Deficit-Talk

Atrios: "I really can't comprehend that with 9.6% unemployment politicians keep talking about the deficit as if it's the big problem."

Of course he's right. The deficit is a problem only in the sense that the short-term deficit is currently too small. But this is one reason I'm surprised so many liberals are being so stinty in their praise of the recent tax deal. We'd just all been spending 12 months arguing that contrary to the conventional wisdom, short-term deficits should be smaller. We also spent a lot of time observing that conservative deficit-talk is fraudulent and all they care about is tax cuts for the rich. Then the Obama administration, after a year of fruitless austerity gambits, finally called their bluff. "Fine, you can have your deficit-increasing tax cut extension, but give me some other deficit-increasing stuff that my economists say has a higher multiplier than your tax cuts for the rich." Now the deal is done, and for all the panels and commissions and all the money Pete Peterson's spent the parties are coming together to make the deficit bigger.

Which is as it should be. As Larry Summers explained in his farewell talk:

Even with all the fiscal measures of the last several years, total borrowing in the American economy has failed to grow for the last 2 years. That is the first two year period since the Second World War when total borrowing in the U.S. economy has not increased.

Let me be clear: Even with our deficits, the amount of extra debt is less than the amount of reduced borrowing in the private sector. Increased federal borrowing has offset, but only partially, deleveraging in the private sector.

The answer: More public borrowing. Which is what we're getting.

The tragedy here, as I've said before, is that Pete Peterson is a public-spirited man who's wound up wasting a great deal of money paying people to talk about the deficit. If instead he'd paid more attention to talking up the work of Peterson Institute of International Economics researcher Joseph Gagnon about the need for more monetary stimulus, then I bet today we'd already have lower deficits and lower unemployment.