DeLong Smackdown Watch: Tim Duy Comes to the Defense of and Explains Kansas City Fed President Esther George
Noted for January 14, 2013

No, We Don't Really Need Any More Deficit Reduction Until 2020

Leave to one side the fact that policies to reduce the deficit in the short run--before 2016, say--are highly, highly likely to actually increase the long-run burden of the national debt. Even making the unlikely assumption that deficit reduction in the near future would reduce rather than increase the long-run burden of the debt, the fact is that the debt-to-GDP ratio is now stable until at least 2020. A lower debt-to-GDP ratio would be a good thing in the long run, but there is absolutely no urgency. And there is enormous urgency in getting the economy moving again.

In focusing in 2013 on further deficit-reduction deals rather than on policies to boost employment growth and infrastructure investment, President Obama is making yet another hideous economic policy mistake.

Paul Krugman:

The Mostly Solved Deficit Problem  NYTimes com 1

The Mostly Solved Deficit Problem: The Center on Budget and Policy Priorities has a graph…. The blue line at the top represents the projected path of that ratio as of early 2011 — that is, before recent agreements on spending cuts and tax increases. This projection showed a rising path for debt as far as the eye could see…. But a lot has happened since then. The orange line shows the effects of those spending cuts and tax hikes: As long as the economy recovers, which is an assumption built into all these projections, the debt ratio will more or less stabilize soon…. True, there are projected problems further down the road, mainly because of the continuing effects of an aging population. But it still comes as something of a shock to realize that at this point reasonable projections do not, repeat do not, show anything resembling the runaway deficit crisis that is a staple of almost everything you hear, including supposedly objective news reporting.

So you heard it here first: while you weren’t looking, and the deficit scolds were doing their scolding, the deficit problem (such as it was) was being mostly solved. Can we now start talking about unemployment?