Many Conservatives Don’t See a Reason to Celebrate the Shrinking Deficit – Here’s Why - InvestingChannel

Many Conservatives Don’t See a Reason to Celebrate the Shrinking Deficit – Here’s Why

Paul Krugman wants to know why there are no deficit celebrations.  He says:

“For three years and more Beltway politics has been all about the deficit. Urgent action was needed to avert crisis. A Grand Bargain absolutely had to be reached. Fix the Debt, now now now!

So where are the celebrations now that the debt issue looks, if not solved, at least greatly mitigated? And it’s not just recovering revenues: health costs, the biggest driver of long-run spending, have slowed dramatically.”

He’s right that the “Grand Bargain” debates were disingenuous.  And they were disingenuous on both sides.  It’s absurd to argue that the US government has somehow “run out of money” or is at risk of suffering some sort of Grecian default.  It’s not happening because the USA is a rather unique monetary system in an environment that makes alternative forms of default (like a high inflation) extremely unlikely.  I’ve been saying that for years (see here and here) and it’s not because I am an ideologue or have a political axe to grind.  It’s because I understand how the monetary system works, have studied hyperinflatons in great detail and connected the dots to make the predictions many years ago that debunked the mantras about how hyperinflation and/or US default were on the horizon.  It’s that simple.  A better understanding results in better conclusions.

But that’s not what informed conservatives are worried about.  The conservatives who understand the monetary system are more concerned that the growing influence of the US government will reduce the productive base of the country therefore making us less competitive and at greater risk of becoming a high inflation country in the future.  I don’t think those fears are necessarily all that valid in the present environment, but I know what the concern is and can appreciate the worry over a longer time horizon.

The point is, from the perspective of informed conservatives, the continually growing deficit is still a problem.  Sure, the deficit might be shrinking, but that’s like the fat guy who is putting on 20 pounds a year, vows to lose weight and then celebrates next year when he only puts on 10 pounds.  It’s the absolute size of government spending relative to the economy that worries conservatives.  To the informed conservative who is worried about the long-term impact of growing government the continued growth in the deficit is nothing to celebrate at all.  Whether those concerns are presently valid is a different matter, but let’s at least understand what they’re worried about before declaring that they should be happy with the “recovering” situation we have.  In their eyes, it’s not a recovery at all, but merely kicking the can…

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