Tweaking taxes and spending might be able to alter the size of the deficit at the margins, but as we’ve been talking about lately, today’s massive deficit is largely the result of the weak economy.
The reason the deficit has swollen is not because of some big entitlement/big government crisis, but because unemployment has surged.
The deficit will get much smaller as unemployment continues to drop.
So it’s cool to see more stuff like this from mainstream pundits, like David Frum:
Photo: Daily Beast
In the post, Frum notes that the deficit is down 9 per cent from last year, mostly due to the improving economy.
The news last week that California is coming back is also a major revelation to people. It reveals that deficits aren’t this huge sign of a structural problem, but just what you expect to see in a major downturn.
And now people are talking about the national budget shrinking faster than expected.
Here’s Goldman’s Jan Hatzius, from his 10 Questions for 2013 note:
As the private sector balance sheet adjustment comes closer to completion, we expect the government deficit to diminish gradually; the fiscal adjustment shown in Exhibit 3 will push in the same direction. By 2015, we expect the federal deficit to be down to $500bn, or just under 3% of GDP. If this forecast is correct, concerns about the federal deficit are likely to diminish over the next few years.
Deficit fears are on the downslope. The only way we can screw it up is by cutting spending too soon!
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