Many economists take a much calmer view of budget
deficits than anything you’ll see on TV. Nor do investors seem unduly concerned: U.S. government bonds continue to find ready buyers, even at historically low interest rates. The long-run budget outlook is problematic, but short-term deficits aren’t — and even the long-term outlook is much less frightening than the public is being led to believe…
Why, then, all the hysteria? The answer is politics.
The main difference between last summer, when we were mostly (and appropriately) taking deficits in stride, and the current sense of panic is that deficit fear-mongering has become a key part of Republican political strategy, doing double duty: it damages President Obama’s image even as it cripples his policy agenda. And if the hypocrisy is breathtaking — politicians who voted for budget-busting tax cuts posing as apostles of fiscal rectitude, politicians demonizing attempts to rein in Medicare costs one day (death panels!), then denouncing excessive government spending the next — well, what else is new?
The trouble, however, is that it’s apparently hard for many people to tell the difference between cynical posturing and serious economic argument. And that is having tragic consequences.
For the fact is that thanks to deficit hysteria, Washington now has its priorities all wrong: all the talk is about how to shave a few billion dollars off government spending, while there’s hardly any willingness to tackle mass unemployment. Policy is headed in the wrong direction — and millions of Americans will pay the price.
I’m also reading Joseph Stiglitz’s new book on the financial meltdown of 2008, Freefall, and he confirms my assertion that President Clinton was distracted from his campaign pledges by warnings about the size of the federal deficit after he became president. Stiglitz was part of Clinton’s economic team in the early years of his administration along with Larry Summers and Robert Rubin. Stiglitz wrote, “Bill Clinton had sacrificed much of his presidential ambitions on the altar of deficit reduction.”