A quick take on the budget deal that has been reached.
- We are not presently in a recession. The NBER, the official recordkeeper on the business cycle, says so. Consequently, by definition we are not in a recession.
- We’ve been in a tepid recovery since June 2009, before disbursement of money under the America Reinvestment and Recovery Act (stimulus package) took place. That means that the ARRA played at most a minor role in preventing a “double dip” recession.
- It’s more likely that it “time shifted” some economic growth which meant that growth was slower in the period from which the time shifting took place than otherwise might have been the case.
- Debt burden has probably played a part in slowing U. S. economic growth.
- According to the CBO the new budget deal will probably result in a deficit of nearly $1 trillion in 2018.
- Since we’re not in a recession, there is no shortfall in aggregate demand and for the additional deficit spending to increase future growth it would need to be invested. Business investment has been slack for quite a while.
- The increase in the deficit will definitely increase debt which will provide additional headwinds against growth.
- It could be that other factors will outweigh those headwinds.
Or, said another way, I don’t think that deficits are always bad or always good but somewhere in between, dependent on circumstances. We’re now engaged in a great experiment in deficit spending and indebtedness. I hope it turns out well but I fear it won’t.