Friday, July 8, 2011

U. S. To Abandon Efforts to Reduce Unemployment; Will Focus on the Deficit


Because You Have to Do One or the Other, and Politics Favors Deficit Reduction

In writing about the mournful state of the social science of economics, The Dismal Political Economist has stated that one failure is that economics has not adequately informed the American public that it must choose between deficit reduction and unemployment reduction.


“The current goals of economic policy are in direct conflict with one another.  The Economist Magazine in its lead story says this.

the two big problems facing America’s economy: how to get more people back to work, and how to fix the deficit

Everyone agrees with that statement.  But the ugly truth is that these two policy goals are in direct opposition to each other.  Policy to reduce unemployment will increase the deficit.  Policy to reduce the deficit will cause unemployment to be higher than it otherwise would be.  The economics profession must confront Americans with that fact and America must choose which goal it wants to achieve.  The economics profession must also tell Americans two other substantial but painful truths.”

Now the Washington Post reports on a Congressional Budget Office study on the deficit.  It concludes

“If policymakers are to put the nation on a sustainable budgetary path, they will need to let revenues increase substantially as a percentage of GDP, decrease spending significantly from projected levels, or adopt some combination of those two approaches,” the CBO report said.

The report cautions that taking either action now “would probably slow the economic expansion.

The Dismal Political Economist is happy to note that apparently real economists work at the CBO and that the idea that the U. S. can adopt deficit fighting techniques without slowing the economy is just not true. 

It is very clear that the focus of U. S. economic policy has now turned to debt reduction.  It is also very clear that this policy will involve massive cuts in government spending and little no tax increases.  So it should be very clear that going forward unemployment will be higher than it otherwise would be in the event the U. S. pursued pro-growth policies.

Reality has a rendezvous with the American public.

2 comments:

  1. Me again, my friend. The DPE, when you said, "Reality has a rendezvous with the American public", you summarized our bleak collective country wide psychosis in a nut shell. Well done my friend. I don't even know you and I love you whatever your gender is. Your capacity to reduce our political reality to short and humerous commentary, and accurately I might add, delights me. Thank you!

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  2. Thank you Anonymous, I have a dog and cat that feel the same way, well, actually the cat is not all that enthusiastic except at meal time.

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