The federal deficit declined massively over the last few years, so where’s the cheering?
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Federal budget guru Stan Collender recently made a great point about the new federal deficit numbers. Simply put, the deficit, that is the yearly difference between money going into the federal government and money going out, has declined considerably over the last few years, but nobody seems to have noticed. As Collender puts it:
As a percent of GDP, not only will that be the lowest deficit since 2007, the drop from 9.8 percent in 2009 to 2.8 percent in 2014 is the largest five-year reduction in federal red ink since the end of World War 2, that is, in almost 70 years. (emphasis in original)
The weird thing, as Collender points out, is that nobody is celebrating this major sea change. For years now we’ve been told over and over again that the deficit will be the ruin of us all and must immediately be dealt with by big cuts in entitlements like Social Security and Medicare. But rather than celebrating this major drop, The White House, Congressional Republicans, and outside interest groups like Fix The Debt are saying nothing and are even announcing that the new numbers “tell the same story.”
I’d agree with Collender that a big reason for this is basically because it’s in nobody’s interest to talk about the rapidly falling deficit. The White House doesn’t want to boast about it because Republicans will almost certainly respond by saying that some folks out there are still suffering in the economy and the president is out of touch. Republicans don’t want to acknowledge the new numbers because they want to claim that everything Obama touches turns into a disaster. And many professional deficit voices earn their keep with a never-ending series of Chicken Little style pronouncements that the fiscal sky is falling.
But there’s probably something else going on here as well. Deficits themselves probably just don’t really matter all that much. Don’t get me wrong here, deficits can certainly have effects that matter, for example Bill Clinton’s policies to lower the deficit in the early 90’s was a big part of why interest rates fell and the economy boomed, but without those effects they probably don’t really mean much of anything. To put it another way, if interest rates were going up because investors wanted a higher rate of return for buying American debt in the form of Treasury Bonds, then in that situation deficits would matter, because higher interest rates generally slow down economic growth. But if interest rates aren’t going up, and in fact they are at historic lows right now, then deficits in their own right don’t really matter.
Which basically means that all the deficit and debt scare mongering we’ve been treated to over the last few years has been a huge distraction from far more important issues. That’s kind of frustrating, but if even the professional deficit scare mongers are ignoring the new numbers it’s safe for the rest of us to ignore them as well.
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