The US budget deficit - What is to be done?

Here it is, the reality:

Deficits in the hundreds of billions of dollars, as far as even the lying Bush White House can figure it.

A gross federal debt that amounts to more than a third of annual GNP, with no plan to pay it off. Ever.

It's funny how this issue has gone from being a conservative issue to being a liberal issue, but it's really a result of conservatives not really understanding Keynesian economics. Keynesian spending policies are supposed to be countercyclical. When the business cycle is going down, you run a deficit to stimulate the economy out of the recession. (The exact mix of fiscal (spending) and monetary (money supply, i.e. interest rate) policy is a matter of policy, but the role of the government in stimulating the economy out of a recession is accepted by most economists these days.) When the business cycle is on the upturn (what used to be popularly referred to as "good times") the government should run a surplus to take some of the 'irrational exuberance' out of the economy and cool it down. That's what BIll Clinton was doing during the 1990s boom. Say what you will about Bill, but he was an economic policy wonk.

There's a new kind of "vulgar Keynesianism" on the right (apologies to vulgar Marxists) that has resulted in the assumption that deficits don't matter. This new conservative orthodoxy represents a fundamental misunderstanding of what modern Keynesian economics and its countercyclical policies are all about. These people may understand the microeconomics of running a business enterprise (although Bush doesn't), but they do not understand the macroeconomics of running the American economy.

Someone else asks "Are conservatives naïve or just plain stupid?" I wonder myself, but I think that either way what this really means is that conservatives (or most of them) just don't understand modern Keynesian economics. I honestly would like to make survey macroeconomics a required course in American universities. But back to economic policy.

I can only see four ways out of this. There's not enough fat in the budget to cut, and ending foreign aid won't solve this.

Oh, and don't even THINK about not paying it. The 14th Amendment says you can't even QUESTION the national debt.

1. Throw out the Defense Department. There's enough expenditure there to balance the budget, but there goes America's stature as a world power. There goes the safety of Americans in the world, I would say. It would be effective national suicide.

2. Drop Social Security. That seems to be Bush's preferred solution, but he can't get any traction for it. Fuggedaboutit.

3. Print money. This one doesn't get much attention because of the US's bad experience with inflation in the 1970s. I wouldn't favor it, but you could pay off the debt by printing money. As more and more of this debt is held overseas, this may become a more and more popular solution. But it would wreak havoc on the economy, and it would be VERY difficult to get the effects out of the economy. Just ask anyone in Latin America.

4. Raise taxes. I mean, honestly, they shouldn't have been cut in the first place. This administration's solution to everything is to cut taxes. It's time to get real about the economy. We have to repeal the Bush tax cuts. Then we have to figure out what to do about the economy, which may involve raising taxes even higher to pay for the accumulated debt. Of course the details will depend on the business cycle, not to mention policy considerations, but it's time to stop worrying about being called a "tax and spend" liberal. It's better than being a "spend and spend and spend" conservative.