Counterpoint Re: Deficits are Good

Yesterday I linked to a Daniel Gross post on Slate that deals with some of the positive ways to look at the deficit issue that has taken the national spotlight of late.’

Sharp-as-a-tack reader Michael Kurilla offered up a great counterpoint to Gross’s positivity and I thought it important enough to pass on below…

Daniel Gross has been living in a Keynesian fantasyland that is impervious to reality. Several months ago he had an article about how explosive jobs growth was just around the corner. He does not distinguish between typical recessions that are largely inventory based and respond positively to a few quarters of inventory readjustment and the current recession that is a financial crisis.

Just look at typical past recessions: housing investment has led the way in terms of jobs growth and investment. That ain’t gonna happen here. There’s too much excess housing inventory and household formation is still declining. Even the Fed is now calling for a sustained elevation in unemployment over the next two years and that doesn’t take into account the huge numbers that have left the labor force and are not counted (if we told every unemplyed person to stop looking for work for one month, we could drop unemployment to zero, but so what).

GDP growth in the early to mid part of this past decade was largely unsustainable (housing flippers) and so it’s very unlikely that government receipts will return to those previous levels, except for perhaps some corporate taxes and capital gains, but not income, other than the expiration of the Bush tax cuts and health care reform taxes.

But now look on the government expenditure side. We still need to deal with Fannie and Freddie (we’re talking hundreds of billions). Small to mid size banks continue to fail above last year’s pace and FDIC may need help. Part health care budget balancing was concocted by stripping Medicare funds. This has been done multiple times in the past and Congress always restores them down the road. States have an aggregate of more than a $100 Billion deficit that will likely repeat next year as well.

That pile of stashed corporate cash ($1.8T) will just look attractive at some point.

Great insights, Mike.  Thanks again.

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