The current debt
and deficit panic is nothing new. It’s been a staple of American politics since
the Republic’s inception. But this season it has taken a new turn. Congress, the fiscal arm of the government,
is engaged in asymmetric siege warfare. On one side the Republicans want only
cuts, on the other the Democrats want both cuts and tax increases. Both agree
however that cuts are absolutely necessary; the only question is the timing and
magnitude involved. Unfortunately, budget cuts are exactly the wrong thing to
do at this moment. And before anyone throws up their hands and says “Keynesian
claptrap,” there is nothing necessarily Keynesian in what I am about to say.
Simple logic and arithmetic will suffice.
Austerity, the policy of cutting state
spending to solve debt and growth problems, sells itself to us through a
strange combination of morality and seduction. Its moral claim lies in the love
of parsimony over prodigality that characterizes economic thought from Adam
Smith onward. In this morality play, saving leads to....
