Saturday, February 15, 2014

The national deficit and deficit discourse in the US

Joseph Firestone, who writes under the nom de blog letsgetitdone, has some useful comments following up on Paul Krugman's post, The Deficit on the Milk Carton 02/12/2014, in which Krugman notes with wonderment and relief that the deficit seems to have suddenly disappeared for the moment as a topic of political debate:

You could say that this reflects the dwindling of the deficit — but that’s old news; anyone doing the math saw this coming quite a while ago. Or you could mention the failure of the often-predicted financial crisis to arrive — but after so many years of being wrong, why should a few months more have caused the deficit scolds to disappear in a puff of smoke?

Anyway, it's quite remarkable. And it's a good thing — although the price for years of warped discourse and completely wrong priorities has been immense.
Firestone comments in Dear Dr. Krugman: Please Let Me Explain FDL 02/13/2014:

Why indeed are they so quiet? Could it be because the deficit hawks have succeeded in getting the short-term result they want, which is a likely deficit too small to sustain the private savings and import desires of most Americans, and also because the political climate is such right now that they cannot make progress on their longer term entitlement-cutting program until after the coming elections have resolved the issue of whether there will be strong resistance to such a campaign if they renew it? Let’s look at the budget outlook first.

Here’s CBO projecting deficits of 3.0% of GDP this fiscal year, followed by 2.6%, 2.8%, and 2.9% for fiscals 2015, 2016, and 2017. Those deficits are mostly smaller than Warren Buffett’s and the Eurozone’s favorite deficit target of 3.0%. They are the same too small deficit targets that have prevented the Eurozone’s PIIGS [Portugal, Ireland, Italy, Greece, Spain] from responding effectively to the crash of 2008, and the prolonged depression and astronomical unemployment rates which have engulfed them since. When one considers that CBO’s projections are usually too conservative when it comes to projected deficits, so that the reality of these is likely to be smaller, as it has been regularly, for the past few years, then it’s even more apparent that Peter G. Peterson and his other austerian friends have gotten where they want to go for the time being.
But it's also because of a turn toward an economic narrative in the Democratic Party that is at least marginally more progressive than Obama's Grand Bargain deficit fetish, which Krugman has rightly criticized during Obama's Presidency.

In his January 28 State of the Union address, Obama mentioned the deficit four times. But he did focus his economic message on austerity.

It's important to remember the level of austerity the current budgets are imposing on the US, as Firestone mentions and about which Krugman also expresses concern.

Yet good news is good news. The less we hear the Democrats talking about The Deficit for now and the immediate future, the better. Because as Krugman says, "the price for years of warped discourse" focusing on the falsely imagined dangers of The Deficits "and completely wrong priorities has been immense."

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