A middle-aged man dreaming of the day when he can stop begging for scraps and write for a living.

Wednesday, October 23, 2013

Debt and Deficit Spending

It's not the mushroom cloud that deficit hawks are claiming it to be. We were promised an economic collapse if we passed the stimulus.

It didn't happen.

We were told that the bond market would punish us for our profligate spending.

It never happened.

We were told that all sorts of horrible things would happen if we didn't reign in our spending now! Now! Now! But none of them happened.

On the flip side, we were told that our recovery would be stalled if we started cutting our spending during a market contraction.

That happened.

We were warned of a "lost decade" similar to what Japan experienced if we followed Japan's economic policy during their market contraction.

That's happening now.

We were warned that high unemployment was going to become the new normal, and that wages would be driven down with the effect of further decreasing demand and cooling the economy.

That's also happening now. Unemployment is falling slower than expected, and with the impact of the government shutdown the markets are starting to treat the US economy as a bad bet.

This isn't rocket science. We've understood this basic macroeconomic principle for decades: you pay down the debt when your economy is in good shape and you spend on credit when the economy is in bad shape. When the economy seemed to be doing well economists like Krugman urged leaders to pay down the debt, but they were told by people like Cheney that "Reagan proved deficits don't matter." Only now that the economy crashed and a Democrat is in the White House are we hearing that the debt is going to kill us in our sleep. I heard predictions of complete economic collapse six months from now as far back as 2008.

It still hasn't happened yet.

So let's stop listening to the people who are consistently wrong about these matters are start listening to the people who demonstrate they actually understand the problem.