MIKE KONCZAL has a post up that offers a cogent explanation for why many liberals are so concerned with reducing long-term deficits at the moment, rather than concentrating on unemployment. Prioritising deficit reduction over job creation is "an explicit goal for Republicans, so that isn’t a surprise. But why are Democratic, liberal types not worried enough about the demand shortfall and so much more worried about deficits?" It might help, he says, to take a look at the mainstream views of liberal economists before the Great Recession hit in 2008, and he picks an example of a speech given by none other than Christina Romer, one of the architects of Barack Obama's stimulus bill, in 2007. Ms Romer began by bemoaning 1960s conduct of macroeconomic policy, and hailing the shift that took place in the 1980s, which she thought stabilised the economy at low inflation levels and nearly eliminated the business cycle. (So much for that.) But:
...good hasn’t triumphed entirely. At the same time that we have seen a glorious counterrevolution in the ideas and conduct of short-run stabilization policy, we have seen a remarkable lack of progress in long-run fiscal policy. In this area, the legacy of 1960s beliefs is still very much with us and may threaten the long-run stability of the American economy… The consequences of persistent deficits may only be felt over a very long horizon… It is also possible that the effects of persistent deficits are highly nonlinear. Perhaps over a wide range, deficits and the cumulative public debt really do have little impact on the economy. But, at some point, the debt burden reaches a level that threatens the confidence of investors. Such a meltdown and a sudden stop of lending would unquestionably have enormous real consequences…
In other words, Mr Konczal writes, we shouldn't be surprised that liberals are prioritising deficit reduction. That was their priority before the Great Recession hit, and it still plays a big role in their thinking.
What surprises me here is that this needs to be explained at all, or even noted. Deficit reduction has been one of the most central, key liberal campaign platforms for as long as I have been politically aware. The current American political era begins with Ronald Reagan. Since the 1984 presidential campaign, and arguably since the 1980 campaign, Republicans have been running on massive tax cuts, and Democrats have been warning about exploding deficits. This is the basic structure of American partisan politics. It has been upended over the past two years because we've experienced an economic collapse on a scale not seen since the Great Depression. But it really shouldn't be surprising that Democratic politicians who have come of age over three decades during which the size of the deficits created by Republican tax cuts has been a constant theme of attack would be supportive of cutting the deficit. Walter Mondale campaigned on cutting the deficit, Mike Dukakis campaigned on cutting the deficit, Bill Clinton campaigned on cutting the deficit, Al Gore campaigned on creating a "lock box for Social Security" so the surplus wouldn't be wasted (again: so much for that), John Kerry campaigned on cutting the deficit, and Barack Obama campaigned on how irresponsible it had been to blow up the deficit over the previous eight years. Why would anyone be surprised that Democrats consider cutting the long-term deficit to be an extremely important goal?
http://www.economist.com/blogs/democracyinamerica/2011/06/deficit-reduction?fsrc=scn/tw/te/bl/thenonmysteriousnessofliberalsupport
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