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American politics often seems to be focused on three deficits, real and potential: the federal budget, the Social Security Trust Fund, and the trade balance. Robert Eisner, past president of the American Economic Association, explains why this is an unhealthy situation as well as a source of much misunderstanding. He argues that simply looking at the raw numbers creates misimpressions about the country's real economic situation, as well as provoking potentially damaging ideas for "remedies."
Eisner points out that Social Security Trust Fund deficits can be "fixed" by simple changes in accounting procedures or funding requirements. And America's trade deficit will not bankrupt the country--servicing America's foreign obligations will take only a tiny share of its national wealth. As with any other loan, Eisner reminds us, it is what deficits are spent on that counts: tax cuts or investments in education, research, or the nation's capital stock.
Eisner maintains that the economic dragons the American nation should be attempting to slay do not entail mythically measured budget or current account deficits. The real economic troubles that America faces are those of poverty, income inequality, and a failure to invest in human capital and public infrastructure.

The word deficit appears over and over again in news reports, usually as part of solemn warnings or on lists of issues of great and immediate concern. The federal budget deficit has preoccupied the administration and Congress for the past five years, culminating in this year's balanced budget agreement. The seemingly endemic U.S. trade deficit continues to arouse great consternation in the business press. And the prospect of Social Security deficits in the next century has spurred debate about the need for drastic measures to resolve what's perceived to be an imminent crisis.

But all three of these dreaded deficits--budget, trade, and Social Security--are less ominous than politicians and the mainstream media have led us to believe. The confusion has become so pervasive that Americans should be forgiven for thinking that somehow balancing the federal budget follows logically from cutting taxes; or that the continuing enormity of the U.S. trade deficit demonstrates that overseas competitors are outfoxing domestic producers; or that Social Security will collapse or go out of business in thirty years if we don't act now.

Robert Eisner

Robert Eisner (1922-1998) - a leading American macroeconomist and theorist of the investment function, was an architect of the Keynesian ascendancy in post-war America. He developed the accounting foundations of Keynesian macroeconomics, finally producing a Total Income System of Accounts. His ideas found application in his later, policy-oriented writings on the budget deficit, the current account, and the Social Security system. His embrace of capital budgeting underpinned a strong advocacy of liberal expenditure on infrastructure, education, and research and development. He was throughout motivated by a commitment to larger social goals, especially full employment, peace, and justice.