Viewpoint: Economy must recover before spending can be cut

Jake Duesenberg is wrong; he is wrong about the debt, wrong about the deficit, wrong about the so-called “fiscal cliff” and wrong about the debt ceiling (“Federal spending,” Jan. 9).

First, Duesenberg characterizes raising the debt ceiling, which he seems to think was part of the recent deal on the ‘fiscal cliff’ — it wasn’t — as allowing the president to authorize new spending. It does no such thing. Raising the debt ceiling enables the president to meet current obligations for spending already authorized by Congress, something he is legally required to do. These obligations include payments to military contractors, salaries for government employees, including members of the military, plus Social Security and Medicare payments. Refusing to raise the debt ceiling is analogous to refusing to pay the mortgage on a house which you have already bought; you risk losing your house and destroying your credit rating. If this nation is forced to default on payments we owe, we would put at risk the full faith and credit of the United States, further increasing our borrowing costs, potentially tanking our economy and even taking the rest of the world’s economies down with us; I somehow doubt that is the outcome Duesenberg is advocating.

Next, Duesenberg appears to believe going over the “fiscal cliff” would have increased our deficit; in fact, it would have done the opposite. The danger was not ballooning the deficit but, rather, a steep and rapid reduction in deficit spending which would have sent our recovering but still fragile economy into a tail spin. It was interesting to see how all the anti-Keynesian theorists turned into crypto-Keynesians when faced with a real-life prospect of deficit reduction. Keynes has been proven right more than once; FDR learned back in 1937 that trying to reduce deficit spending before the economy has completely recovered results in a deeper depression and even higher debt as a percent of GDP; we have a current example of the inefficacy of austerity in Britain’s shrinking GDP.

The fact is, our debt is a long range problem; the immediate problem is that people are out of work, and until we increase employment and grow our GDP we will not be able to address our debt. The reason, of course, is that much of our deficit spending is attributable to our depressed economy; people who are out of work cannot pay taxes and they often need government services such as unemployment benefits and food stamps. What we need to do, right now, is put people to work, and you simply cannot increase employment by increasing unemployment.

Reducing government spending creates more unemployment; it puts people out of work, and people who are not working are not spending, further depressing our economy. It is important to remember that one person’s spending is another person’s income, so if everyone stops spending, if everyone stops putting money in circulation, then people stop earning.

The public cannot spend now because they’ve lost equity in their homes and/or lost their jobs; businesses will not hire and expand as long as they have too few customers. That leaves the government, the spender of last resort, to put money into circulation to grow the economy.

Once our economy has recovered, we can address the debt. Reducing deficit spending too soon is a foolish virtue; it is like leaving a house fire smoldering because your water bills have been too high lately.

Denn is a Woodbury resident

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