If I could get everyone in America to read one thing today, it would be Paul Krugman’s NYT column, “Dwindling Deficit Disorder.” Some excerpts:
“What’s really remarkable at this point, however, is the persistence of the deficit fixation in the face of rapidly changing facts. People still talk as if the deficit were exploding, as if the United States budget were on an unsustainable path; in fact, the deficit is falling more rapidly than it has for generations, it is already down to sustainable levels, and it is too small given the state of the economy.
“Start with the raw numbers. America’s budget deficit soared after the 2008 financial crisis and the recession that went with it, as revenue plunged and spending on unemployment benefits and other safety-net programs rose. And this rise in the deficit was a good thing! Federal spending helped sustain the economy at a time when the private sector was in panicked retreat….
“But after peaking in 2009 at $1.4 trillion, the deficit began coming down. The Congressional Budget Office expects the deficit for fiscal 2013…to be $845 billion.
“Bear in mind that the budget doesn’t have to be balanced to put us on a fiscally sustainable path; all we need is a deficit small enough that debt grows more slowly than the economy. To take the classic example, America never did pay off the debt from World War II — in fact, our debt doubled in the 30 years that followed the war. But debt as a percentage of G.D.P. fell by three-quarters over the same period.
“Right now, a sustainable deficit would be around $460 billion. The actual deficit is bigger than that. But according to new estimates by the budget office, half of our current deficit reflects the effects of a still-depressed economy. The “cyclically adjusted” deficit — what the deficit would be if we were near full employment — is only about $423 billion, which puts it in the sustainable range; next year the budget office expects that number to fall to just $172 billion. And that’s why budget office projections show the nation’s debt position more or less stable over the next decade.
“So we do not, repeat do not, face any kind of deficit crisis either now or for years to come.
“There are, of course, longer-term fiscal issues: rising health costs and an aging population will put the budget under growing pressure over the course of the 2020s. But I have yet to see any coherent explanation of why these longer-run concerns should determine budget policy right now.
“Yes, we’ll want to reduce deficits once the economy recovers, and there are gratifying signs that a solid recovery is finally under way. But unemployment, especially long-term unemployment, is still unacceptably high. … [A]ll you have to do is look at Europe to see the disastrous effects of austerity on weak economies.
“Now, I’m aware that the facts about our dwindling deficit are unwelcome in many quarters. Fiscal fearmongering is a major industry inside the Beltway, especially among those looking for excuses to do what they really want, namely dismantle Medicare, Medicaid and Social Security. “
We can’t make smart political decisions based on phony economic analysis. Let’s have honest debates about the size and scope of government, but let’s not rely on scare tactics that depend on disinformation about our deficits and national debt. To me, the GOP is engaging in economic terrorism.