Keynesian loving nonsense follows. You have been warned.
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In truth, today’s deficit hawks are nothing more than zealots — poised again to preach their nonsensical theology that government deficits are dangerous and need to be cut, without honestly explaining the full consequences of their recommendations. If households attempt to net save by spending less than they are earning, and businesses attempt to net save (reinvesting less than their retained earnings), then private sector incomes and real output will decline absent an increase in government spending. The danger of premature fiscal tightening was illustrated in the US in 1936-37, when the ending of a war veterans’ bonus and the introduction of Social Security taxes helped push the US back into recession when recovery from the Great Depression was far from complete.
The deficit terrorists only begrudgingly note (if at all) that absent the absorbing role of budget deficits over the last couple of years, we would have had a full Great Depression experience. Government deficits, as Paul Krugman has noted on numerous occasions, saved the world from a much more calamitous experience, yet these deficits are still characterized as something like Norman Bates’s murderous “mother” in the attic of Bates Motel, ready to destroy our helpless population under the nefarious guise of “socialism” or worse. The phobias created by supposedly apolitical organizations such as Pete Peterson’s Concord Coalition or the tea party brigades intimidate policy makers into modifying their fiscal responses to the point where they are insufficient to fill the spending gap left by private sector withdrawal.
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