>Unemployment was down considerably in the 1990s despite tight fiscal policy
>by Clinton and is rising despite the massive deficit being taken on right
>now-- I've just entered their ranks
Sorry to hear that. What happened?
> and half my friends are unemployed, so I
>am rather unconvinced. What I do know is that we will be paying through the
>nose in the future in interest rate payments for these deficits that are
>primarily benefitting the wealthy in tax cuts.
>
>The explanation is rather clear why Keynesianism might be less effective or
>reasonable than in the past; in a global economy, tax cuts or spending will
>as often go to imports as to domestic production. If the spending goes to
>imports, it will not have the Keynesian effects domestically that theory
>would expect. I would note that along with rising deficits, the US is seeing
>its trade deficit rise dramatically as well, which indicates that the reasons
>to be skeptical of Keynesian solutions is quite justified.
Yeah, I've been hearing that one for at least 15 years. U.S. imports are about 13% of GDP, so the potential for leakage isn't that great. Like I said in the post to which this is a reponse, I'm no fan of permanent deficits. But countercyclical deficit spending is a very good idea, especially for an economy trying to recover from a burst financial bubble. And while deficits came down during the 90s, they were countered by large household and business borrowing, and overspending out of current income encouraged by the stock market bubble. In other words, the contractionary effects of budget balancing were deferred through private financial exuberance which has left a rather toxic residue behind. Gore's pledge to cut spending in a recession would have driven us in an Argentine direction.
Why do I think that if it were Reps promoting orthodoxy and Dems promoting deficits, you'd be writing about the importance of deficit spending right now?
Doug