It's Not the Right Time To Cut the Deficit

It's Not the Right Time To Cut the Deficit

It's Not the Right Time To Cut the Deficit

A blog about business, finance, and economics.
Aug. 19 2010 1:32 PM

It's Not the Right Time To Cut the Deficit

In a Slate column published yesterday , I mentioned the rather prominent camp of people who maintain that any benefit that might come from fiscal stimulus policy is simply not worth it if it increases America's debt and deficit. This position has gathered considerable momentum is recent months, partly because of news events and partly because of widespread discussion of a Reinhardt-Rogoff paper suggesting that, historically, larger debt-to-GDP ratios has resulted in lower growth. (Whether those authors would sanction the way their argument has been applied is a question for another time.)

Now comes a paper from the Roosevelt Institute titled "The Boom Not the Slump: The Right Time for Austerity" (PDF) . Authors Arjun Jayadev and Michael Konczal argue that historically, very few countries use economic slumps as a time to lower their deficits. More to the point, they claim "that there is no episode in which a country facing the same circumstances as the United States (recent recession, low interest rates, high unemployment) has cut its deficit and succeeded in reducing its debt through growth." They suggest that in those cases where countries have cut their deficits and achieved growth, it's been the product of two tools that are not readily in America's arsenal right now: currency depreciation and interest-rate cuts.

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I've little doubt this paper will be attacked as partisan, but it's an eye-opening corrective beam, shining through a lot of the economic fog floating out there.

James Ledbetter is the editor of Inc. and the host of Panoply’s podcast Inc. Uncensored.