Dean Baker: The Weak Economy and Deficit Reduction: Deniers and Terrorists

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The Weak Economy and Deficit Reduction: Deniers and Terrorists

Monday, 04 November 2013 09:32
By Dean Baker, Truthout | Op-Ed


The folks making economic policy in Washington are getting ever more resistant to evidence. As we approach the sixth anniversary of the downturn with no end in sight, the nation has been treated to the perverse spectacle of our Treasury Secretary celebrating the sharp drop in the deficit.

This is a bit like celebrating a sunny day in a region suffering from drought. In an economy that is suffering from lack of demand, as is the case in the United States today, smaller deficits are bad news. They mean less demand, slower growth, and fewer jobs.

This is not a complex point. Ever since the collapse of the housing bubble, the U.S. economy has suffered from inadequate demand. The inflated house prices of the bubble era led to a building boom. They also fueled a consumption boom, as people spent based on the $8 trillion in bubble generated housing equity. The bubble generated demand disappeared when the bubble burst leaving a gap in annual demand of more than $1 trillion a year.

The large deficits the government has run since the downturn began helped to fill part of this gap. Smaller deficits mean the government is filling less of the gap. That shouldn’t be hard to understand. .....................(more)

The complete piece is at: http://truth-out.org/opinion/item/19795-the-weak-economy-and-deficit-reduction-deniers-and-terrorists