Read what a Nobel Prize winner says about deficit reduction

stiglitz by thaigov
Joseph Stiglitz’s Deficit Reduction Plan
[Via Daily Ideafeed | Big Think]

In the next few weeks, the United States will be focused on deficit reduction. Analytically, the task of deficit reduction is simple: cu!ing expenditures and raising taxes. Politically, the task of deficit reduction is enormously difficult, for each cut in expenditure or increase in taxes hurts someone, and typically, some powerful group. … What matters is not the deficit itself or the short-run national debt, but long-run levels of the national debt. The country should be looking at its national balance sheet. Debt reflects only the liability side. In assessing the economic strength of a firm, no one would look just at its liabilities; they would also look at its assets. The single-minded focus on deficits and short-run debt is thus fundamentally misguided.

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He starts off with three points.

Given the enormous increase in inequality that has occurred in the United States over the past three decades, any measure that harms those at the bo␣om should also be unacceptable, and measures that impose undue burdens on the middle class should receive careful scrutiny.

Over the last 30 years, and especially the last 10, policies have been focussed on allowing the wealthy to grow their incomes, to the detriment of most Americans. Their median incomes have actually decreased while 65% of the income growth the last 10 years went to the top 1%.

There is a further principle which should guide deliberations: what matters is not the deficit itself or the short-run national debt, but long-run levels of the national debt.

The long term debt is what will drag down the economy and put our children in the hole from day 1. In addition, though, short term increases can have long term payoffs, especially when dealing with education, infrastructure or technology.

This conclusion is reinforced by the observation that what matters for debt sustainability is not the absolute value of the debt but the debt-GDP ratio.

It is the balance between debt and total GDP that is most important.

While I may not agree with all the proposals he makes, I do agree with these three points. If these were the real focus of either political party, I would be happy. We might have a useful debate and ceate a good plan of attack.

Unfortunately, I think I am doomed to be sad, given how poorly the discussion is going on right now.