Deficit Framing Run-Amok: Even Excessively Tight Fiscal Policy Is About Big Deficits

Tokyo, JAPAN: French Foreign Trade Minister Christine Lagarde smiles upon her arrival at a business forum in Tokyo, 29 November 2006.Lagarde is here to ask Japanese companies to invest in France.

Photo by YOSHIKAZU TSUNO/AFP/Getty Images

It’s sort of amazing the extent to which these days everything gets framed as a problem of excessive budget deficits. Right now, for example, there’s a lot of worry that the 2013 budget deficit in the United States is going to be much too low but even that gets framed as somehow being a symptom of big deficits:

Much of the discussion at the I.M.F. meeting focused on the risks that the United States, the world’s largest economy, might face if the Obama administration and Congress cannot agree on deficit reduction measures, setting off legally mandated tax increases and federal spending cuts early next year. Hitting that “fiscal cliff” would reduce growth and eliminate jobs at a time when the anemic American economy is still struggling to recover from the 2008 crisis.

The scale of America’s fiscal problems was underscored just hours before the meeting in Tokyo, when the Obama administration announced that the budget deficit this year would reach $1.1 trillion, exceeding $1 trillion for a fourth straight year. While that is down from last year, United States deficits had never topped half a trillion dollars before the 2008 financial crisis.

This is incredibly confused framing. The “fiscal cliff” consists of the expiration of tax cuts and reductions in federal government spending. It’s thought to be economically harmful because low budget deficits are a problem for a depressed economy. Avoiding this problem consists of making next year’s deficit bigger than it’s currently projected to be. Some procedural hijinks have caused this short-term fiscal tightening to be linked to the idea of long-term deficit reduction, but Congress doesn’t need to to “agree on deficit reduction measures” to halt those spending cuts or tax increases. What they need to do is pass a bill to delay delay spending cuts and tax increases.

The controversy over the long-term deficit is completely irrelevant to this issue except insofar as anti-deficit fanaticism helped create the fiscal cliff dilemma in the first place. But the solution is simple—just call it off! Stop worrying about the long-term deficit!