You know the deficit argument is all but over when one conservative tells other conservatives to shut up about it, already.
American Enterprise Institute’s John H. Makin has a long new argument today, in which he said that worrying about national debt is a nonsensical idea because Japan’s national debt isn’t hurting them any, and really, the U.S. has other stuff to worry about. Like fixing the tax code, or reforming entitlement programs.The debt-to-GDP ratio, which is what many conservatives tout as a metric of how “unsustainable” U.S. debt is, means absolutely nothing, he said. Japan, for instance, has a debt-to-GDP ration of 140, which is way above the U.S. number, and it really hasn’t had any effect whatsoever on their economy.
In fact, the interest rate for 10-year Japanese bonds are half that of the American equivalent, in part because of Japanese deflation.
From the his note:Congress, take note. Although American deficits do need to be reduced and debt accumulation does need to be slowed and eventually reversed, cries of imminent disaster from “unsustainable” deficits and a supposed bond market collapse will not accomplish this goal. Persistently rising bond prices in Japan and the United States have undercut the “sky-is-falling” rationale for deficit reduction.
In fact, austerity could just about be the silliest thing to do, if Congress wants the debt-to-GDP ratio to fall:
If fiscal austerity is applied too rapidly, US growth will drop and the debt-to-GDP ratio will rise, boosting the nation’s debt burden. If the Fed tries to stem the rise with too much money printing, inflation could rise and drive up interest rates, exacerbating the US debt burden.
Congress and the president need to avoid excessive austerity with respect to changes in fiscal policy this year. Over the past four years, on average, the fiscal boost applied to the American economy has been worth about 3 per cent of GDP. This year, with tax increases and sequestration, fiscal drag will be about 1.5 per cent of GDP.
According to Makin, instead of yelling about how the world is going end and whatnot, which would only serve to sap the momentum to sound fiscal policy, Congress should be cutting deficits gradually, through tax reform and by rethinking how entitlement programs work.
Instead of bellowing about a disaster that never comes and saps the momentum from sound fiscal policy, Congress should be cutting deficits through reforming entitlement programs and lowering tax rates while closing tax loopholes. The aim of these measures is to enhance economic growth. recognising and striving to achieve the benefits of a sound fiscal policy will produce more progress on deficit reduction and debt stabilisation than will empty threats of soaring interest rates and bond market collapse.