Question

[cthulu2016]

How would reducing the federal deficit by $1 billion cause any additional person in the US to be employed?

Really... what is the mechanism?

It is puzzling.

The usual answer was, "Reducing the deficit decreases government competition for credit, making private borrowing easier, and lowering interest rates." And that's awesome. Next time I am in 1995 I'll suggest it.

But there is sharply reduced demand for private borrowing right now so there's no demand for borrowing for the government to "crowd out", interest rates are at record lows for mortgages, the Fed litterally cannot reduce rates any further and the interest rate we have to pay on our debt (US bonds) is the lowest it has ever been.

So what is the mechanism in the real-world we are living in right now by which reducing the deficit will create a single job?

This question intentionally leaves aside the compelling fact that reducing the deficit by a billion dollars will cause many existing jobs to go away. Only the village idiot could believe that reducing the deficit right now can create net jobs, but how is it even supposed to create gross jobs?

[Warpy]

1. Short answer: it wouldn't.

While taking government pressure off the money supply in good economies can allow businesses to borrow in order to expand, this is not a good economy and the effect will be zero. In fact, since they want to slash money that goes directly into our struggling economy, the net result will be a loss of jobs.

What they need to do to take government pressure off the money supply is raise taxes. What they need to do with the increased revenue is create jobs, especially the jobs that repair existing infrastructure and build new infrastructure that industry will need in the next boom.

Deficit and austerity hawks are exactly wrong about the nature of our economic problem and how to fix any of it.