The President is Right About Faster Growth Shrinking the Deficit

April 15th, 2013 at 3:52 pm

As I noted here, and despite the current dominance of austerity budgeting, President Obama made an important point when he released his budget last week when he asserted that “…nothing shrinks deficits faster than a growing economy.”

Just a one percentage-point increase in real GDP at a time like this–when we’re still below potential and the Federal Reserve isn’t about to snuff out new growth–lowers the 10-year deficit by $86 billion (see Table 2-5 here).  There’s the initial boost in added revenues that the extra GDP growth spins off, followed by lower interest payments.

Or, you can just go with what Jung (I think) described as neurotic behavior: even though it’s not working, just keep doing the same thing and hope the results turn out differently.

 

def_less

Source: OMB Analytical Perspectives, Table 2-5.

 

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2 comments in reply to "The President is Right About Faster Growth Shrinking the Deficit"

  1. James Scott says:

    Hard to see how the President’s budget, with all of its social insurance cuts, will help grow the economy. By the way, I’ve heard the Jung quote commonly attributed to Einstein (as the definition of insanity), but a quick Google search says it was also Ben Franklin, Rita Mae Brown, Alcoholics Anonymous, and an old Chinese proverb. At any rate, we’re far from doing what’s needed, according to Winston Churchill (supposedly): “You can always count on Americans to do the right thing – after they’ve tried everything else.”


  2. Pablo says:

    What has Obama done to promote growth? Higher taxes? ObamaCare? Dodd Frank?


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