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Budget Deficit Alarmism Is Sabotaging Growth

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  • Thomas Palley

Abstract

Fiscal conservatives are using the recession-induced spike in budget deficits to revive fiscal austerity, which is based on flawed economic analysis and is not supported by thoughtful budget analysis. Although the need for deficits to provide short-term Keynesian fiscal stimulus is recognized, there is little understanding of the mediumterm need for budget deficits to facilitate private-sector deleveraging and to restore growth. The U.S. economy needs a new engine of growth, and deficit-financed public investment can play an important role. The fiscal austerity agenda risks creating a "vicious" circle in which austerity slows growth, necessitating further austerity.

Suggested Citation

  • Thomas Palley, 2011. "Budget Deficit Alarmism Is Sabotaging Growth," Challenge, Taylor & Francis Journals, vol. 54(1), pages 6-31.
    • Handle: RePEc:mes:challe:v:54:y:2011:i:1:p:6-31
    DOI: 10.2753/0577-5132540101
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