Feature

Business columns: In defense of the deficit

The government and the banks are essentially the only two entities “with the power to create something out of nothing,” and right now, the government is the only game in town, said James Galbraith in The Nation.

James Galbraith The Nation

Washington is having one of its periodic outbreaks of “deficit phobia,” said James Galbraith. President Obama recently appointed a bipartisan commission that will, in due course, “deliver an attack on Social Security and Medicare dressed up in the sanctimonious rhetoric of deficit reduction.” He has also proposed a spending freeze—“another symbolic sacrifice to the deficit gods.” Let’s hope these efforts fizzle out. The stark economic truth is that government spending and private lending are the primary generators of economic growth.

Look at it this way: The government and the banks are essentially the only two entities “with the power to create something out of nothing,” and right now, the government is the only game in town. And until the economy starts generating more jobs, the American people—the unemployed, the underemployed, and even the employed—will continue to be ravaged by economic insecurity. Lowering the deficit is fine as a long-term goal. But doing so “without first rebuilding the engine of the private credit system” could “destroy the economy, or what remains of it.” 

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