Deficits, Interest Rates and the Economy
The NYT has a lengthy front page article telling readers that President Obama wants to structure his health care reform package in a way that does not raise the deficit. It cites Robert Greenstein, the head of the Center for Budget and Policy Priorities (who is not an economist), saying that: "There’s a concern that if Congress were to pass a big health care bill that was heavily deficit-financed, financial markets could react negatively, with higher interest rates that could deepen the recession.”
Actually, it is almost inconceivable that any possible impact of a boost to the deficit from health care reform would have such a large effect on interest rates as to hurt the economy enough to offset the help that any increase in the deficit would provide to the economy. It is implausible that President Obama's advisors actually believe this. It is plausible that they believe that they could suffer political harm from raising the deficit, since many Republicans and media outlets like the Washington Post and Fox news will attack him for it.
The NYT should have found an economist to explain the relationship between deficit spending and economic growth in the context of a severe downturn like the one we are currently experiencing.
--Dean Baker
No comments:
Post a Comment