So

[mavs>spurs]

With the tax cuts and spending programs about to expire, GDP growth is surely going to be stifled and unemployment will rise even higher. Does this mean that the fed will counter this contractionary fiscal policy with a little expansionary monetary ie quantitative easing? Where the economists at.

[boutons_deux]

"GDP growth is surely going to be stifled and unemployment will rise even higher"

do you have any evidence for these predictions? or is it just common (right-wing) sense?

[mavs>spurs]

Advanced macroeconomics course is my evidence. This is why I want the specific opinion of Scott.

[Twisted_Dawg]

QE1 & QE2, as well as Operation Twist have not brought down unemployment. QE3 might resut in a slight temporary bump in the stock market.

The expiring Bush tax cuts (aka 2012 Obama Tax hike) as well as the mandatory budget cuts, lingering small business uncertainty of Obamacare, mountains of debt and problems in the Eurozone are going to combine to make the next few years very difficult economically.

[mavs>spurs]

One could most certainly argue that QE 1 and 2 brought the unemployment rate from 10% down to 8%

That's not to say all those things aren't a problem

[Yonivore]

One could most certainly argue that QE 1 and 2 brought the unemployment rate from 10% down to 8%

That's not to say all those things aren't a problem
The thing that brought it from 10% to 8% are those dropping out of the work force. The actual unemployment rate is in double digits.

[boutons_deux]

taxes were much higher in the 90s when under Clinton 20M jobs were created.

taxes werver VERY much higher in the 1945-1965 period when America boomed at all levels,not just the 1%.

Repugs lowering taxes in 2001 did nothing for job creation and household income thorugh the the 2000s.

[mavs>spurs]

http://www.cnbc.com/id/48193471


How Close Are We to New Great Depression?
Published: Monday, 16 Jul 2012 | 8:17 AM ET Text Size
By: Catherine Boyle
Staff Writer, CNBC.com

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The risk of a new depression — a sustained, severe recession — has struck fear into the heart of markets and driven monetary policy in developed economies since the current financial crisis began.




“We’re in a very unfortunate position to be here,” Richard Duncan, author of The New Depression, warned on CNBC’s “Squawk Box Europe” Monday.

“When we broke the link between money and gold, this removed all constraints on credit creation. This explosion of credit created the world we live in, but it now seems that credit cannot expand any further because the private sector is incapable of repaying the debt it has already, and if credit begins to contract, there’s a very real danger that we will collapse into a new Great Depression,” he argued.

“If this credit bubble pops, the depression could be so severe that I don’t think our civilization could survive it.”

The explosion in cheap credit has been widely blamed for the global financial crisis, but the debate about how to fix the problem continues.

In the past few years, central banks including the U.S. Federal Reserve , the European Central Bank and the Bank of England have pumped liquidity into their financial systems through a number of ways, including quantitative easing and the ECB’s long-term refinancing operation (LTRO).

“We could keep deferring the depression, but that could just encourage the bad guys. If you do this, you possibly do more harm than good,” Roger Nightingale, economist and strategist at RND Associates, told CNBC Monday.

“You can defer, but not prevent.”

Nightingale argued that previous credit booms, for example in Japan in the 1980s, have led to sustained recessions.

Is a Europe-Only Recession in the Cards?Marc Faber: 100% Chance of Global RecessionA Global Recession? The Warning Signs Are Everywhere
“When you throw money into the system at a rate much in excess of the requirements of the real economy, you’re trying to get people to borrow and spend, but the good guys out there won’t because they’re too cautious. It’s the bad guys who come in, the malefactors,” he said.

“When the central banks realize what is going on and raise interest rates, it flings the world economy into depression.”

The ideas of Milton Friedman, the Nobel Prize-winning economist who argued that monetary policy should constantly expand, informed some of the Fed’s response to the crisis.

“Policymakers really believe that if we allow credit to contract, we will reach a new Depression,” Duncan said.

“The increase in government debt is making total debt grow, otherwise we would already have collapsed in to a debt-deflation death spiral. This creates great perils, but also tremendous opportunities.”

Duncan argues that governments in the developed world should borrow “massive” amounts of money at the current low interest rates to invest in new technologies like renewable energy and genetic engineering.

“Even if this is wasted, at least we could enjoy this civilization for another ten years before it collapses,” he said.

His views counter those of economists who believe that governments should focus on cutting their debt, particularly where repayments on that debt are threatening to reach unsustainable levels, like in Greece.

[mavs>spurs]

http://www.cnbc.com/id/48193471


How Close Are We to New Great Depression?
Published: Monday, 16 Jul 2012 | 8:17 AM ET Text Size
By: Catherine Boyle
Staff Writer, CNBC.com

Twitter
110

LinkedIn
13
Share
The risk of a new depression — a sustained, severe recession — has struck fear into the heart of markets and driven monetary policy in developed economies since the current financial crisis began.




“We’re in a very unfortunate position to be here,” Richard Duncan, author of The New Depression, warned on CNBC’s “Squawk Box Europe” Monday.

“When we broke the link between money and gold, this removed all constraints on credit creation. This explosion of credit created the world we live in, but it now seems that credit cannot expand any further because the private sector is incapable of repaying the debt it has already, and if credit begins to contract, there’s a very real danger that we will collapse into a new Great Depression,” he argued.

“If this credit bubble pops, the depression could be so severe that I don’t think our civilization could survive it.”

The explosion in cheap credit has been widely blamed for the global financial crisis, but the debate about how to fix the problem continues.

In the past few years, central banks including the U.S. Federal Reserve , the European Central Bank and the Bank of England have pumped liquidity into their financial systems through a number of ways, including quantitative easing and the ECB’s long-term refinancing operation (LTRO).

“We could keep deferring the depression, but that could just encourage the bad guys. If you do this, you possibly do more harm than good,” Roger Nightingale, economist and strategist at RND Associates, told CNBC Monday.

“You can defer, but not prevent.”

Nightingale argued that previous credit booms, for example in Japan in the 1980s, have led to sustained recessions.

Is a Europe-Only Recession in the Cards?Marc Faber: 100% Chance of Global RecessionA Global Recession? The Warning Signs Are Everywhere
“When you throw money into the system at a rate much in excess of the requirements of the real economy, you’re trying to get people to borrow and spend, but the good guys out there won’t because they’re too cautious. It’s the bad guys who come in, the malefactors,” he said.

“When the central banks realize what is going on and raise interest rates, it flings the world economy into depression.”

The ideas of Milton Friedman, the Nobel Prize-winning economist who argued that monetary policy should constantly expand, informed some of the Fed’s response to the crisis.

“Policymakers really believe that if we allow credit to contract, we will reach a new Depression,” Duncan said.

“The increase in government debt is making total debt grow, otherwise we would already have collapsed in to a debt-deflation death spiral. This creates great perils, but also tremendous opportunities.”

Duncan argues that governments in the developed world should borrow “massive” amounts of money at the current low interest rates to invest in new technologies like renewable energy and genetic engineering.

“Even if this is wasted, at least we could enjoy this civilization for another ten years before it collapses,” he said.

His views counter those of economists who believe that governments should focus on cutting their debt, particularly where repayments on that debt are threatening to reach unsustainable levels, like in Greece.

[Clipper Nation]

But... but... :cry we can print our way to prosperity... :cry Keynes was right even though we're having massive economic failure... :cry hyperinflation couldn't happen to us? :cry :cry

[mercos]

QE3 seems inevitable at this point. The Fed just doesn't want to run out of ammo yet. Of course, a scenario in which the projected spending cuts from the budget deal are allowed to go through and the Bush tax cuts are allowed to expire is not likely. If Obama is re-elected, Republicans will capitulate and extend the middle class tax cuts during the lame duck. I also can not see Republicans allowing the defense cuts to go through. Nothing is going to happen until the election, but I believe there will be a lot of action in the lame duck session.

[DMX7]

Advanced macroeconomics course is my evidence. This is why I want the specific opinion of Scott.

Advanced? Try principles of macroeconomics (i.e., freshman economics 101). But regardless, it's only a general principle as there are other variables that may or may not outweigh fiscal or monetary policy.

[DMX7]

Oh, and the tax cuts aren't going to expire except possibly for those in the top 2%.

[mavs>spurs]

Advanced? Try principles of macroeconomics (i.e., freshman economics 101). But regardless, it's only a general principle as there are other variables that may or may not outweigh fiscal or monetary policy.

no that's not the class i'm in it's advanced macro

there has been talk of the fed stepping in with expansionary monetary policy to offset the effects and i was wondering if scott or someone who actually knows economics thinks this is what's going to happen. I was looking at the LM and the IS conditions graphically and it made sense that they would try to go this route to offset the contractionary fiscal policy we are about to see. aside from the tax expiration only affecting the wealthy as you say, there is still the condition that massive stimulus spending will also expire and this will surely have an effect on equilibrium output and therefore unemployment.

[DMX7]

What specific stimulus programs are you expecting to expire and have a meaningful affect on the economy?

[mavs>spurs]

Pretty sure the Budget Control Act of 2011 calls for the 2nd of 3 major spending cuts starting at the beginning of the new year, that's what I'm talking about. The use of contractionary fiscal policy is a threat IMO, if you know anything about economics or if maybe that makes sense to you why I'm saying what I'm saying. I'm still iffy on the tax cuts "having no effect because it's on those damn richers!" like some of you seem to think. Sorry folks, but 250,000 as a family or 200,000 if you're single is like upper middle class, NOT rich. Meanwhile all the multibillionaires are COMPLETELY exempt from taxes. I think this will have a bigger effect than some of you think, it's those guys making 200,000 a year who are responsible for much of the consumer spending right now keeping this ship afloat. This also encompasses small business owners. 250,000 is NOT a lot of money for an entire household historically if you adjust for price level I don't think. I don't consider these people rich or think that raising their taxes won't have an effect. It's the multimillionaires and billionares who pay nothing I'm more worried about.

[mavs>spurs]

Hell, my grandpa always historically made that much with his business for years and years and we were never considered rich, just regular working class people. It's crazy how far we've fallen if this is what we think is rich and we're now jealous of our neighbors. This is exactly what the richers want, the middle class to foot the bill and total class warfare. Turn us against our neighbor while they offshore billions.

[DMX7]

Ok, about 2% of households report $250K or greater in adjusted gross income. That's not upper middle class, that's rich. If you have 6 kids, then maybe it doesn't go as far as it could if you were married and didn't have kids, but raising the marginal tax rate 3% or so on those people isn't going to have a meaningful affect on their spending habits or the economy.

I'm not sure what you're suggesting regarding monetary policy. If the fed increases the money supply, then interest rates may decline slightly, but built into that premise that it will meaningfully help the economy is the assumption that interest rates are so high that they are preventing borrowing and thus investing -- which of course they are not. Interest rates are already extraordinarily low. Certainty about keeping the tax rates low and more importantly a stabilization of the European economy will help get us out of our stagnant growth. We're living in a globalized economy in which American company's are now largely at the mercy of foreign markets to sell their products and services.

[mavs>spurs]

Ok, about 2% of households report $250K or greater in adjusted gross income. That's not upper middle class, that's rich. If you have 6 kids, then maybe it doesn't go as far as it could if you were married and didn't have kids, but raising the marginal tax rate 3% or so on those people isn't going to have a meaningful affect on their spending habits or the economy.

I'm not sure what you're suggesting regarding monetary policy. If the fed increases the money supply, then interest rates may decline slightly, but built into that premise that it will meaningfully help the economy is the assumption that interest rates are so high that they are preventing borrowing and thus investing -- which of course they are not. Interest rates are already extraordinarily low. Certainty about keeping the tax rates low and more importantly a stabilization of the European economy will help get us out of our stagnant growth. We're living in a globalized economy in which American company's are now largely at the mercy of foreign markets to sell their products and services.

according to the LM condition, expanding the money supply would cause equilibrium output to increase, or at the very least offset the damage done by the contractionary fiscal policy hopefully. that's the thinking behind it and why the fed keeps talking about it and holding on to it as a last resort. i wish scott would get in here and tell us what he thinks they will do and what we're looking at.

i was looking graphically today at the unemployment rate over time. only a couple times in history since 1950 has it ever been over 8%, and it was always short lived. back down in the normal range in under a years time. we've been at 8-10% for 2.5 years now. the last time the unemployment rate took this shape graphically and didn't recover quickly was the Great Depression. Not trying to sound like an alarmist, just throwing that out there.

[mavs>spurs]

http://3.bp.blogspot.com/-zaoMNHpVUH8/TullN3Jf7GI/AAAAAAAAAII/ad0wXWr6LpM/s1600/US+unemp+SA_1948-2011.jpg

Do you see how historically, whenever it has peaked out it usually falls sharply as opposed to recently where it's sort of flat? And that was 2010, it's 2012 and still maintaining those same levels. It's NOT recovering like it's supposed to, this is NOT an economic recovery. This is the dreaded double dip.

[CosmicCowboy]

http://3.bp.blogspot.com/-zaoMNHpVUH8/TullN3Jf7GI/AAAAAAAAAII/ad0wXWr6LpM/s1600/US+unemp+SA_1948-2011.jpg

Do you see how historically, whenever it has peaked out it usually falls sharply as opposed to recently where it's sort of flat? And that was 2010, it's 2012 and still maintaining those same levels. It's NOT recovering like it's supposed to, this is NOT an economic recovery. This is the dreaded double dip.

The dead cat bounce.

I'm no trained economist but we will see QE3 in the next month IMHO. The Fed has become politicized.

[CosmicCowboy]

Ok, about 2% of households report $250K or greater in adjusted gross income. That's not upper middle class, that's rich. If you have 6 kids, then maybe it doesn't go as far as it could if you were married and didn't have kids, but raising the marginal tax rate 3% or so on those people isn't going to have a meaningful affect on their spending habits or the economy.

I'm not sure what you're suggesting regarding monetary policy. If the fed increases the money supply, then interest rates may decline slightly, but built into that premise that it will meaningfully help the economy is the assumption that interest rates are so high that they are preventing borrowing and thus investing -- which of course they are not. Interest rates are already extraordinarily low. Certainty about keeping the tax rates low and more importantly a stabilization of the European economy will help get us out of our stagnant growth. We're living in a globalized economy in which American company's are now largely at the mercy of foreign markets to sell their products and services.


You are right. The cash take from soaking the "rich" will be in the low billions. . Under 100 per year. CBO says 40. I heard Obama say today that the Republicans wanted to give the "rich" a 5 trillion dollar tax cut. I am constantly amazed at the audacity of his outright lies and the that press gives him a pass. Maybe he picked 5 million because that's how much the deficit has grown under his presidency and he is just assuming the stupid ones like Botuox will just gobble it up and vomit it back.

[mercos]

I'm still iffy on the tax cuts "having no effect because it's on those damn richers!" like some of you seem to think. Sorry folks, but 250,000 as a family or 200,000 if you're single is like upper middle class, NOT rich. Meanwhile all the multibillionaires are COMPLETELY exempt from taxes. I think this will have a bigger effect than some of you think, it's those guys making 200,000 a year who are responsible for much of the consumer spending right now keeping this ship afloat. This also encompasses small business owners. 250,000 is NOT a lot of money for an entire household historically if you adjust for price level I don't think. I don't consider these people rich or think that raising their taxes won't have an effect. It's the multimillionaires and billionares who pay nothing I'm more worried about.


You are making a common error. Those making right at or right above $250,000 won't pay much more in income taxes. The first $250,000 is not taxed at the top rate, only the money earned above it. So if a married couple made $260,000, they would only pay a higher rate on $10,000. The only way the tax will sting is if you are making a good bit above $250,000 a year, and if you are, then a 4% increase is not going to hurt.

And for the record, $250,000 is A LOT of money for a household. My family started off poor, but by the time I was a teenager my father was making around $170,000 a year. At that income level he basically had whatever he wanted. If someone is having trouble making ends meet at $250,000 a year, then they are worse with their money than the US government.

[mavs>spurs]

According to cpi, 250,000 in 1975 dollars is equivalent to 1,079,925.65 in 2012 money. I still maintain that my grandfather was NOT rich, just well off. Times have really changed and living standards have slipped since then.

He did that owning a freakin roofing company. Not even possible today.

[ElNono]

So the tax cuts we've been running on deficits for years that were supposed to put more money at the middle-top so they would 'trickle down' and prop up the economy, haven't done jackshit. Well, we already knew this back in '08... the fuck barry keeps doing?

[mavs>spurs]

being tricked into jealousy over the guy making 250,000 a year and wanting to tax the hell out of him isn't going to fix anything. the real problem is the guys offshoring more money than your minds can even seem to comprehend and not paying a dime on it, the multibillionaires of the world. the bottom half of the 1% doesn't come anywhere near the top echelon of the 1%.

[ElNono]

being tricked into jealousy over the guy making 250,000 a year and wanting to tax the hell out of him isn't going to fix anything. the real problem is the guys offshoring more money than your minds can even seem to comprehend and not paying a dime on it, the multibillionaires of the world. the bottom half of the 1% doesn't come anywhere near the top echelon of the 1%.

Well, we should start with the fact that neither top or bottom of said 1% really gives a shit about the good ol' USA. That includes a good amount of politicos that "just happen" to be entrenched in that group.

[mercos]

I agree that raising the top marginal rates from 35% to 39% is not going to make a dent in our problems. However, it is important to realize that no one is voting for a tax increase in this case. The tax rates are set to go up by themselves next year. I'm just saying we should let them. Middle class tax rates should stay the same for now, because the middle class is actually struggling and every dime they have is important right now. When the economy is in stronger shape, I believe the tax rates on everyone should return to the 1990s levels.

[mavs>spurs]

taxes suck in general. we should cut the shit in half and cut govt spending to 1/3 it's current size. government spending is always inefficient spending, and i don't want to live in a nanny state. all these spy agencies and police drones and wars and bs is a waste. most of the government contracts are a waste. fuck the shit.

[Latarian Milton]

the richest dont need to pay tax because they own this country and have overall control of the government & lawmaker. the whole tax law shit is supposedly written in favor of them richest bastards who're the uppermost 1% of the social classes and yet it is democracy we're all so proud of

FUCKING BASTARDS :ihit:

[DMX7]

being tricked into jealousy over the guy making 250,000 a year and wanting to tax the hell out of him isn't going to fix anything. the real problem is the guys offshoring more money than your minds can even seem to comprehend and not paying a dime on it, the multibillionaires of the world. the bottom half of the 1% doesn't come anywhere near the top echelon of the 1%.

You're being tricked into thinking that it's jealousy and not common sense to tax the rich who can most afford to pay it and who will have their life styles least affected by it.

[mavs>spurs]

You're being tricked into thinking that it's jealousy and not common sense to tax the rich who can most afford to pay it and who will have their life styles least affected by it.

common sense tells you that the americans making 250,000 are just a drop in the bucket. if we tax the hell out of upper middle class, and allow rich ass financiers making billions and billions to pay zero tax, then shit won't change. they'll bleed those guys try too and then what?

[Wild Cobra]

common sense tells you that the americans making 250,000 are just a drop in the bucket. if we tax the hell out of upper middle class, and allow rich ass financiers making billions and billions to pay zero tax, then shit won't change. they'll bleed those guys try too and then what?
Why do these people think that taxing the upper crust more will give us any significant revenue increases?

I've said it umpteen million times.

We need more tax payers. Not more taxes.

[DMX7]

common sense tells you that the americans making 250,000 are just a drop in the bucket. if we tax the hell out of upper middle class, and allow rich ass financiers making billions and billions to pay zero tax, then shit won't change. they'll bleed those guys try too and then what?


Tax the hell out of them? Bleed them dry? You're completely brainwashed by Fox News if you think that 3% or whatever marginal tax rate increase is going to bleed the rich dry. It will provide much needed revenue, not solve our financial problems. You and WC are just beating down your own straw man because I never said it would solve our financial problems, but it will contribute to helping solve them.

[DMX7]

Why do these people think that taxing the upper crust more will give us any significant revenue increases?

I've said it umpteen million times.

We need more tax payers. Not more taxes.

So you want the poor and dissolving middle class to have even less?

[mercos]

Why do these people think that taxing the upper crust more will give us any significant revenue increases?

I've said it umpteen million times.

We need more tax payers. Not more taxes.


You are not going to get more tax payers if the top earners continue to siphon wealth off of everyone else by taking a greater portion of the spoils for themselves. Just look at where CEO pay is now compared to 30 years ago. Now look at where middle income and minimum wage salaries are compared to 30 years ago. Top down economics does not work. Those in power have abused the capitalist system. Capitalism is not what is failing here. Greedy corporate leaders and their government cronies (supply side believers) are the problem.

[ElNono]

Before raising any taxes, it would be a good idea to close the loopholes they're using already to largely avoid paying what they owe in the first place...

But, as I said, you need honest politicians for that. None to be found these days, seemingly.

[mavs>spurs]

Before raising any taxes, it would be a good idea to close the loopholes they're using already to largely avoid paying what they owe in the first place...

But, as I said, you need honest politicians for that. None to be found these days, seemingly.

exactlyyyy, the ultra mega rich billionaires just use the loopholes, taxing the upper middle class wont do shit

[Wild Cobra]

So you want the poor and dissolving middle class to have even less?
Hell no. Here you are being presumptuous again.

I want congress and the president to stop policies that hamper growth. I want more people to be tax payers by having actual economic growth and more income, and not to rely on government.

[ElNono]

I want congress and the president to stop policies that hamper growth. I want more people to be tax payers by having actual economic growth and more income, and not to rely on government.

What policies specifically hamper growth?

Every country in the world wants to always grow non-stop, but it just doesn't always works like that. I'm not saying you shouldn't wish that, but there's no magical wand to make that happen, especially when the world in general is in a shitty economic situation.

[mercos]

I completely agree with closing loopholes. Hell, I'd even be for cutting the tax rate if most loopholes were closed on marginal rates. A flat top marginal rate of about 30% would probably raise revenues, as most top earners pay far less than that now. Capital gains would have to be addressed as well, as many earn their income through this stream and it is taxed at a far lower rate of just 15%.

[Wild Cobra]

I completely agree with closing loopholes. Hell, I'd even be for cutting the tax rate if most loopholes were closed on marginal rates. A flat top marginal rate of about 30% would probably raise revenues, as most top earners pay far less than that now. Capital gains would have to be addressed as well, as many earn their income through this stream and it is taxed at a far lower rate of just 15%.
If you cut out the loopholes, most exemptions, most credits, etc... I think a marginal rate of no more than 22% would work. Two decades ago, such a scheme at 17% would have worked.

[boutons_deux]

Hell no. Here you are being presumptuous again.

I want congress and the president to stop policies that hamper growth. I want more people to be tax payers by having actual economic growth and more income, and not to rely on government.

What are these policies that hamper growth?

[boutons_deux]

Four federal spending myths that won't die

We’re at the edge of the cliff of deficit disaster! National security spending is being, or will soon be, slashed to the bone! Obamacare will sink the ship of state!

Each of these claims has grabbed national attention in a big way, sucking up years’ worth of precious airtime. That’s a serious bummer, since each of them is a spending myth of the first order. Let’s pop them, one by one, and move on to the truly urgent business of a nation that is indeed on the edge.

Spending Myth 1: Today’s deficits have taken us to a historically unprecedented, economically catastrophic place.

This myth has had the effect of binding the hands of elected officials and policymakers at every level of government. It has also emboldened those who claim that we must cut government spending as quickly, as radically, as deeply as possible.

In fact, we’ve been here before. In 2009, the federal budget deficit was a whopping 10.1% of the American economy and back in 1943, in the midst of World War II, it was three times that -- 30.3%. This fiscal year the deficit will total around 7.6%. Yes, that is big. But in the Congressional Budget Office’s grimmest projections, that figure will fall to 6.3% next year, and 5.8% in fiscal 2014. In 1983, under President Reagan, the deficit hit 6% of the economy, and by 1998, that had turned into a surplus. So, while projected deficits remain large, they’re neither historically unprecedented, nor insurmountable.

More important still, the size of the deficit is no sign that lawmakers should make immediate deep cuts in spending. In fact, history tells us that such reductions are guaranteed to harm, if not cripple, an economy still teetering at the edge of recession.

A number of leading economists are now busy explaining why the deficit this year actually ought to be a lot larger, not smaller; why there should be more government spending, including aid to state and local governments, which would create new jobs and prevent layoffs in areas like education and law enforcement. Such efforts, working in tandem with slow but positive job growth in the private sector, might indeed mean genuine recovery. Government budget cuts, on the other hand, offset private-sector gains with the huge and depressing effect of public-sector layoffs, and have damaging ripple effects on the rest of the economy as well.

When the economy is healthier, a host of promising options are at hand for lawmakers who want to narrow the gap between spending and tax revenue. For example, loopholes and deductions in the tax code that hand enormous subsidies to wealthy Americans and corporations will cost the Treasury around $1.3 trillion in lost revenue this year alone -- more, that is, than the entire budget deficit. Closing some of them would make great strides toward significant deficit reductions.

Alarmingly, the deficit-reduction fever that’s resulted from this first spending myth has led many Americans to throw their support behind de-investment in domestic priorities like education, research, and infrastructure -- cuts that threaten to undo generations of progress. This is in part the result of myth number two.

Spending Myth 2: Military and other national security spending have already taken their lumps and future budget-cutting efforts will have to take aim at domestic programs instead .

The very idea that military spending has already been deeply cut in service to deficit reduction is not only false, but in the realm of fantasy. The real story: despite headlines about “slashed” Pentagon spending and “doomsday” plans for more, no actual cuts to the defense budget have yet taken place. In fact, since 2001, to quote former Defense Secretary Robert M. Gates, defense spending has grown like a “gusher.” The Department of Defense base budget nearly doubled in the space of a decade. Now, the Pentagon is likely to face an exceedingly modest 2.5% budget cut in fiscal 2013, “paring” its budget down to a mere $525 billion -- with possible additional cuts shaving off another $55 billion next year if Congress allows the Budget Control Act, a.k.a. “sequestration,” to take effect.

But don’t hold your breath waiting for that to happen. It’s likely that lawmakers will, at the last moment, come to an agreement to cancel those extra cuts. In other words, the notion that our military, which has been experiencing financial boom times even in tough times, has felt significant deficit-slashing pain -- or has even been cut at all -- is the Pentagon equivalent of a unicorn.

What this does mean, however, is that lawmakers heading down the budget-cutting path can find plenty of savings in the enormous defense and national security budgets. Moreover, cuts there would be less harmful to the economy than reductions in domestic spending.

A group of military budget experts, for example, found that cutting many costly and obsolete weapons programs could save billions of dollars each year, and investing that money in domestic priorities like education and health care would spur the economy. That’s because those sectors create more jobs per dollar than military programs do. And that leads us to myth three.

Spending Myth 3: Government health-insurance programs are more costly than private insurance.

False claims about the higher cost of government health programs have led many people to demand that health-care solutions come from the private sector. Advocates of this have been much aided by the complexity of sorting out health costs, which has provided the necessary smoke and mirrors to camouflage this whopping lie.

Health spending is indeed growing faster than any other part of the federal budget. It’s gone from a measly 7% in 1976 to nearly a quarter today -- and that’s truly a cause for concern. But health care costs, public and private, have been on the rise across the developed world for decades. And cost growth in government programs like Medicare has actually been slower than in private health insurance. That’s because the federal government has important advantages over private insurance companies when it comes to health care. For example, as a huge player in the health-care market, the federal government has been successful at negotiating lower prices than small private insurers can. And that helps us de-bunk myth number four.

Spending Myth 4: The Affordable Care Act -- Obamacare -- will bankrupt the federal government while levying the biggest tax in U.S. history.

Wrong again. According to the Congressional Budget Office, this health-reform legislation will reduce budget deficits by $119 billion between now and 2019. And only around 1% of American households will end up paying a penalty for lacking health insurance.

While the Affordable Care Act is hardly a panacea for the many problems in U.S. health care, it does at least start to address the pressing issue of rising costs -- and it incorporates some of the best wisdom on how to do so. Health-policy experts have explored phasing out the fee-for-service payment system -- in which doctors are paid for each test and procedure they perform -- in favor of something akin to pay-for-performance. This transition would reward medical professionals for delivering more effective, coordinated, and efficient care -- and save a lot of money by reducing waste.

The Affordable Care Act begins implementing such changes in the Medicare program, and it explores other important cost-containment measures. In other words, it lays the groundwork for potentially far deeper budgetary savingsdown the road.

Having cleared the landscape of four stubborn spending myths, it should be easier to see straight to the stuff that really matters. Financial hardship facing millions of Americans ought to be our top concern. Between 2007 and 2010, the median family lost nearly 40% of its net worth. Neither steep deficits, nor disagreement over military spending and health reform should eclipse this as our most pressing challenge.

If lawmakers skipped the myth-making and began putting America’s resources into a series of domestic investments that would spur the economy now, their acts would yield dividends for years to come. That means pushing education and job training, plus a host of job-creation measures, to the top of the priority list, and setting aside initiatives based on fear and fantasy.

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