The Corner

Krugman Vs. Barro Vs. Bartlett

A worthwhile voice to consult on these economic controversies is my AEI

colleague John Makin, whose monthly Economic Outlook (available here) is widely read, in

part as John calls the macro shots for some very successful hedge funds.

In his most recent Economic Outlook, “As Good As It Gets,” John argues

thus about the deficit:

“The loudest cries of criticism have been reserved for the sharp

transition from a U.S. budget surplus of over $200 billion in the 2000

fiscal year to a $380 billion deficit in 2003. Conservatives and

liberals alike are already decrying an expected budget deficit of $500

billion in the current fiscal year. Criticism of rising budget deficits,

an old habit among would-be policy wonks trying to sound profound and

prudent, is just silly at this point. It would be like criticizing

firefighters for pumping half the water out of a pond to put out a fire.

Sure, there is less water in reserve for another fire, but why have the

water there in the first place if you don’t intend to use it to put out

fires? Going from a budget surplus of 2 percent of GDP to a deficit,

still below 4 percent of GDP, is appropriate in an economy with excess

capacity, especially when much of the swing comes from two rounds of

demand-boosting tax cuts that simultaneously improve resource


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