threat to the economy. Cheney cut him off. "You know, Paul, Reagan proved deficits don't matter," he said, according to excerpts. Cheney continued: "We won the midterms (congressional elections). This is our due." A month later, Cheney told the Treasury secretary he was fired.

The vice president's office had no immediate comment, but John Snow, who replaced O'Neill, insisted that deficits "do matter" to the administration.

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"...The truth is more complicated and less frightening. Right now deficits are actually helping the economy. In fact, deficits here and in other major economies saved the world from a much deeper slump. The longer-term outlook is worrying, but it's not catastrophic.

The only real reason for concern is political. The United States can deal with its debts if politicians of both parties are, in the end, willing to show at least a bit of maturity. Need I say more?

Let's start with the effects of this year's deficit.

There are two main reasons for the surge in red ink. First, the recession has led both to a sharp drop in tax receipts and to increased spending on unemployment insurance and other safety-net programs. Second, there have been large outlays on financial rescues. These are counted as part of the deficit, although the government is acquiring assets in the process and will eventually get at least part of its money back.

What this tells us is that right now it's good to run a deficit. Consider what would have happened if the U.S. government and its counterparts around the world had tried to balance their budgets as they did in the early 1930s. It's a scary thought. If governments had raised taxes or slashed spending in the face of the slump, if they had refused to rescue distressed financial institutions, we could all too easily have seen a full replay of the Great Depression.
As I said, deficits saved the world..."

Paul Krugman

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"That means our debt - yearly debt - is only 2.9 percent of our total budget. If you at home could say that the total amount of your debt was only 2.9 percent of all that you earn and produce, you'd be happy/ This deficit is a straw dog. It's always been a phone monster. This is manageable debt as long as our economy stays strong."

Rush Limbuagh
July 7, 1994

"...my friends, we know what Obama's economics are built on. We know what his new foundation is. His new foundation is built on money we don't have. His foundation is built on money created out of thin air and debt. Debt that is an anchor around all of our collective necks, so heavy is the anchor, we, the people can't move. We're weighed down by a plan that's designed to pull off a seismic switcheroo. We're going for an economy driven by the private sector to one driven by Obama, except we aren't told that. We're told the exact opposite. Barack Obama is building a new economy on a foundation of so much debt that he has reached into our children's and grandchildren's pockets. They will be born broke. It's called generational theft. He calls it his new foundation. The foundation is debt, printed money. We know that but we don't hear that, and that's because Obama can't get what he wants by telling the truth. No liberal can..."

Rush Limbaugh
Radio show transcript April 15, 2009