Thursday, April 19, 2012

Is the Debt Actually a Problem?

Much of our discussion about gridlock and why it’s a bad thing is based on the premise that our budget deficits have brought us to a situation where the status quo is unsustainable and gridlock must be broken in order to save our economy.

For this reason, I was intrigued by a recent Washington Post article about so-called “deficit owls” who think not only that the deficit is not a problem but that an economy that is not at full employment and has control over its own currency can use massive deficit spending as a means of stimulating growth without negative consequences.

Congress has shown an ability to act decisively when members have deemed the situation to be urgent, such as the second TARP vote after the markets responded poorly to its initial failing, the increase in the debt ceiling last summer, and in the flurry of legislation in the 2010 lame duck session. Yet while both parties have paid lip service to deficit reduction and shown a willingness to make cuts in discretionary spending, neither seems interested in actually addressing the long-term structural deficits.

If the debt is not a problem, would people feel better about the state of our Congress? I personally would find it much easier to buy into a James Madison/Federalist #10 vision of the benefits of a slow-moving legislature if the national debt was not something that desperately needed to be addressed.

1 comment:

  1. If the debt was not a problem, there would be no gridlock. We could borrow endlessly and tax no one. The WaPo article is uber-Keynesian and more than anything is a joke in my opinion. As we have seen in countries such as Zimbabwe, Weimar Germany, etc. inflation is real and can occur in the absence of full employment (<2% unemployment)

    Assuming that you mean that we were in a sound fiscal situation, I think the gridlock would yet again not be present considering that is what colors much of the divide. We could see policies like those enacted i the early Bush years- but there was little gridlock, just more entitlement spending and government growth.