Breaking the Cycle of Deficit Fetishism

Breaking the Cycle of Deficit Fetishism

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Nick Robinson's campaign of tubthumping deficit buffoonery continues

The BBC's politics editor thinks that the government deficit is a major issue of our time, and continues to produce essays and TV programs arguing for that. Of course, as I've noted before, he never really bothers to go into much detail as to why the deficit is such a bad thing, and the same is true in his latest piece. 

Instead, it's taken as read that every capable adult knows that the government deficit is bad, and needs to be reduced, and damn any political party that doesn't have a detailed plan of spending cuts to do so.

Personally, I think we face far greater political challenges. Consider the lack of housing capacity driven by planning restrictions that continues to see soaring house prices that are making it harder and harder for people to own their own home. Consider the fact that our "economic recovery" remains tepid — weaker than Britain's recovery from the Great Depression — and largely driven by the aforementioned unsustainable housing boom. Consider the strained state of Britain's infrastructure.

But, as Robinson points out, polling shows that the public thinks the deficit is a very major problem. And all of my greater concerns are intertwined with deficit fetishism. It is difficult to secure funding for infrastructure spending, or housebuilding or any kind of fiscal stimulus when there brigades of deficit fetishists are out to stop you because of the deficit.

Dylan Matthews, then of the Washington Post wrote a great synopsis backed up with data and evidence challenging some of the unspoken tenets of deficit doomerism last year. No, government deficits do not lead to high inflation. No, deficits are not a national security risk. Yes, you can run government deficits forever so long as you have a growing economy. No, the deficit is not stealing from our grandchildren.

Of course, wonkish economics writers like myself and Dylan Matthews have been pointing this stuff out for a long time.

And has it changed the public perception of the deficit? Not much, by the polling data.

So let's try a different tack: as Orwell argued, language can shape reality. What if the public's deeply negative view of government deficits is simply a matter of negative framing? "Deficit" sounds bad. It signifies a lack. A big deficit signifies a big lack: a hole to be filled, a book to be balanced, a danger zone being crossed, a bankruptcy waiting to happen.

And yet every government deficit is by definition also a private surplus. As John T. Harvey of Forbes notes: "Government deficits, by definition, create private sector wealth, while surpluses drain it. It’s simple accounting." 

A government "deficit" is the government pumping spending and investment into the rest of the economy. And a government "surplus" is the government sucking money out of the rest of the economy. 

Now, sometimes a surplus can be a good thing. It can cool an overheating economy. My position is not inherently for or against government deficits or surpluses. What I am against are cuts when the rest of the economy is weak, and increases when the rest of the economy is overheating. In other words, fiscal policy should be a counterbalance against the business cycle.

But I don't think that the present weak economy — with private spending and investment still depressed —  is the right time for the government to be reducing the flow of money from it into the rest of the economy. I think that it should be increasing that flow in order to stimulate the economy and using up the supply of cheap money offered to it at very, very low real interest rates by bond markets.

Of course, as the polls show, the deficitphobes have convinced the public otherwise. 

But would public enthusiasm be so high for ending a "private surplus" as it is for ending a "government deficit"? Would Nick Robinson sound so confident if he had to argue for ending the "private surplus" instead of the "government deficit"?

I suspect not. I suspect that as David Cameron has indeed admitted, this quirk of language is being exploited by ideologues who want to shrink the state permanently, not just to quell the fears of the so-called bond vigilantes.

So I think it's time to change the conversation and reframe the issue. That can be done simply by pointing out the basic truth that a government deficit is a private surplus.


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