Do Deficit$ Matter?

Do Deficit$ Matter?

Do Deficit$ Matter?

Do Deficit$ Matter?

Synopsis

Do deficits matter? Yes and no, says Daniel Shaviro in this political and economic study. Yes, because fiscal policy affects generational distribution, national saving, and the level of government spending. And no, because the deficit is an inaccurate measure with little economic content. This book provides an invaluable guide for anyone wanting to know exactly what is at stake for Americans in this ongoing debate. "[An] excellent, comprehensive, and illuminating book. Its analysis, deftly integrating considerations of economics, law, politics, and philosophy, brings the issues of 'balanced budgets,' national saving, and intergenerational equity out of the area of religious crusades and into an arena of reason. . . . A magnificent, judicious, and balanced treatment. It should be read and studied not just by specialists in fiscal policy but by all those in the economic and political community."--Robert Eisner, Journal of Economic Literature "Shaviro's history, economics, and political analysis are right on the mark. For all readers."--Library Journal

Excerpt

Few topics in American politics are more discussed and less understood than the federal budget deficit. We frequently hear that deficit reduction is vital to our prosperity, but we rarely hear why this might be so. The deficit is blamed for all manner of economic ills, ranging from high interest rates to unemployment to the trade deficit to the low rate of national saving to low productivity growth--whichever seems most crucial at the moment--but little attention is paid to why it might have any of these effects.

The near unanimity in public discourse about the evil of deficits might seem to suggest that economists are similarly unanimous. In fact, however, they disagree fundamentally about whether deficits matter and, if so, then why. They have been debating these issues for more than two centuries, with consensus occasionally emerging but not persisting. Over the past twenty-five years, the deficit debate among economists has grown increasingly discordant, reflecting the issue's increased prominence, the growing size of reported deficits, and the collapse of 1960s Keynesianism.

Despite the scope and intensity of this debate, no one has ever published a serious, comprehensive study of budget deficits' economic and political significance. Economists generally do not focus on more than one or two of the main issues that we will see deficits pose, nor do they explore the relationships between the issues. They also mainly ignore the question of how deficits affect the level of federal spending, although this is a key part of the national political debate. Moreover, their work is sometimes marred by partisanship of the Left or the Right, or by the impulse to stake out a public stance like a cam paigning . . .

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