Have We Been Looking At Deficit Reduction The Wrong Way?

Jared Bernstein–formerly a top economic advisor to Vice President Joe Biden, and a key figure in the Obama Administration’s attempt to get the economy back on track–has published a fascinating response to Ezra Klein’s analysis of the administration’s response to the Great Recession.

Bernstein closes with a poignant critique of official Washington’s irrational, and destructive, fear of deficit spending:

“The main question we want to ask…is not ‘is the deficit getting too large’ but ‘is it large enough?’ As long as the economy is operating under capacity and the spending is temporary—think Recovery Act, not Bush tax cuts—to do too little in the name of deficits, bond vigilantes, and Treasury rates (which are now at historic lows), is to condemn millions to unnecessary unemployment, declining living standards, and even, in the case of the young, permanent scarring.

And, yes, for many in Congress it’s a tactic—they don’t care about the deficit other than its use a cudgel against doing something to help someone other than their funders. But as long as we fail to understand the dynamics of deficits—their need to expand as much as necessary in bad times and contract in good ones—we will never be able to meet the market failures we face now or in the future.”

According to Bernstein, we have been looking at our national debt in the wrong way. Although debt reduction has emerged as one of the most effective talking points in our political discourse–and as of June, 59 percent of Americans wanted the government to make debt reduction its primary concern, even if it meant slowing down the economic recovery–Bernstein suggests that we should be going in the exact opposite direction.

The divide between Bernstein’s opinion and the public’s will is just another clear example in a long list of signs that our most commonly used political talking points have little to do with economic reality.