Paul Krugman: Hey, We've Already Solved the Deficit "Problem"
We are already on our way to imposing deeper "austerity" on the American economy than the packages of tax hikes and spending cuts which sent the UK and Spain into double-dip recessions. And that's before the next round of Republican hostage-taking, which we'll see as the sequester, debt limit and budget fights come up over the next three months. As the IMF notes, this is a policy that slows growth and increases unemployment.
But as Paul Krugman notes on the New York Times' website, this reality doesn't seem to be creeping into the public discourse.
The Center on Budget and Policy Priorities has a graph:
The vertical axis measures the projected ratio of federal debt to GDP. The blue line at the top represents the projected path of that ratio as of early 2011 — that is, before recent agreements on spending cuts and tax increases. This projection showed a rising path for debt as far as the eye could see.
And just about all budget discussion in Washington and the news media is laid out as if that were still the case. But a lot has happened since then. The orange line shows the effects of those spending cuts and tax hikes: As long as the economy recovers, which is an assumption built into all these projections, the debt ratio will more or less stabilize soon...
[It] comes as something of a shock to realize that at this point reasonable projections do not, repeat do not, show anything resembling the runaway deficit crisis that is a staple of almost everything you hear, including supposedly objective news reporting.
So you heard it here first: while you weren’t looking, and the deficit scolds were doing their scolding, the deficit problem (such as it was) was being mostly solved. Can we now start talking about unemployment?