Reducing The Deficit Would Be A Bad Idea

A joke from Lizz Winstead:

I'm not saying it's a good idea, I'm just saying our debt would disappear. #BinLadenTapeOnPayPerView

This is actually an excellent illustration of why reducing the deficit in the short-term would be undesirable. If you put video of the Bin Laden raid on pay per view, many Americans would reduce their consumption of other goods and services and instead hand money over to the federal government. In exchange, the federal government wouldn't need to borrow so much money. At certain points in time, reduced government borrowing would lead to lower interest rates on government debt which in turn would lead to lower interest rates being charged to corporate borrowers which would lead to increased corporate investment. But at this particular point in time, interest rates are extremely low—too low for us to boost investment substantially by making them lower. All you'd get is lower overall demand, and thus lower incomes, less output, and less employment.