Sunday, February 7, 2010

Deficits Don’t Matter

At least that’s what John Cassidy writes in the New Yorker, The Return of the Rosy Scenario. Winston Churchill, Dick Chesney, and Victor Zarnowitz also professed a benign neglect for projected deficits, and rightly so.

The reasons? Deficit forecasts are notoriously unreliable (the Cassidy thesis). Reagan proved that deficits don’t matter (the Chesney thesis). Dire deficits forecasts are a necessary part of any political adjustment process (the Churchill thesis). And all forecasts are acutely sensitive to the economic assumptions that underpin them, especially the economic growth rate (the Zarnowitz thesis).

The punch line: enjoy.

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