Posted by Simon Johnson got it wrong in an opinion piece for Bloomberg today –
Discussing the 10tn swing in CBO deficit forecasts between 2008 and 2011, he asks: “what caused this stunning reversal”
And answers: “Almost all of this increase is due to the severe recession that followed the financial crisis of late 2008. This lowered output and employment, and therefore reduced tax revenue.”
Sorry Simon, that’s wrong – as you can see above, it’s because spending is too high. The problem is that Obama’s budget ‘locks in’ the spending binge — sure … it was worth it at the time to prop up demand but let’s be honest about what’s going on here …
ricardian ambivalence 