Stop celebrating our falling deficits - Ezra Klein, WaPo
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/05/22/stop-celebrating-our-falling-deficits/
Its time to stop celebrating last weeks Congressional Budget Office report. Our deficits arent dropping because were doing something right. Theyre dropping because were doing everything wrong.
My initial piece on the CBO report led with the surprising news that the agency had knocked more than $600 billion off its projections for the deficit over the next decade. But as I wrote then, the deficit is following a weird path. Its not a gradual decline. Its not a temporary uptick as we spend to create jobs followed by a sharper decline as the economy recovers. Its a sharp decline followed by a gradual rise it looks a bit like a Nike Swoosh.
Thats a disaster.
Lets stop talking about the deficit for a minute and simply talk about the demand the government creates for goods and services. The CBO is saying that the federal government will be pulling demand out of the economy in 2013, 2014 and 2015. It will then start adding demand back in again meaning well be increasing the deficit from 2016 through 2023, and presumably beyond.
That is literally the opposite of what we should want. Textbook economics says the government should add demand when the economy is weak and pull back when the economy is strong. The economy and particularly the labor market will remain weaker than wed like in 2013, 2014 and 2015. Thats when the government should be helping, or at least making sure not to hurt too fast. It should be much stronger from 2016 to 2023. Thats when the government should be backing off.
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