At least since Iíve been an adult, Iíve never believed in heaven or hell.
Despite all of the fire-and-brimstone warnings and thunderous sermons about the need to avoid eternal damnation by behaving a certain way, I canít get it out of my head that no one has ever proved that hell exists. To me, the discussion about where you end up for all eternity has always been belief or spin and not fact. It may work for those preaching it and those who need an easy-to-understand guide for their lives, but it definitely doesnít work for me.
The same is true when it comes to the federal budget. The equivalent of hell ó the absolute guarantee that weíll be economically doomed if we donít immediately repent on the deficit and live a virtuous balanced budget life ó has never worked for me because itís never been proved to be true. In addition, those who have insisted that reducing the federal deficit no matter what the economic situation have seemed to be proselytizing to validate their personal beliefs or accomplish their unrelated political goals rather than actually analyzing anything.
The problem for the budget evangelists is that the past few years have provided what Nobel Prize-winning economist Paul Krugman said in his blog last week was ďa great natural experimentĒ whose results should test the faith of those who continue to say with unrepentant certainty that economic lighting bolts will be hurled down at all of us because of the federal deficit.
And, as Krugman explained, the great experiment showed that the three most often guaranteed deficit-related plagues ó inflation, a limit on resources available to the private sector and higher interest rates ó didnít occur despite the deficit that critics likened to a tool of the devil.
All three of the promised curses are actually very easy to dismiss at this point. As the deficit rose to the point weíve been told would bring immediate and unmistakable retribution from an angry economic deity, interest rates have fallen, the private sector has been reporting record earnings and is hoarding cash, and inflation is about as absent from monthly economic statistics as it can be.
Much of the reason the effect of the deficit hasnít been, well, hellish is that there are mitigating circumstances. The financial turmoil in the rest of the world has increased the demand for U.S. debt, and interest rates have been pushed down to the point that, when including the effect of the meager inflation weíve experienced, they have actually been negative. In other words, instead of demanding to be paid for their loans like most lenders, investors have been paying Washington for the privilege.
A combination of technological advances and a workforce of people desperate to do whatever it takes to keep their current jobs has clearly contributed to the ability of corporations to do more than just survive, even if bank lending has been more difficult to obtain. Then again, corporations have more sources of capital these days than was the case in the past, and with all that cash on hand, itís not clear how much companies need to borrow anyway.