Spinsanity: The $38 billion deficit that won't go away

The $38 billion deficit that won't go away

By Brendan Nyhan
October 28, 2003

It's well-known that the press often uncritically repeats false information, particularly when the "fact" is colorful and helps to tell a simple story that is easily understood. Nonetheless, the scale and pervasiveness of these errors can be stunning. For example, in the debate over the California recall, reporters and pundits from across the local, regional and national media, egged on by a number of political figures, have consistently distributed misinformation about the size of the state budget deficit, falsely claiming that it was $38 billion after a July budget deal.

As New York Times columnist Paul Krugman, The Daily Howler's Bob Somerby, Washington Post columnist Harold Meyerson and others have pointed out, misperceptions about the size of the deficit are widespread, with the list of those who have been deceived ranging from numerous members of the public quoted in the media to prominent Democrats and liberal figures who are sympathetic to Davis, including Howard Dean, Rep. Harold Ford (D-TN) and New Mexico's Democratic governor, Bill Richardson. Even Arianna Huffington, who ran as a progressive in the recall election itself, wrote in an August 5 email to supporters quoted by The Hotline that "we have a $38 billion deficit." How did this happen?

The $38 billion figure received wide publicity earlier this year (with most coverage implying it was a one-year deficit rather than a projection over two years). But on July 31, 2003, just a few days after the recall qualified for the ballot, Davis signed a budget deal closing the projected shortfall, in part by issuing deficit finance bonds (see this overview from the California Legislative Analysts Office). The budget deal received widespread criticism for including $16 billion in borrowing over two years, mostly in the form of deficit financing bonds. But it also included an additional $23 billion in program savings, tax increases, payment deferrals and other measures to close the deficit. Whatever one's view of the budget deal, the $38 billion deficit no longer existed once the legislation was signed, and the relevant state budget figure became a projected $8 billion deficit for 2004-2005.

However, politicians and pundits, either through ignorance or intentional exploitation of voter confusion, routinely repeated the $38 billion figure. Schwarzenegger made a number of references to the $38 billion deficit in the present tense, as if it still existed. For example, on August 7, a week after the budget deal, he said, "We have a $38 billion budget deficit that we have to deal with." The next day, on CNN's "American Morning," Schwarzenegger stated, "Now, we have a $38 billion deficit. I mean, it's disastrous." On August 25 while appearing on Hugh Hewitt's nationally syndicated radio show, The Hotline reported that Schwarzanegger said, "We had a multi-billion surplus. We are now having a $38 billion deficit."

When confronted about his deception, Schwarzenegger and his staff simply dissembled. For example, during the September 24 debate of major contenders in the recall election, he had the following exchange with Democratic candidate Cruz Bustamente:

SCHWARZENEGGER: Let me tell you something. We have never seen a situation like this. $38.2 billion budget deficit. We just found out that the operating deficit, this is the operating deficit went up to $ 10 billion. There's so much...

BUSTAMANTE: Well, I know you may not know this, Arnold, the [deficit] is no longer $38 billion.

SCHWARZENEGGER: You have to be honest with the people. Remember one thing, in California, we have a three strike system. You guys pull the wool over the people's eyes, twice, the third time you are out you are out. On October 7 you guys are out.

As recently as the October 6 edition of MSNBC's "Hardball," Schwarzenegger campaign spokesperson Karen Hanretty said "Look, the voters are concerned about the state of the economy in California. That is exactly why nearly two million people, voters in California signed these recall petitions. They're tired of the car tax. They're tired of a $38 billion budget deficit."

Schwarzenegger's political allies in California - who almost surely knew better - repeated the same bad information. On MSNBC's "Scarborough Country" on August 20, Rep. Christopher Cox (R-CA) said, "I'm supporting him [Schwarzenegger] because, first of all, on the most salient issue that faces California, this $38 billion deficit, and the looming deficits ahead because state spending has grown so far out of control, he knows exactly what to do." Retiring California Rep. Doug Ose (R-CA) mentioned the $38 billion figure three separate times on CNN's "Crossfire" on the same day without clear context, including claiming that "Arnold's plan is about creating jobs to stop the giant sucking sound created by a $38 billion deficit that Governor Davis has caused."

Conservative pundits and commentators were often as dishonest (or ignorant) as the politicians themselves. Byron York of National Review claimed on PBS's "The NewsHour with Jim Lehrer" on August 15 that "Schwarzenegger's new financial adviser, Warren Buffett, is quoted today as talking about it might be necessary to increase taxes to deal with the $38 billion deficit." Appearing on NBC's "Today" on August 18, Chuck Diamond, an attorney who argued a court case against delaying the recall, specifically cited the $38 billion figure to justify his actions in an interview with host Matt Lauer. "You know, I'm sure you're aware of it, many--many Americans aren't, but we're running a $38 billion deficit in California. And--and the folks up in Sacramento haven't solved the problem. Thirty-eight billion dollars is larger than the budget of every state in the nation...save New York." Pundit Michael Reagan said on Fox News Channel's "Hannity and Colmes" on September 5 that the recall was about "what are you going to do to re-right the ship and get us out of a $38 billion deficit." In a September 10 release, Club for Growth President Stephen Moore endorsed a candidate for Ose's seat, saying "If every member of the California legislature voted like Rico Oller, the state would not have a $38 billion deficit." And on October 3, months after the budget deal, syndicated columnist Joseph Perkins claimed Davis "has turned [a $12 billion surplus he inherited] into a staggering $38 billion deficit."

The national press has performed especially poorly in this episode. Rather than correcting misinformation, it has frequently disseminated the falsehood instead. The errors began quickly. On ABC's "Good Morning America" on August 11, co-host Charlie Gibson asked a guest, "So we know he [Schwarzenegger] made over 50 million bucks in the last couple of years. But has he suggested he knows how to close a $38 billion deficit in California?" ABC's Brian Rooney reported on August 20 on the show that "Davis accepted some blame for California's $38 billion deficit, but not all of it." And on the 21st of August, Gibson again repeated the figure. "[T]here's a $38 billion deficit in California, and he [Schwarzenegger] says he can do it, make up the problem with budget cuts."

Gibson was not alone in making the error. On August 12, NBC "Today" co-host Katie Couric asked a guest whether Schwarzenegger "has what it takes to be the governor of a state the size of California and, frankly, a state that has the problems California has? In other words, a $38 billion deficit?" On September 25, she again repeated the figure in a question to Duf Sundheim, California Republican Party chairman, and was corrected by Art Torres of the California Democratic Party, who said, "And quite frankly, we don't have a $38 billion deficit. We have an $8 billion deficit going into the next fiscal year with a budget that was signed by this governor."

Finally, completing the morning show trifecta, CBS "Early Show" co-host Harry Smith forced Torres to correct the record for the second time, saying that if the Democrats defeated the recall, "you still have an enormously unpopular governor, a $38 billion budget deficit. Is that a victory?" Torres replied, "We don't have a $38 billion deficit. You're buying the Republican lies again. We only have an $8 billion deficit moving into the next fiscal year."

Chris Matthews, host of MSNBC's "Hardball," was by far the worst single offender. On his September 3 show, shot in San Francisco, Matthews asked a guest about "the big deficits that you face up there [in Sacramento], the $38 billion deficit out here in California." The next week, during the September 10 "Hardball," San Francisco Chronicle editor Phil Bronstein referred to "a $38 billion deficit," which another guest pointed out was incorrect. "Phil Bronstein is wrong. There's no $38 billion deficit," said former San Jose mayor Tom McEnery. "The budget was passed and it became a balanced budget, based upon the nature of what they did in order to address the issue." Matthews was stunned and clearly had no idea a deal had been reached. "Whoa! What did they do to make up the deficit?" San Francisco mayor Willie Brown tried to explain the debt refinancing to Matthews and said "There is no $38 billion deficit -- that is just not true," but the host just referred the issue back to Bronstein, who tried to defend his previous statement. Apparently, the debate had little impression on Matthews, because on September 23, he asked Torres "to suggest some cuts the Democrats are willing to make in the budget" and, when he didn't like the official's response, skeptically said, "$38 billion in cuts. List them." On October 6, Matthews said, "This governor [Davis] has a $38 billion deficit," and on October 8, he said Schwarzenegger is "going to inherit the day he takes office, whether it be a couple weeks from now or a month from now, a $38 billion deficit."

CNN was also especially plagued with misinformation. Lou Dobbs of the network's "Lou Dobbs Tonight" repeated the $38 billion figure on August 11 and had to be gently corrected by his guest, CNN analyst Bill Schneider. "Well, at this point, the embarrassment is really about a state with a $38 billion budget deficit..." Dobbs said. Schneider then presented the fact that the deficit was eliminated as a partisan claim, stating that Davis "says, look, we had a $38 billion budget deficit, but through a deal with the state legislature, we've got it down to $8 billion." On the August 12 edition of "Daybreak," host Bill Hemmer asked Bill Simon, another Republican candidate in the recall who later dropped out, "How do you renew the California dream with a $38 billion deficit right now?" During CNN's "Newsnight with Aaron Brown" on August 18, Brown became the second CNN host in one week to bring up the $38 billion figure with Simon, mentioning first "the budget deficit, the $38 billion" and later asking, "Can you honestly say to the people of California that you can solve a $38 billion deficit by simply cutting services?" (Notably, in both cases, Simon disclosed the existence of the budget deal to the inept CNN hosts.) Host Soledad O'Brien asked on August 21's "American Morning," "Arnold Schwarzenegger may have the muscle, but can he do the math and solve California's $38 billion budget shortfall?" And Wolf Blitzer even made the claim that "there is now a $38 billion deficit" in an interview with Davis himself on the August 24 "Late Edition with Wolf Blitzer." (Like Simon, Davis corrected Blitzer, saying, "First of all, there is no $38 billion deficit. I signed a budget a couple of weeks ago.")

Other elite journalists who repeated the canard include Roger Simon of US News & World Report on CNBC's "Tim Russert" on August 16, Dan Balz and David S. Broder in the Washington Post on August 17, Newsweek columnist Fareed Zakaria on ABC's "This Week" on August 17, NBC "Nightly News' reporter Kelly O'Donnell on August 24, Washington Times reporter James Lakely on August 25, USA Today reporters John Ritter and Martin Kasindorf on September 4 and UPI analyst Martin Sieff on October 14.

The California press seem to have made fewer mistakes, but still repeated the false claim on occasion. Bronstein, who edits San Francisco's largest newspaper, first claimed the $38 billion deficit still existed on CNBC's "The News with Brian Williams" on August 28, then again on the Sept. 10 edition of MSNBC's "Hardball" as stated above. The state and regional Associated Press wire service headlined a story "Buffett has one idea why California has $38 billion deficit" on August 15, and the San Jose Mercury News included a story stating that an obscure Republican candidate "would sell naming rights to freeways to help put a dent in California's $38 billion deficit."

Finally, local and regional papers outside of California made a huge number of mistakes in their coverage of the recall and their editorials on the subject. The very long list of offenders includes an Oregonian editorial (August 3), the Boston Herald (August 3), The Montgomery Advertiser [AL] (August 10), the Arizona Republic (August 10), a Denver Post editorial (August 12), a Buffalo News editorial (August 12), Pittsburgh Post-Gazette (August 14), Charlotte Observer (August 20), Minneapolis Star-Tribune (August 29), Las Vegas Review-Journal (October 9), a Dallas Morning News editorial (October 9) and the Tampa Tribune (October 12).

There can simply be no question that serious error is pervasive in the press corps, which too often relies on "known" facts rather than independent research. Unfortunately, in this case, misinformation about the size of California's budget deficit had consequences for the recall election in California and for citizens nationwide trying to learn more about it.

 

With a few more budget tweaks, an improving economy, and the relative house building boom about to result from the fires, Governor Arnold is going to have a lot to brag about.

 

The article addresses this:
"Whatever one's view of the budget deal, the $38 billion deficit no longer existed once the legislation was signed, and the relevant state budget figure became a projected $8 billion deficit for 2004-2005."

The point of the article isn't what "they" wanted to claim but what virtually every politician and political commentator was leading the public to believe about the 2004-2005 budget deficit. No one has claimed the debt was "gone." Just that the budget for the current fiscal year isn't as dire as it was being made out to be. The situation in California is dire enough without false numbers.

As for shifting dept to future years: you ain't seen nothin' yet. Californian's have been playing "NFL salary cap" for years and next year's budget is certain to contain payouts for past debt in addition to the shortfalls for the past year.