Should we be listening to the deficit hawks?
Tuesday, June 22, 2010 at 09:27 It’s the drum beat from all the so-called ‘Conservatives’ and ‘Libertarians’ out there grabbing a microphone to sway anxious voters into supporting them based on fear.
“Pay down the deficit!” “Balance the budget!”
“Our grandchildren will be paying off our debts!”
It sounds good, but it’s simply false election cycle sloganeering.
From all I’ve been reading lately, from notable, prize winning economists, the answer is a resounding “No!” Paul Krugman and Robert Reich, both of whom I read almost daily, are saying we need a huge dose of fiscal realism right now, or we risk a return to the same sort of unhappy worsening of a grave situation that America experienced in 1937 - as scare tactics by deficit hawks then, pushed FDR into trying to balance the budget. The net result was to prolong the agony of the Great Depression.
What are deficits, vis a vis the national economy?
Here’s what I found in Wikipedia:
Following John Maynard Keynes, many economists recommend deficit spending to moderate or end a recession, especially a severe one. When the economy has high unemployment, an increase in government purchases creates a market for business output, creating income and encouraging increases in consumer spending, which creates further increases in the demand for business output. (This is the multiplier effect). This raises the real gross domestic product (GDP) and the employment of labour, and if all else is constant, lowers the unemployment rate. (The connection between demand for GDP and unemployment is called Okun’s Law.) Cutting personal taxes and/or raising transfer payments can have similar expansionary effects, though which method has a better stimulative economic effect is a matter of debate.
The increased size of the market
