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economists richard wolfe is joining us again he is professor emeritus of
economics at my alma mater the university of massachusetts in amherst
also a visiting professor at the new school university in new york city
professor wolf
we need to talk about deficits because there is so much misunderstanding and
his lack of information around deficits in their meaning in their effect on the
economy
so i think first just have to start as simply as possible
when the term the deficit is used in the the the national deficit
what equation is being solved or a value aidid to get that number
very very simple
all the deficit is is a measure
year-by-year to measure that's about a particular here always so the literally
if you talk about deficit you should say
the deficit of two thousand twelve of the deficit of two thousand thirty
and what the deficit is is the difference
the simple difference
between what the federal government spends
in that year
and what it takes to in tax revenue
over that same year
and other words if you have a deficit it means
that the federal government has spent more money
than it took in in taxes
and the size of the debt
deficit
is the size of the difference eat excessive spending
over tax revenue
very good so we see a lot of interviews particularly with individuals currently
on the american right
who say the deficit is to hai
now if you were to ask them well too high compared to white you would get a
lot of blank stares but that really brings me to my question which is
is any analysis of the deficit
a country carries in the absence of other information like
the size of the economy any number of other factors isn't really valuable to
us in any way in other words is knowing the dollars of deficit really valuable
to us and making economic decisions
the simple answer is
in less than all the contracts unless you know
what else is happening an economy
there really is no way to evaluate
beside the particular size about deficit
so the only real use
talking about the size ads
is it can be
useful ideological however with which to beat up they were upon
in wire packing them for having made it to be
uh... without ever specifying the answer to your good question
namely in relationship to what
okay so that's that's a
bullet point i want people to take away from this which is if you're talking to
someone who starts talking to you about the deficit in criticizing
any administration or politician a decision
start asking well it's too big in compared to what
how big is it and i think you'll quickly see a lot of these arguments will fall
apart pretty pretty quickly so the next question is
if n_f_l_ economy is identified to be struggling by whatever metric is being
put in place
can you improve that economy
by cutting spending 'cause one way to reduce the deficit would be
if the government spends less
in relation to what it took in
can you win
prove the state of an economy by spending less
basically any answer is no
there is a bit of a caveat
the reason you answer first and foremost lol which any
uh... non-trivial modules recruitment economies would do
is the cars
if the economy is struggling and if by vacuuming in as we usually do
that they are unemployed resources
people looking for work who can't find it
equipment tools raw material sitting idle in gathering rust and dust rather
than being used to produce the wealth we need
if that's what you mean by struggling
than the last thing on birth you would want is for a major consumer in the
economy
which is that the federal government
in our country and in many countries a listing on earth morale is for a major
consumer to spend less fun goods and services
than they did a year before because obviously if a major consumer spends
less
less in the way of goods and services will be purchased
and that will be in less people getting jobs producing what the federal
government isn't purchasing anymore and so kind of spending will make an economy
in recession worst off bed otherwise
now having said that
the argument at the right wing in america
and then you have all those supporting local austerity policies
today
which are
policies designed to reduce the deficit despite a recessionary economy they make
the following onto
if the government has less of the deficit
so that its books are bored merely balance
this will have at least accurately
uh... powerful incentive of back
our businesses and individuals
to go out there in the market at by goods and services
in a way they would not have
accident the improvement in the government's bunch it by lowering
expectations
there is very little imperial evidence for this
and so he sits there is an argument
and it is pushed by the right wing because really otherwise there would be
nothing they could say
to support
enough organized way
bay area of support for austerity policies
at a time of economic recession
so let's look at that the other side of the equation potentially right which is
that
maintaining the deficit
in raw dollars the same if you grow the size of the economy
bike by comparison in relation to the size of the economy your deficit goes
down without you spending any less money do we have analyses that compare
the effect on an economy
of reducing the deficit
as a percentage of the size of the economy
verses reducing the deficit merely by cutting in other words do we know
anything about which
benefits of the economy more
well yes bud
we have just or all
evidence for what has happened in the past
outfit would be easy to show
that there have been occasions
when what to recall keynesian economists
um... likable problem for example
uh... what's the point to these examples in history
you have a recession
the government in order to overcome the recession spends more money
without changing its taxes
that means of course that the deficit goes up
but that the affect of the government spending more money
while raising the deficit has such stimulation of facts of the economy
by the government by more goods and services
more people are put to work
they in turn buy goods and services
korean yet all the people who work
in short
that this stimulating effect of the deficit
drives up the overall economy
so that the deficit becomes actually slower as a percentage because the
economy is growing
even though you raise that in an absolute about
since many prominent republicans including *** cheney had stated thirty
unequivocally over the years that deficit school
don't matter
is it safe to assume in in your opinion is an economist that
the current obsession over deficits particularly among the american right
a ideological hammer as you alluded to earlier
uh... something used to confuse voters per maybe
absolutely it'll be
uh... mister cheney is a perfect example he made that remark in about deficits
not madhuri
at a time when he was the vice president of the government running big deficits
it was important for him tuesday welcome bothered me about this this is a
reasonably fit thing for us to be doing
and it will not represent an economic problem
the minute the republicans are out of office
george bush in cheney gone
all baba
are coming in to replace them
then the republicans turnaround find the deficit as they have in the past many
times
anything hammer with which to beat up on the economies
in the hopes of replacing him
so it's a perfect example of how
this issue
of services and we service is in american politics
as a way
uh... for the right wing to bake what is really a different argument remember
that the right wing return
traditionally united states
isn't a government they want to portray
the private sector as the dynamic progressive are of the economy in the
society and the government as a burdensome
article if you like
and that the government is bad and the government should be retailers that week
and nothing makes that claimed more plausible
that portray the government
as having all respect
run deficits and so on
so he could make your claim about a smaller government by using the deficit
await your out of power as a way to try to get in power and then of course when
you're in power and you run deficits that of course you have to be like
cheney and insist that they don't back
this is speaking with uh... economist richard walsh
where is the best place for people to get all of your articles and podcasts
and everything that you're doing now
i think the best place to go is my website
r_t_e_ waltz with two s
dot com
are does he have these kinds of arguments that all of the work i do
available out charged twenty four hours a day and i would be a place i would
suggest and people need to arm themselves with knowledge do you need to
know what to say when when your friend says hey the deficits just to big
by professor wolf thanks as always for being with us
thank you david my pleasure