And with unemployment at 8.2 percent and limited consumer demand, it’s hard to understand why anyone ever thought inflation was a metaphysical certitude.
Each of these mitigating factors can be considered an unusual and perhaps fortuitous confluence of economic events that would have allowed the deficit to lay waste to the U.S. economy had they not occurred. That’s exactly the point: The deficit doesn’t exist in an economic vacuum, and the decision to increase or decrease it has to be made and evaluated in the context of everything else that’s happening.
In other words, despite what the evangelists say, the actual current results demonstrate that deficits are not inherently evil.
In fact, the combination of economic conditions the United States is experiencing puts the current federal budget deficits and those who have championed them on the side of the angels rather than the demons because none of the other components of gross domestic product are making growth possible. State and local governments continue to increase revenues and cut back on spending, consumers and businesses aren’t spending, and the economic woes in Europe and elsewhere mean that trade isn’t available to help.
That makes federal fiscal and monetary policy the only two drivers of economic growth. With interest rates already low and the Federal Reserve’s options limited, the budget deficit is an economic blessing rather than a curse.
This won’t always be the case. A rapidly growing economy driven by domestic and overseas demand for U.S. goods and services at some point will create a time when reductions in the federal budget deficits should be considered, and not doing so would be a sin.
In the meantime, however, no matter what the zealots might preach, there is no federal deficit hell except perhaps for those who, despite the facts, continue to insist with absolute certainty that we’re all going there.
Stan Collender is a partner at Qorvis Communications and founder of the blog Capital Gains and Games. He is also the author of “The Guide to the Federal Budget.”