Lynne Hix DiSanto and other red-meat Republican candidates call for "no deficit spending." Rep. Kristi Noem makes the deficit the centerpiece of her public slideshows. Yet that budget absolutism hamstrings Republicans' ability to focus on solving more urgent problems, like unemployment.
Texas economics professor John T. Harvey points out the irrefutable accounting fact that a public sector deficit is a private sector surplus:
...when the public sector spends in deficit, it is by definition a surplus for the private sector. If the government spends $500 more than it taxes, then it must be true that the private sector earned $500 more than it was taxed. Period. This is an inescapable accounting identity [John T. Harvey, "Four Reason's You Should Consider Washington's Deficit as Your Surplus," Forbes.com, 2014.02.24].
I know, it sounds like magic money, but as we've discussed before, macroeconomics doesn't follow the rules of kitchen-table bookkeeping.
Harvey refutes deficit-hawk inflation fears by pointing out that the two biggest post-World War II deficit binges, under Reagan and Obama, were accompanied by low to mild inflation, not wild price explosions. He says that deficit reduction should be a much lower priority than job creation:
...there is absolutely no reason to be discussing deficit/private sector income reduction with unemployment at 6.6%. We are a long way from full employment and firms and consumers remain rightly hesitant to increase their spending sufficiently to address this problem. Yet, while the government is in a perfect position to do so, both parties’ ignorance of economics and accounting has served as a major roadblock in generating jobs and income in the private sector. This is not to say that all deficits are created equal. There are most certainly good and bad ways to spend, just as there are good and bad ways to administer first aid to an accident victim. But, that the victim needs first aid is not an open question [Harvey, 2014.02.24].
Lynne Hix DiSanto hasn't floated a jobs plan yet. Rep. Kristi Noem has yet to pass a jobs bill in Congress. They should read Harvey and realign their priorities.7 comments