# Why the sudden obsession about deficit cutting all of a sudden? **URL:** \ **Category:** Great Debates\ **Created:** [June 27, 2010, 10:22pm UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720 "2010-06-27T22:22:29Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [June 28, 2010, 4:47am UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720/21 "2010-06-28T04:47:58Z")
> [@Koxinga](#): > > That’s kind of a silly question, isn’t it? If tax revenues (flowing from GDP), are lowered by some annual amount that’s less than the reduction in expenditures, the debt will be lowered, won’t it? Also, if fiscal austeristy results in a stable credit rating, then the country may be able to roll over its debt at a lower rate of interest. > > I think your implied question is “people will be _hurting_, how can that be _good_?” which may be a legitimate line of inquiry, just a different one. Hurting has nothing to do with it. A large part of the deficit is caused not by increased expenditures, but by decreased revenues. All of those extra unemployed are not paying income tax, people who lost money in the market are not paying capital gains taxes, and companies hurting are not paying corporate taxes. This is even worse in the states. I understand that cutting the deficit will supposedly increase investment, but that is not going to do much good if unemployment increases even more, consumption stays in the crapper, and no one wants to hire anyone until they see an increase in demand. And so it gets worse. The surplus of the '90s did not come from decreased government spending, but from increased revenues. And, to be the first to mention in this thread what is mentioned in every thread of this type, this same “common sense” policy was tried in 1937 - and threw the country back into a deeper recession. ---
**Author:** ![Koxinga](https://avatars.discourse-cdn.com/v4/letter/k/4af34b/32.png) [@Koxinga](https://boards.straightdope.com/u/Koxinga)\ **Post date:** [June 28, 2010, 4:52am UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720/22 "2010-06-28T04:52:04Z")
But there’s such a thing as diminishing returns, and a point at which the surge of government paper begins “crowding out” private investment. That’s not good either. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [June 28, 2010, 4:55am UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720/23 "2010-06-28T04:55:34Z")
> [@smiling\_bandit](#): > > Stop right there. Krugman may have once been a bright economist, but he’s become a complete joke. The man is nothing more than a political economist who dresses up nonsense with economics, and changes his opinions with the Democrat’s talking points. Krugman, in his column, worried about the effect of the collapse of the housing bubble well before it collapsed. If only Greenspan had been as humorous. If you want to see funny economists, read the New Yorker article where the Chicago school was interviewed. Some of them pretty much denied that anything had gone wrong. ---
**Author:** ![MOIDALIZE](https://avatars.discourse-cdn.com/v4/letter/m/e274bd/32.png) [@MOIDALIZE](https://boards.straightdope.com/u/MOIDALIZE)\ **Post date:** [June 28, 2010, 5:00am UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720/24 "2010-06-28T05:00:28Z")
> [@Koxinga](#): > > Leaving aside for now at least three highly questionable assumptions in your post here, a point of fact: you didn’t mention the United States in your snark. You just asked “Can you explain how fiscal austerity that results in lower GDP helps a country pay off its debt? Thanks.” Question answered: you’re welcome. No, your response didn’t mention anything about lowering the debt, it dealt only with rolling over that debt at a lower rate (which isn’t a problem right now). ---
**Author:** ![DanBlather](https://avatars.discourse-cdn.com/v4/letter/d/f4b2a3/32.png) [@DanBlather](https://boards.straightdope.com/u/DanBlather)\ **Post date:** [June 28, 2010, 6:26am UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720/25 "2010-06-28T06:26:05Z")
> [@Sateryn76](#): > > “The Rich” are a popular whipping boy No, actually they are not. Under Obama taxes have gone down for the vast majority of people and up just slightly on the rich, yet people are screaming about him raising taxes. The tax rates on the rich are about as low right now as they have been in 100 years, but there is no general sentiment to raise taxes back to historical levels to pay off the debt. In fact, just the opposite is happening. Service the debt is now the third biggest line item in the Federal budget after Health and Human Services and Defense. The easiest way to lower spending is to pay off the debt by raising taxes back to where they were when the economy was sound. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [June 28, 2010, 8:15am UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720/26 "2010-06-28T08:15:29Z")
[QUOTE=Cecil Adams] Fighting ignorance since 1973 (It’s taking longer than we thought) [/QUOTE] You can say that again. One thing that would help is if, after a Doper’s position is refuted, he’d wait at least 3 weeks before adopting his old ignorance. 😃 > [@smiling\_bandit](#): > > And yet, Keyneian solutions have an exceptionally poor track record … Cite? Wasn’t there a thread less than 3 weeks ago with graphs of employment and deficits in the 1930’s that clearly established the correlations of Keynesian theory? I suspect **smiling bandit** suffers from a certain logic fallacy (whose name eludes me). Do you know American football, **smiling bandit**? It’s fourth-and-long from your own 3-yard line. Rationalists (including Keynesians) recommend punting. Yet the opponent is more likely than usual to score during his after-punt possession. Does that make the punt wrong? (Sorry if the connection to this analogy is unclear. On the other hand, I’ll doubt your sincerity if you can’t figure it out by yourself.) > [@smiling\_bandit](#): > > and in fact [Keynesian solutions] require a government used to tight fiscal discipline to implement properly. Yes, even a stopped clock is sometimes almost correct! Now, please compare Clinton’s fiscal record with that of GWB and write an essay on “fiscal discipline” as it applies to the post-modern American political parties. > [@smiling\_bandit](#): > > Stop right there. Krugman may have once been a bright economist, but he’s become a complete joke. Right-wing “thought” can become so laughable. Soon we’ll be hearing that The Royal Swedish Academy of Sciences is an arm of the crypto-Islamic socialist conspiracy. 😃 … And asking to see Krugman’s birth certificate. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [June 28, 2010, 8:32am UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720/27 "2010-06-28T08:32:15Z")
> [@Sateryn76](#): > > Please note where I included the words “keep spending **at the current rate** ” in my post. And it is not at clear to me that the stimulus spending at this point has equaled the cost to our bottom line. If you look at the big economics research firms, they seem to be [pretty clear about job growth](http://www.nytimes.com/2010/02/17/business/economy/17leonhardt.html): at minimum, one and a half million jobs. If you look at interest rates of long-term government bonds, they’ve dropped to around 3%, lower than they even were a year ago despite a year of large-scale deficit spending. An apparently big benefit with a limited cost. These numbers are far from perfect, but they’re something. I’m not sure what exactly you’re looking for here to calculate the bottom line. > [@smiling bandit](#): > > And yet, Keyneian solutions have an exceptionally poor track record, and in fact require a government used to tight fiscal discipline to implement properly. The track record has been poor when the central bank hasn’t played ball, as has been happening in Japan for nearly twenty years. It was also poor during the 1970s, when we were suffering some severe _supply_ shocks and high inflation, which Keynesian spending shouldn’t be used for anyway. As we point out in every Great Depression thread that pops up, there’s no way to explain the Depression without at least a partially Keynesian answer. Production skyrocketed with militarization for WWII. It worked. It got the economy moving again, it got the factories humming, it got the people employed with small private debt and money in their pockets that they were happy to spend after the war, and it could work again if we weren’t burdened by this sudden amnesia of history and weak political will. But we don’t even have to look at the war itself. The downturn of 1937 is a clear and indisputable example of what happens when you reverse course prematurely. Now, it’s absolutely true that in 1936-37 the government moved toward contraction with respect to both fiscal _and_ monetary policy. So you can possibly make the argument that Keynesian spending isn’t necessary _as long as strong monetary stimulus is used_. But that New Monetarist position is quite literally the only other explanation of the ups and downs of the Depression that hasn’t been soundly refuted. You want to call for the government to balance its books? That’s fine. That’s a respectable position, as long as you also call for the central bank to establish long-term level targeting, and a higher short-term inflation or nominal GDP target–which most likely means firing up the printing presses and shooting out a few trillion more greenbacks. That could be the only other way to avoid an extended period of stagnation. But if our government cuts back on spending while monetary policy remains tight, we are going to relive the past and have a double-dip recession. We will be making exactly the same mistake that they made in the 1930s. It is genuinely disturbing how similar the situation is, and how similar arguments of the nay-sayers are, both then and now. > [@smiling bandit](#): > > Stop right there. Krugman may have once been a bright economist, but he’s become a complete joke. The man is nothing more than a political economist who dresses up nonsense with economics, and changes his opinions with the Democrat’s talking points. This is the man you’re accusing of economic nonsense: a recent past winner of the Nobel (Memorial) Prize in economics, the single most prestigious award in the field. He’s not infallible by any means, but you attack a Nobel Prize winner by impugning his expertise and character, when you don’t engage in the slightest the points that he made, and when have no argument at all of your own, no evidence and no data. This is the man you’re accusing of “changing his opinions” to try to fit into Democratic orthodoxy: someone who made the [cover of Newsweek](http://broadcatching.files.wordpress.com/2009/03/6a0.jpg) as an outspoken critic of the Obama administration, with the cover article called: “Obama is wrong.” You are accusing the single most prominent dissenter, in the entire community of American liberal political commentators, of toeing the party line, without having even demonstrated that you have read his arguments, without having demonstrated that you are aware of his arguments, and when you have no argument at all of your own, no evidence and no data. Krugman has his faults, but he is exactly right about the new dark age of macroeconomics. And it’s a typical short-sighted response of too many people that they malign him instead of engaging with his substantive points. ---
**Author:** ![amanset](https://avatars.discourse-cdn.com/v4/letter/a/8dc957/32.png) [@amanset](https://boards.straightdope.com/u/amanset)\ **Post date:** [June 28, 2010, 9:35am UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720/28 "2010-06-28T09:35:27Z")
> [@DanBlather](#): > > If people were serious about cutting the deficit they’d be advocating for tax hikes. They aren’t, and they aren’t. Who are “they”? The UK and Greece both increased VAT. ---
**Author:** ![DanBlather](https://avatars.discourse-cdn.com/v4/letter/d/f4b2a3/32.png) [@DanBlather](https://boards.straightdope.com/u/DanBlather)\ **Post date:** [June 28, 2010, 11:47am UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720/29 "2010-06-28T11:47:55Z")
> [@amanset](#): > > Who are “they”? The UK and Greece both increased VAT. I was referring to the conservatives in the countries without UHC ---
**Author:** ![Sateryn76](https://avatars.discourse-cdn.com/v4/letter/s/a88e4f/32.png) [@Sateryn76](https://boards.straightdope.com/u/Sateryn76)\ **Post date:** [June 28, 2010, 1:59pm UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720/30 "2010-06-28T13:59:39Z")
> [@DanBlather](#): > > No, actually they are not. Under Obama taxes have gone down for the vast majority of people and up just slightly on the rich, yet people are screaming about him raising taxes. The tax rates on the rich are about as low right now as they have been in 100 years, but there is no general sentiment to raise taxes back to historical levels to pay off the debt. In fact, just the opposite is happening. Service the debt is now the third biggest line item in the Federal budget after Health and Human Services and Defense. The easiest way to lower spending is to pay off the debt by raising taxes back to where they were when the economy was sound. I meant here, on the Dope. ---
**Author:** ![Laudenum](https://avatars.discourse-cdn.com/v4/letter/l/7993a0/32.png) [@Laudenum](https://boards.straightdope.com/u/Laudenum)\ **Post date:** [June 28, 2010, 3:18pm UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720/31 "2010-06-28T15:18:42Z")
> [@MOIDALIZE](#): > > All they have to do is look at Ireland to see the folly of austerity, but they’ve already made their minds up. Elaborate. ---
**Author:** ![Baboonanza](https://avatars.discourse-cdn.com/v4/letter/b/f475e1/32.png) [@Baboonanza](https://boards.straightdope.com/u/Baboonanza)\ **Post date:** [June 28, 2010, 3:41pm UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720/32 "2010-06-28T15:41:43Z")
On the original point: Many European countries weren’t that keen on stimulus spending to begin with, so a turn around wasn’t hard. The Greece issue has also threatened marginal countries like the UK with the possiblity of a credit downgrade which could (as I understand it) potentially cause a downward spiral as credit servicing costs increase and defecit spended runs out-of-control. Miore locally, in the UK the previous self-serving government managed to balloon the State to roughly 50% of our GDP. I’m not against a healthy state but that is clearly unsustainable even if the economy improves dramatically. We just can’t afford any more stimulus cash and the sooner we cut structural defecit spending the less it will hurt long-term IMO. ---
**Author:** ![Mr\_Smashy](https://avatars.discourse-cdn.com/v4/letter/m/2bfe46/32.png) [@Mr\_Smashy](https://boards.straightdope.com/u/Mr_Smashy)\ **Post date:** [June 28, 2010, 3:42pm UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720/33 "2010-06-28T15:42:55Z")
To answer the OP, I’d suggest that it’s because of the coming elections, and the indy’s, everyone’s target, actually care about the [deficit](http://www.gallup.com/poll/139385/federal-debt-terrorism-considered-top-threats.aspx) more than any other issue, including terrorism. (2nd chart down) ---
**Author:** ![Baboonanza](https://avatars.discourse-cdn.com/v4/letter/b/f475e1/32.png) [@Baboonanza](https://boards.straightdope.com/u/Baboonanza)\ **Post date:** [June 28, 2010, 3:47pm UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720/34 "2010-06-28T15:47:05Z")
> [@](#): > > All they have to do is look at Ireland to see the folly of austerity > [@Laudenum](#): > > Elaborate. Seconded. ---
**Author:** ![Capt.Ridley\_s\_Shooting\_Party](https://avatars.discourse-cdn.com/v4/letter/c/cc9497/32.png) [@Capt.Ridley\_s\_Shooting\_Party](https://boards.straightdope.com/u/Capt.Ridley_s_Shooting_Party)\ **Post date:** [June 28, 2010, 4:26pm UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720/35 "2010-06-28T16:26:14Z")
I keep hearing about the risk of double dip recessions. I’m under the impression that these are relatively rare. I was watching the Politics Show on BBC last week and the presenter made the claim that there has only ever been three recorded double dip recessions in history, and even if we cut government spending, it’s by no means certain that a double dip recession will come about, to which the economist being interviewed agreed. It wasn’t clear from context whether they were talking about three double dips worldwide, or three in the UK, or Europe, or what. But the impression I got is that the risk of a double dip recession is being vastly overblown. Is this true? ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [June 28, 2010, 5:25pm UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720/36 "2010-06-28T17:25:45Z")
> [@Koxinga](#): > > But there’s such a thing as diminishing returns, and a point at which the surge of government paper begins “crowding out” private investment. That’s not good either. True, and as soon as the economy starts generating jobs we need to start backing off on the stimulus. I don’t think we are anywhere near that point. At the moment, there is plenty of money to lend but the banks seem scared of lending it. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [June 28, 2010, 5:33pm UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720/37 "2010-06-28T17:33:10Z")
> [@Baboonanza](#): > > On the original point: > Many European countries weren’t that keen on stimulus spending to begin with, so a turn around wasn’t hard. The Greece issue has also threatened marginal countries like the UK with the possiblity of a credit downgrade which could (as I understand it) potentially cause a downward spiral as credit servicing costs increase and defecit spended runs out-of-control. I think one of the reasons for this is that European countries had the stimulus package pre-rolled. Good unemployment benefits, UHC, and the like meant that those laid off had a lot more money to spend (and thus didn’t hurt consumption) as compared to the US. ---
**Author:** ![puddleglum](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/puddleglum/32/137_2.png) [@puddleglum](https://boards.straightdope.com/u/puddleglum)\ **Post date:** [June 28, 2010, 5:42pm UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720/38 "2010-06-28T17:42:00Z")
But if Keynesianism only works when monetary policy is correct isn’t that saying that monetary policy is more important than fiscal? Hasn’t Japan’s experience disproved the theory that fiscal policy can work without monetary? Krugman likes to hand waive about liquidity traps, but the zero bound is a myth. Meanwhile government is spending money like a drunken sailor. We have already had 3 stimulus packages that have not worked. Given the uncertainty that exists in the bond markets today the only way to signal willingness to impose austerity in the future is to impose austerity now. Any doubts about sovereign defaults could become a self fulfilling prophecy very quickly. ---
**Author:** ![MOIDALIZE](https://avatars.discourse-cdn.com/v4/letter/m/e274bd/32.png) [@MOIDALIZE](https://boards.straightdope.com/u/MOIDALIZE)\ **Post date:** [June 28, 2010, 5:43pm UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720/39 "2010-06-28T17:43:25Z")
> [@Laudenum](#): > > Elaborate. Ireland embraced austerity in 2008. Since then, their GDP has declined, their deficit as a % of GDP and debt/GDP ratio has increased, and their decline in tax revenues is expected to negate the savings of the spending cuts. Thus, Ireland’s debt position has gotten worse, not better, at the expense of employment and social programs, and with higher taxes to boot. ---
**Author:** ![Dick\_Dastardly](https://avatars.discourse-cdn.com/v4/letter/d/c4cdca/32.png) [@Dick\_Dastardly](https://boards.straightdope.com/u/Dick_Dastardly)\ **Post date:** [June 28, 2010, 5:44pm UTC](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720/40 "2010-06-28T17:44:38Z")
> [@Capt.Ridley\_s\_Shooting\_Party](#): > > I keep hearing about the risk of double dip recessions. I’m under the impression that these are relatively rare. I was watching the Politics Show on BBC last week and the presenter made the claim that there has only ever been three recorded double dip recessions in history, and even if we cut government spending, it’s by no means certain that a double dip recession will come about, to which the economist being interviewed agreed. > > It wasn’t clear from context whether they were talking about three double dips worldwide, or three in the UK, or Europe, or what. But the impression I got is that the risk of a double dip recession is being vastly overblown. Is this true? Generally the recession isn’t as severe as this one and there’s some way to come out of it relatively easily like cutting interest rates (can’t do that, they’re already effectively zero), cutting bank reserve requirements to encourage them to lend (they’re teetering on the verge of insolvency anyway and are terrified of making more bad loans), encouraging consumption (70% of GDP) with tax cuts to grow the economy ( everybody is broke and all maxed out credit-wise and actually paying down debt, not spending) So no easy interest rate cut, no tax cuts to boost consumer spending, no way to encourage the banks to lend to business, no demand for business to want to invest to cater for, a large political bloc against any more government stimulus spending, high oil prices that jump at the first sign of recovery, mass unemployment, huge state and local deficits causing layoffs, and the Fed has a balance sheet that makes it look like the central bank of a third world country. When the economy does get going they have to dump all the toxic shit they bought back onto the market which will dampen any recovery. And a big trade deficit and surplus countries won’t boost their domestic wages to encourage their peeps to buy our stuff and you’ve got China manipulating their currency, so trade as an engine of recovery is screwed. And disinflation and soon possible deflation in major economys. So plenty of reasons why this can all go pear-shaped again, may even be in the process of doing. More importantly very few reasons to be cheerful. [Previous page](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720.md?page=1) [Next page](https://boards.straightdope.com/t/why-the-sudden-obsession-about-deficit-cutting-all-of-a-sudden/544720.md?page=3)