The new Republican disease — dwindling deficit disorder

Keeping an eye on the dimbulbs

For three years and more, policy debate in Washington has been dominated by warnings about the dangers of budget deficits. A few lonely economists have tried from the beginning to point out that this fixation is all wrong, that deficit spending is actually appropriate in a depressed economy. But even though the deficit scolds have been wrong about everything so far — where are the soaring interest rates we were promised? — protests that we are having the wrong conversation have consistently fallen on deaf ears.

What’s really remarkable at this point, however, is the persistence of the deficit fixation in the face of rapidly changing facts. People still talk as if the deficit were exploding, as if the United States budget were on an unsustainable path; in fact, the deficit is falling more rapidly than it has for generations, it is already down to sustainable levels, and it is too small given the state of the economy.

…America’s budget deficit soared after the 2008 financial crisis and the recession that went with it, as revenue plunged and spending on unemployment benefits and other safety-net programs rose. And this rise in the deficit was a good thing! Federal spending helped sustain the economy at a time when the private sector was in panicked retreat…

But after peaking in 2009 at $1.4 trillion, the deficit began coming down. The Congressional Budget Office expects the deficit for fiscal 2013 (which began in October and is almost half over) to be $845 billion. That may still sound like a big number, but given the state of the economy it really isn’t.

Bear in mind that the budget doesn’t have to be balanced to put us on a fiscally sustainable path; all we need is a deficit small enough that debt grows more slowly than the economy…

Right now, a sustainable deficit would be around $460 billion. The actual deficit is bigger than that. But according to new estimates by the budget office, half of our current deficit reflects the effects of a still-depressed economy. The “cyclically adjusted” deficit — what the deficit would be if we were near full employment — is only about $423 billion, which puts it in the sustainable range; next year the budget office expects that number to fall to just $172 billion…

So we do not, repeat do not, face any kind of deficit crisis either now or for years to come…

Put it this way: Smart fiscal policy involves having the government spend when the private sector won’t, supporting the economy when it is weak and reducing debt only when it is strong. Yet the cyclically adjusted deficit as a share of G.D.P. is currently about what it was in 2006, at the height of the housing boom — and it is headed down.

The conservative hobgoblins inside the Beltway, the fiscal fearmongers in charge of the Republican Party still refuse to acknowledge John Maynard Keynes understanding of economics. What happens is every government that actually succeeds in bringing their nation out of recession utilizes Keynesian analysis and solutions. Sometimes they rename them to keep from offending fashionable conservatives.

Sometimes they’d rather keep a nation in the dumper and dying a slow death rather than aid workers and their families struggling through the economic doldrums. After all, they aren’t the folks who are hurting.

Sometimes – like today’s Republican Party – they’d rather keep saying NO while hoping that’s sufficient to put them back in charge of the economy they destroyed. That will require multiple episodes of ignorance and gullibility on the part of American voters.

One thought on “The new Republican disease — dwindling deficit disorder

  1. Izzzydoesit says:

    [To quote Barry Ritholtz GYOFB]

    No need to waste a large chunk of comment space on someone who denies history and only repeats Republican ideology. There is no shortage of fools dedicated to that task.

    Herbert Hoover achieved nothing with Hayek-style attempts to avert the Great Depression. Democrats almost crushed the crawl back in the late 30‘s with the same foolishness.


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