WSJ Warns Against Cutting Deficit Too Quickly

The economics editor at the WSJ, David Wessel, sounds like Paul Krugman!  From “Putting the Brakes on Cutting the Deficit”:

“The deficit…is shrinking even before the year-end fiscal cliff or a last-minute compromise to avoid it.  In the depths of the most recent recession, the fiscal year that ended Sept. 20,.2009, the deficit was 10.1% of gross domestic product….  Since then, the deficit has shrunk to 9% of GDP in 2010, 8.7% in 2011 and 7% in fiscal 2012.  Private analysts predict the deficit will be between 5.5% and 6% of GDP in fiscal 2013…

“One reason the deficit is still large is that the economy is still lousy:  More unemployment means fewer taxpayers as well as more government spending on jobless benefits, food stamps and the like.  As the economy slowly improves, the deficit shrinks as these automatic stabilizers…adjust.  Tax revenue rises.  Safety-net spending falls.  The U. S. budget deficit has been coming down at roughly the same pace as the U. K..’s — with far less austerity than Britain’s David Cameron has prescribed and substantially better growth.”

Really, people, short-term, we’d be better off with more government spending. 


19 comments on “WSJ Warns Against Cutting Deficit Too Quickly

  1. FLPatriot says:

    But more spending will hurt in the long term, and I am not willing to sacrifice the future just to make things a little better now.

    Your statement is like telling someone who is in debt and spending more than they make each month to go ahead and charge a vacation on their credit card. Sure they will be better off in the short term, but how will that help them keep their home when the lenders come looking for payment?

    “No pecuniary consideration is more urgent, than the regular redemption and discharge of the public debt: on none can delay be more injurious, or an economy of time more valuable.” George Washington, Message to the House of Representatives, December 3, 1793

    Some truths never go out of style and foolish is the generation that ignores the wisdom of the past based on their perception of their own wisdom.

    • No, more spending now will create more jobs, increasing tax revenues, and cut spending on food stamps, Medicaid, and unemployment benefits. If we get growth and prosperity, that medium to long-term you’re talking about will be much better. If you were right, things would be much better in Britain now.
      I think Keynes trumps Washington as an economist!

      • FLPatriot says:

        Sorry, but Keynes barely trumps my 11 year old as an economist.

        If what you said was true this recession would have been over with the trillion dollar stimulus package 4 years ago. The problem is that the government does not know how to invest money intelligently or rationally.

        Take a look at the depression of 1920 and see how President Harding turned a depression into the roaring 20s. I’ll give you a hint, it did not require the government to increase spending.

        Why not learn from the successes of the past instead of repeating the mistakes. All Keynes has given us is inflation, debt and one bubble after another. Keynesian economics has never resulted in a stable economy, why would we want to continue that pattern of poor performance?

      • The stimulus wasn’t big enough.

      • If you’re citing 1920 and Harding, that tells me you must be getting your history from Glenn Beck, and I’m definitely not going there.

      • One of the reasons I feel the Republican Party has left me is their sudden disavowal of Keynesianism when Obama became president. It was Nixon who said, “We are all Keynesians now.” Both Democrats and Republicans agreed for decades that during a recession, it was important for the government to spend to pick up the lost private sector demand. You can say that where they differed was that Dems wanted a lot of government spending even when times were good!
        In terms of the stimulus, I would also add that much of the federal stimulus was blunted by the enormous decline in state and local spending. While I’m sure there was and is much to cut in those budgets, the timing was bad because of the concurrent job losses and consumer spending declines in the private sector.

  2. FLPatriot says:

    The smartest thing the Republican party ever did was their sudden disavowal of Keynesianism, all though I do not think it was the GOP that did the disavowment but a small number of conservatives that won elections as Republicans.

    And no it was not Glenn Beck that I used to study the depression of 1920. There are a number of good sources like:

    And there are other sources footnoted on

    But let me ask you this, has Keynesian economics given us a stable economy? If not, shouldn’t look for a better way?

    • The problems we’ve had have not been from following Keynes. He didn’t come up with all these crazy ways of slicing and dicing mortgages and selling them and then giving mortgages to just about anyone who was breathing in order to meet the market’s demand to invest in them.
      Wikipedia isn’t written by historians or economists, it’s written by the general public.
      Overall, we have had a stable economy since the Great Depression, except for the stupidity that caused this financial crisis, which had nothing to do with Keynes. But following him more closely would have gotten us out of it sooner and more robustly.

      • FLPatriot says:

        The problems you mention, i.e. slicing/dicing mortgages, credit default swaps, ridiculous leverage, etc, are symptoms of crony-capitalism and too much government interference in the markets. Keynes ideas of allowing a central banking agency (like the Fed) to control interest rates, and it is that type of government control that has lead to such a turbulent economy.

        I am glad to hear you benefited from the bubbles created in the 80’s and 90’s, enough to survive the busts that followed, but that is no way to build a solid economy. Just because the bubbles are fun while they last does not make them a good idea. Would it not be better to see the economy grow steadily for decades with out any crashes? Keynes can not give us that.

        Keynesian economics depends on bubbles to over come busts which does not make rational sense. What makes sense would be to avoid bubbles all together and never have busts to worry about. The problem is that to grow with out a bubble is hard work and slow going and our current culture is a “what have you done for me lately” culture that wants to be satisfied today and to hell with the effects on tomorrow.

      • Too much government interference? No, it was too little regulation that let these folks do what they did and get away with it.
        I didn’t benefit from the bubbles, I’ve just prospered slowly but surely through an economy that has grown steadily in my lifetime. Our economy has grown steadily without crashes — we haven’t crashed since the Great Depression, and I believe that’s thanks to Keynes. And I’m glad for the Fed. I’m sure the people of Greece wish they had their own central bank and didn’t have to bow to the Germans.

      • FLPatriot says:

        First I want to say that it is nice to find someone that can carry on an intelligent conversation without resorting to name calling or ad hominen attacks. Thank you.

        To address you comment that our economy has grown steadily without crashes since the great depression. The big ones you might have missed was the oil crisis of the 70’s, the S&L crisis of the 80’s, the dot com bubble of the 90’s or the other recessions outlined by this post:

        Since Bretton Woods we have lived from one bubble to the next and the cycle has been.. Bubble = Keynes is great -> Crash = Why did we listen to Keynes -> Bubble = Keynes is great -> Crash = Why did we listen to Keynes -> Bubble = Keynes is great -> Crash = Why did we listen to Keynes..etc, etc, etc.

        There is a really great book called “The Critics of Keynesian Economics” by Henry Hazlitt (, it is several economics taking apart Keynesian theory.

        FYI, Greece does have a central bank, called the Bank of Greece, and is a member bank of the ECB (European Central Bank). In America we have suffered more and longer economic crisis since the institution of the Federal Reserve and the last time our country was debt free was after Andrew Jackson disbanded the Second Bank of the United States and we had no central bank. The Federal Reserve has outlived it’s usefulness and has proven to be inept at meeting it’s chartered responsibilities.

        Thank you again for your time.

      • I agree that it is nice to find a correspondent who is polite and respectful!
        But Greece doesn’t have its own independent central bank that can print money and set policy because it no longer has its own currency. I believe analogizing us to Greece doesn’t work. I believe a better current analogy is Britain, where Cameron’s harsh austerity has let to further economic contraction, as Keynes would have predicted.
        I lived through all those events you mentioned as an adult. I remember being absolutely thrilled to get a mortgage at 14% under Carter, and I voted for Reagan. But Keynes’ theories don’t prevent stuff like the Arabs cutting off our oil or greedy people bidding up stock in dotcom companies that don’t have any revenue and barely have a business plan. He merely addresses what to do after the fact, when the private sector is reeling.
        I know we weren’t debt free under Clinton (whom I didn’t vote for either time, can’t stand the guy), but we did have surpluses for some of his term, so we were deficit free.
        I will check out the Hazlitt book.

      • FLPatriot says:

        And my thoughts on your comment “Too much government interference? No, it was too little regulation that let these folks do what they did and get away with it.”

        When I say that our economy has too much government interference is based on the fact that without the Federal reserve guarantees, Fanny/Freddy, FDIC, bail outs and other government policies banks would never take the risks that they do today. We never would have hear of credit default swaps if those banks knew they would not get bail outs because the government considered them too big to fail.

        Because of the Fed banks do not have to have the capitol holdings to back the loans they write. Because of Fanny/Freddy banks write loans to people who can’t afford it. Because of FDIC they lend money they do not have the capitol to back up.

        In a real capitalist economy these banks would fail and only smart banks, safe banks would succeed. The crony-capitalist system we have allowed to evolve is unstable and unsustainable.

      • I agree with you about crony capitalism, but we’ve also had too little regulation in the sense that Wall Street guys knew they could get away with stuff and not get prosecuted. The SEC has been incredibly weak and much too willing to look the other way. We already have plenty of laws and regulations that don’t get enforced. Dodd-Frank was just to make it look as if Congress was doing something. I’m not going to defend Fannie and Freddie. We’ve had too much corruption and self-dealing all around.
        If banks like Goldman hadn’t been allowed to leverage at the incredible ratios that they did, the crisis wouldn’t have been nearly as bad. And they did all this confident that the government wouldn’t let them fail, so they couldn’t lose. And they didn’t lose — they still have their triplexes on Fifth Avenue and their oceanfront estates in the Hamptons. Their wives will be getting their customary jewelry and furs for Christmas in St. Bart’s.
        I believe, for example, that mortgages should be done by local banks who know both the applicant and the property and that banks should be required to keep a large chunk of those mortgages and not sell them. Mortgage originators knew they weren’t taking risk, they were just creating risk to be passed along to somebody else.
        A financial crisis as bad as we’ve just been through inevitably comes with plenty of blame to go around in both the public and private sectors.

      • FLPatriot says:

        Well said. Too bad we can’t find representatives to send to Washington that can reason out problems like we have. Ever think about running for office?

        I would have no chance of winning an election because I would be too honest in my campaign and the majority of voters would not like what I would have to say.

      • Thanks for the vote of confidence, but I would NEVER run for office. I very much enjoyed being a behind-the-scenes person in the 2008 campaign and hearing my candidate recite stuff I had written.

    • I had to go to a meeting before I could finish my thought. Keynes isn’t responsible for credit default swaps or collateralized debt obligations or ridiculous amounts of leverage. But he did recognize that human greed messes with our economy, whether it is a crazed, doomed passion for tulip bulbs or sub-prime mortgages. Aside from greed, creative destruction as part of capitalism messes with our economy, events like textile mills moving from New England to the South and then from the South overseas. His point was that when the private sector falters and citizens have to pull back on their spending, the government can and should pick up the slack until the private sector revives. I was born into the lower-middle-class in 1951, and my son was born into the upper-middle-class in 1983, and, despite losses from the Great Recession, my husband and I will retire in that class. I am grateful for the decades that my government under both Democrats and Republicans has listened to Keynes.
      I expect we’ll “chat” before the holiday, but I wish you and your family a wonderful Christmas.

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