Government Debt Is Not The Problem
By Dean Baker for Counter Punch - Deficit fears are impoverishing our kids. The people complaining about budget deficits fundamentally misrepresent how the economy works and the problems it faces. A deficit is a problem when it creates too much demand, exceeding the economy’s ability to supply goods and services. In this situation, a deficit is likely to lead to higher interest rates and inflation, which reduce investment. Less investment means less productivity growth, which means we will be less wealthy in the future. Ever since the 2007–09 recession, the problem has been the opposite: too little demand. Millions of workers have gone unemployed because there was not enough demand for their labor. In a weak economy, companies invest less. In a period of weak demand, it is virtually costless for the government to spend in areas that will not only employ people but also increase long-term productivity and spending on infrastructure, research and development and such areas as quality preschool, which pays enormous long-term dividends. Deficit fears prevented the government from spending the money needed to bring the economy back to full employment. That was costly in the short term because it meant millions of workers went unemployed, but it was also very costly in the long term.