Flavio's Diary

Deficit Scolds


Jonathan Chait pretty much sums it up: http://nymag.com/daily/intelligencer/2014/01/deficit-scolds-holding-the-unemployed-hostage.html

It’s like a bad rerun of the 1930s all over again. Same exact mistake. Note that even FDR got this wrong — which led to the double dip depression in 1937. (He was a most reluctant Keynesian, indeed, I don’t think he quite understood the theory and was always concerned about deficits up until WW2 when everybody finally started ignoring them and turned the dial up to 11.)

Growth — sustained growth — must precede thrift. You cannot starve your way into prosperity. Then and only then can you begin to reduce a deficit. We’ve simply jumped the gun here and failed to take proper advantage of incredibly cheap money to invest in the economy. Lord knows there’s plenty of infrastructure work to do. By the time we get around to doing it interest rates will have gone up. (They have bottomed out already and are starting to go up again.) It’s all totally chuckleheaded.

Leaving Keynes aside, modern conservatives ought to consider taking a page out of Hamilton, who rightly regarded a properly managed national debt as a blessing. (Hamilton in his own odd way anticipated Keynes and is allegedly an iconic conservative Founding Father. I always admired him and still do.)