TPPM (9): Budget Deficit

[Tim Strzechowski]

[...] "And Sloth, being continual evasion, just kept piling up like a budget deficit, while the dimensions of the inevitable payback grew ever less merciful."


A curious simile, this is.  Might this be one of Pynchon's subtle little comments on the time period (this essay was published in June, 1993)?


[...] "The 1997 deficit-reduction agreement was small in magnitude because the bulk of the work of eliminating the deficit had already been done--by the 1990 and 1993 deficit-reduction agreements, and by the strong recovery of the U.S. economy from the recession of the early 1990s.

In 1992 the federal government budget deficit had amounted to 4.7% of national product--some fifteen times as large in relative size as the 0.3% of GDP deficit of fiscal 1997. Of the improvement, about half is due to the policies enacted in the 1990 and 1993 agreements: increases in taxes, and reductions in spending--or, rather, reductions in spending growth below the growth rate of the economy as a whole (for as the population and the economy grow, the amount of money the government needs to fulfill a given set of programmatic missions grows roughly as fast: twice as many people need twice as many courts, twice as many airplane flights need twice as many air traffic controllers).
The other half of the improvement is due to better economic conditions. Today the U.S. unemployment rate is less than 5.0%. In 1992 the unemployment rate in the country as a whole peaked at 7.6%.

Many factors could plausibly have interrupted the recovery of the U.S. economy from the recession of the early 1990s. The year 1993 could have seen a deficit reduction package that was too small: investors could have lost confidence in the ability of the United States to ever bring its fiscal deficit under control, leading to renewed recession. The year 1993 could have seen a deficit reduction package that was too large: fiscal drag might have proven too much for the Federal Reserve to offset with monetary policy, leading to renewed recession. The year 1994 could have seen monetary policy turn too contractionary, leading to renewed recession. Or the year 1994 could have seen monetary policy turn too expansionary, leading to an acceleration of inflation and then to renewed recession.

That all of these potential disruptions to recovery have been avoided is due in large part to luck, but also in large part to skill--to the successful formulation and implementation of economic policies. Given how often the Federal Reserve, the Congress, and the President are blamed for inappropriate or faulty monetary and fiscal policies, it is worth pausing to note that in this decade (so far) they appear to have gotten things exactly right. They deserve credit for managing to chart an economic policy path that has successfully reduced the deficit without generating renewed recession.

http://www.j-bradford-delong.net/Comments/1997_deficit_weekly.html

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