sgsguru: (Default)
Fixating on the deficit while our economy is stuck is like worrying about your cholesterol while you're trapped under a rock.

There's a nasty situation that small plane pilots can get into called a "graveyard spiral". The plane is losing altitude, so the pilot tries to pull up. But it's not in a dive, it's in a spiral. Pulling the nose up just tightens the spiral. This continues until the plane hits the ground or the spiral gets so tight the wings come off. This is, according to the best guess, what killed JFK Jr.

To get out of a graveyard spiral, the pilot has to ignore the seat of his pants, which is telling him he's headed straight for the ground, and get the wings level. At this point, the plane is no longer in a spiral and the pilot can pull out of the dive.

Try to do it backwards and you're dead.

We're in the economic equivalent of a graveyard spiral. Unemployment is high, so consumer demand is low. With low demand, businesses lay off more people, which reduces demand. Unemployed people don't pay income tax, so tax revenues go down. Spending doesn't, so deficits go up. And because there's a Democrat in the White House, the Republicans get all bent out of shape over "the Deficit". (Funny, deficits weren't important under Reagan or either Bush.)

Trying to "fix the deficit" by cutting Government spending is like trying to pull the nose up in a graveyard spiral. It won't work and will only cause a serious crash. Cut Government spending, we lose more jobs, which reduces tax revenues, which increases the deficit ... Economically, this is called "Hooverism". It's what Herbert Hoover did to try and fix the Great Depression. Didn't work, bigtime. It won't work any better now than it did then.

To break out of the spiral, we need to put folks back to work. We have the questionable advantage that we've been deferring infrastructure maintenence for far too long, so there's a lot of work to do. We also have the real advantage that folks ::cough::China::cough:: are willing to lend us money at, effectively, negative interest rates.

Once we get people back to work, we can go back and look at the deficit again. Ideally, all we'll have to do is sit back and watch it shrink as the economy picks up.

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sgsguru

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