how bad a thing is this fiscal profligacy?
it means higher debt, which will in turn reduce the “fiscal space” for responding to the next crisis. It will also crowd out investment, hurting long-run growth.
.. I’ve been seeing some people suggesting that rising deficits are going to hurt the economy in the short run, perhaps even cause a recession. Will they?
.. lot of policymakers bought into the doctrine of “expansionary austerity,” in which slashing government spending in a depressed economy would somehow lead to a big rise in private spending. But this doctrine, as I wrote at the time, depended on belief in the “confidence fairy”
- belief that somehow consumers and investors would be so reassured by the government’s willingness to inflict pain that the economy would surge.
.. why will the blowup in the deficit cause the Fed to raise rates? Precisely because it will tend to make the economy grow faster in the short run, raising the perceived risk of inflation, and the Fed will raise rates to head that risk off.
.. it will limit the magnitude of the expansionary effect, not turn it into contraction.
.. the G.O.P.’s fiscal behavior has been hypocritical, irresponsible, and reprehensible. But it won’t cause a recession.