The new Bloomberg BusinessWeek cover story is on Alan Simpson and Erskine Bowles, the dynamic bipartisan duo that's been going around the country and on every TV network preaching the gospel of a centrist approach to deficit reduction.
The thrust of the article is: Simpson and Bowles are correct in warning of a big problem to come if we don't get a handle on our deficits, but thanks to political reality, nobody is listening to their dire warnings.
The article, written by Joshua Green, doesn't really question whether Simpson and Bowles have correctly assessed the deficit problem, or whether their bipartisan approach is right.
It's just taken as a given that they are correct that something must be done.
Since then, the temptation to fix the problem all at once has seduced presidents and public intellectuals alike.
That moment now looks as if it may pass as just one more disappointing chapter in the long quest to straighten out the country’s finances.
As Ezra Klein recently tweeted: "It's really weird how the rules of "objective" journalism fall away when the subject is Simpson-Bowles."
In other words, and this cover story is an example, people just take it as a given that they're fighting the good fight and correctly assessing the main problem tot he US economy.
But as the article notes, people have been sounding the alarm about deficits since the end of the Vietnam War, and they've never mattered or harmed the economy. And two years ago, Simpson himself warned that the US had about "two years" before the markets rebelled... a prediction that has turned out to be incorrect.
So there are some good reasons for people to ignore them and the deficit hawk movement, just based on their track record alone.
Their future prognostications aside, you can make the argument that they've actually done more harm than good.
One of our favorite quotes ever about deficit reduction comes from Richard Koo, the top economist at Nomura:
Arguing need for longer-term fiscal consolidation is irresponsible
The insistence that fiscal consolidation is necessary in the longer term is like the doctor who, faced with a patient who has just been admitted to the intensive care ward, repeatedly questions the patient about his ability to afford the treatment. This is both lacking in decency and irresponsible .
If the patient loses heart after learning the cost of the treatment, he may end up spending even longer in the hospital, leading to a larger final bill. Completely ignoring the policy duration effect of fiscal policy and constantly insisting on longer-term fiscal consolidation was what prolonged Japan’s recession.
Simpson and Bowles have been making their big push for deficit reduction when the US has been at its weakest, and the most desperate for stimulus.
Even though Simpson and Bowles don't talk much about near-term austerity, the effect of their warnings (along with every other long-term deficit hawk) is that people who advocate lots more near-term deficit spending are seen as being irresponsible and short-term focused, and they're shunted out of the mainstream.
Even The President, who has not embraced short-term cuts, has adopted the idea that spending must be "paid for" (by tax hikes) and implicitly accepted the premise of the debt doomers. This is a point that Rep. Jerry Nadler has made to us... by accepting the long-term deficit problem publicly, Obama has made it seem less responsible to push for more stimulus spending in the short term.
The last few years have resulted in a lot of confusion on deficits.
Yes, the deficit absolutely exploded since 2008, but totally due to the downturn, and is being rectified fast thanks to the comeback in growth.
However, there's been a big public bait and switch where the current cyclical deficit has been used as an excuse to talk about the long-term healthcare-driven deficit. And though the long-term deficit could be an issue, it's taken everyone's eye of the ball, and resulted in a lack of focus on the real issues of growth and employment.
It's impossible to quantify exactly what the result of this distraction has been, but any time spent on deficits, rather than current growth or unemployment, has been time wasted.
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