Previously on this blog I’ve shared my theory about the sequester and fiscal cliff. The idea is that everyone in DC is pretending to be upset over what they’ve allowed to happen. Secretly, everyone is kind of happy because painful budget cuts have been achieved without anyone blowing their chances at reelection. There’s a wink and nod going on around town. Boehner says Obama is dragging his feet while secretly high-fiving him.
The popular press, and popular opinion, indicate that we’re not happy with what DC has been up to. Not the secret stuff, the incredible gridlock that has kept us from having any grand compromise. There’s been no major tax reform, tax rates aren’t really changing for better or worse, and no one thinks the budget cuts are permanent. Just this week, the House and Senate introduced their budgets, and you’d really have to try to make them more different.
Take a look below.
This shows our budget deficit as a percentage of GDP. If the number is negative obviously we’re running a deficit. If positive, a surplus. But no one has really been talking about the fact that our deficit is shrinking, and fast. Considering the massive deficit growth we experienced during the 2000s and then the financial crisis, the pace at which the deficit is shrinking is nothing short of incredible.
We can certainly thank an improving economy for this. As more people return to work and businesses earn profits, tax revenue increases. But that doesn’t account for all of it. Federal spending is being reduced, just ask the victims of the sequester and previous budget reductions. Congress, by effectively doing nothing, may actually be doing something.
This isn’t an idea I’m quite ready to endorse. But it’s worthy of discussion. What do you think? Do they get credit or are we closing the gap despite Congress?
Read: IN PRAISE OF POLITICAL DYSFUNCTION (New Economic Perspectives)