As the country waits breathlessly for some resolution to the debt ceiling crisis (or is that just exasperation?), cranky Keynesians like Paul Krugman have been growing more morose-with-a-chance-of-schadenfreude. Properly so. No one appears to doubt at this point that whatever deal emerges from the current negotiations between Speaker Boehner, Minority Leader Pelosi, Senators Reid and McConnell and the president, assuming one does, it will certainly include large-scale budget cuts aimed at righting the nation’s fiscal house. No one thinks the nation can go merrily along much longer at its current pace of deficit spending, especially torrid in the last few years as the Obama administration confronted the Great Recession’s “one two” punch of revenue collapse and escalating unemployment which it addressed with economic stimulus spending.
But folks like Krugman worry that too much “common sense” on deficit spending, you know of the, “you couldn’t run a household or a small business the way Washington runs government” variety will, despite its homey wisdom, be the dumbest thing we could possibly do during this current recovery’s fragility. Truth is, no, you couldn’t run a country or a business the way you run a government and it would be a diaster if you did. In response to changing domestic and international conditions, governments need to be be able to spend more than they take in and if that neat trick is handled well, the results need not be catastrophic. The recent deficit is remarkably high because it represents a reaction to the economic devastation of 2006 through 2008. Krugman, among others, has argued that the current deficits should have even been higher to thoroughly address the nation’s persistent unemployment.
It’s not a surprise to hear Krugman continue to worry about the short-term results of a too abrupt rediscovery of the primacy of deficit control. (See his recent “The Lesser Depression.”)
But below the argument replicated in the e-pages of G.O.P. and business friendly Forbes, which similarly advises to forget the defiicit and be happy–at least until the nation has clearly emerged from the current economic doldrums in which it languishes. Here’s Forbe‘s John Harvey making the case for a government spiking of aggregate demand:
As everyone knows, the big economic news today is the breakdown of talks on the debt limit. Media outlets have been bombarding us with horror stories that list the catastrophic consequences of failing to reach an agreement. We are told that the government may default, programs shut down, and financial collapse follow. And, indeed, it would create myriad problems. Unfortunately, however, it’s all for no good reason whatsoever. This is political grandstanding and smoke and mirrors, and the cost will be paid by the average American.
There is no logical economic reason not to raise the limit–in fact, the real question is why we even have one. As I have explained repeatedly in this blog, it is impossible for the United States to default on debt that is denominated in dollars … Hence, the whole premise upon which these talks are based, i.e., that if we don’t get deficit spending under control then we’ll go bankrupt, is fundamentally flawed. In actuality, the real need right now is to stimulate aggregate demand by spending more. There is nothing standing between us and economic recovery but this. We have ample capacity to produce goods and services, business and finance costs are low, and there are plenty of idle resources. So why aren’t firms hiring? Because they know damn well that they can’t sell anything when we have almost 15 million unemployed workers.
And yet, we are told by Washington (both parties, but particularly the Republicans) that the ‘solution’ is to lower sales even more by cutting back on what the government has been purchasing. That will, apparently, encourage businesses to take on new employees. This is nothing short of idiotic.
A brief note: I thought of blogging something tonight about the events in Norway yesterday, but frankly it seems disrespectful to the suffering of the parents and the survivors to add my poor wisdom to dissecting the insanity of this self-styled crusader. No doubt there will be time to try to make sense of this event (or wait to someone wiser than me takes a crack at it here). I didn’t want folks to think I was somehow ignoring this tragic news; all I feel capable of saying tonight is let’s keep the wounded and the bereaved in our prayers and to remember our many blessings and maybe hug our children tightly.
