Article • Dean Baker’s Beat the Press
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He again used his weekly Washington Post column to tell us this. Somehow, our budget deficits are supposed to be a “high-stakes gamble,” although he really has no explanation as to how or why.
The standard economics story on why deficits are supposed to be bad is that they lead to high interest rates, thereby crowding out investment and slowing growth. Alternatively, if the Fed is lax and offsets the impact of the deficit by printing money, then the deficits lead to high inflation.
Fans of data know that neither is the case at present. Long-term interest rates are extraordinarily low, with the 10-year Treasury bond rate hovering near 1.6 percent. It was close to 5.0 percent when we were running budget surpluses under Clinton. Inflation is also low, coming in consistently below the Fed’s 2.0 percent target.
So file this one in the “Robert Samuelson doesn’t like budget deficits” box, right next to the “Dean Baker doesn’t like chocolate ice cream box.” Perhaps it is of some passing interest, but not the sort of thing serious people need to worry about.