It’s time to stop celebrating last week’s Congressional Budget Office report. Our deficits aren’t dropping because we’re doing something right. They’re dropping because we’re 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. It’s not a gradual decline. It’s not a temporary uptick as we spend to create jobs followed by a sharper decline as the economy recovers. It’s a sharp decline followed by a gradual rise — it looks a bit like a Nike Swoosh.
That’s a disaster.
Let’s 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 we’ll 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 we’d like in 2013, 2014 and 2015. That’s 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. That’s when the government should be backing off.
1. I notice Ezra hasn't been on Morning Joe lately. He's getting very serious about this
whole deficit lie. He and Paul Krugman are out there decrying austerity. Joe et al don't want to hear about it anymore....just cut him off...too bad, Ezra is one of the bright ones...certainly not joe and mika...