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Deficit Spending in a Recession is Responsible

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Above is an ad put together by Republicans to commemorate the reaching of $16 trillion in overall debt, a figure that’s supposed to frighten the public. It very skillfully uses President Obama’s debt trolling against him, including his invocation of debt being “irresponsible” and his worry about “lack of confidence” wrecking the economy if the debt problem perpetuates.

It’s a very effective ad. It’s also the height of ridiculousness. In a time of mass unemployment and fiscal contraction, the most responsible thing to do was to increase the deficit. With government being the spender of last resort, the alternative was a depression. And that $5 trillion in debt under Obama’s watch, a figure Republicans like to throw around, translated into $10 trillion in net worth by the public, a solid economic multiplier and a restoration of private balance sheets. If anything, the $5 trillion was irresponsible only because it didn’t fill the demand gap, at a time of ultra-low borrowing rates. And there’s a serious problem with how this $10 trillion got distributed – we know that almost all of the wealth of the last four years flowed to the very top. But it was necessary – you might even say patriotic – for government to take on the burden it did, to save the lives and economic fortunes of millions. It should have went even further.

The problem is that the President believes absolutely everything in that ad. I don’t think there’s any question about that. He thinks debt is irresponsible, and that we have to reassure the markets that we have a credible debt reduction plan moving forward. It didn’t take the Republicans long to find these quotes, put it that way.

Dick Durbin told NBC yesterday that the President would use Simpson-Bowles as a template for deficit reduction in the second term. I was briefly cheered by the party platform’s take that the spending cuts have been made, and all that’s needed for a “balanced approach” to deficit reduction would be the expiration of tax cuts and the assumption of deduction caps on the rich. I wouldn’t have a problem with that, and I don’t think that would damage the economy in any meaningful way (something you won’t hear from the media of the 1%). But that still means that the trigger cuts go forward, which is unwise. Either that, or they transfer into some other kind of cut, at which point social insurance programs could be on the table.

We don’t need a grand bargain. We need a return to the responsibility of following the economics where they lead. In a time when too many people are out of work, you need to invest to create jobs and grow the economy.

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David Dayen

David Dayen