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Reframing the Deficit Misperception

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We have two major camps in the U.S. right now arguing over which economic problem is more pressing: Is it the deficit? Or, is it jobs?

The real problem is one of perception. Once our perception of the situation is clarified, the more urgent economic problem can be identified clearly.

For the last few months we have been fed a daily diet about the need to cut the deficit by cutting federal spending. There has been very little circulated about increasing revenue by increasing taxes especially on those who can afford to pay more in taxes. Nor have we heard much on a regular basis about an economic recovery built around job creation.

When the unemployment rate jumped back over 9% in June 2011, it seemed that perhaps policy makers and politicians would focus their attention on job creation but it seems that the deficit meme is still paramount.

If we look at the percentage of the deficit as part of the economy, we can see that it's 10.2%, to be exact. We have to remember that at the end of World War II the deficit was 21% of the U.S. economy. The reason that the deficit is more than 10% of the economy right now is that we have been paying for two costly and unfunded wars plus the massive Bush tax cuts.

Actually, 10% is not so bad under these conditions. Remember we were at 21% in 1945 with just one war and the rich paying their fair share of taxes.

So, between the two wars (Iraq and Afghanistan) and the trillion-dollar-plus tax cuts, we have spent money that we didn't have with no taxes collected that would have been collected during prior economic downturns and wars. Even though the deficit is high, it's not out of control and has very little to do with discretionary domestic spending or entitlements.

If I were a cynic, I'd say the deficit hawks' focus on the deficit is designed to limit the nation's options such as passing another economic stimulus bill, which did, in fact, help create about 2 million jobs.

Fox News reported in February of 2011 that, "most economists don't think the deficit should be cut deeply now" because the economy is so fragile. That was true in February and it's true today. The economy is fragile.

Rather than a budget deficit, we actually have a jobs deficit combined with low morale. We do need more job creation but we also need to boost the morale of the American people, which could happen if we improve the economy through job creation.

According to some economists, in order for the economy to really grow out of the current recession, we would need to produce about 12 million new jobs but that could take at least another six years. (That's if we produce 300 thousand new jobs every month!)

Something has to be done now. For better or worse, the federal government has to step in and stimulate the economy since the private sector is not hiring despite record profits.

However, most of the insiders in Washington are aligned against such a move. Instead, the conventional wisdom inside the Beltway is that the deficit has to be cut, federal spending has to be cut, entitlement programs have to be cut and all this has to take place without raising taxes. If this were a movie it would be called "Mission Impossible."

Although the jobs deficit is huge, I'm just as concerned about the morale of the American people.

The reason is that our way of life and our very freedom are at stake. That's why perception is so important. Sometimes perception is reality and right now most Americans see a country headed down the wrong path with prosperity out of their reach.

The recession has been so brutal and so long that it's become like a war of nerves. Can Americans -- whether employed or unemployed -- withstand this continued downward economic spiral?

We need to build morale just as much as we need to create jobs.

Gallup's monthly Most Important Problem measures from January through May clearly show that the deficit is not a big concern for Americans. Job creation and the economy are the main concerns.

We cannot afford to lose our way of life and our freedom but if things go on, as they seem to be going, we will not be able to save our way of life and we risk becoming a pale version of our national self in terms of individual freedoms and opportunities.

We need to reframe the deficit misperception as job creation and morale building. In the 20th century we saw examples of what happened when nations were stripped of their morale and lost their spirit. They fell into fascism or totalitarianism. We need job creation and morale building not deficit reduction.

The deficit frame also that says our nation's budget is like a family budget and that is simply wrong because it pretends that the federal government works like a family budget when it doesn't, and that the deficit is our most pressing problem when, in fact, our most pressing problem is job creation. Americans have it right.

The saving grace is that job creation will help reduce the deficit.

So, jobs first, then Americans' morale and the deficit third for the sake of our way of life. (A podcast of this commentary can be heard online at The American Show.)

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