The Keynesians: Sure, the U.S. government is running budget deficits of more than $1 trillion per year, while the total national debt sits at more than $16 trillion. But for many economists, these numbers aren’t the most pressing problems our economy faces — not by a long shot. For Keynesian economists Dean Baker, Paul Krugman, and Brad DeLong it’s the unemployment rate, now at 7.7%, that should worry us most.
So it was frustrating for them to see that both Congressional Republicans and President Obama appeared to want to see deficit reduction as part of a broader fiscal cliff deal. We did kinda sorta see – depending on how you look at it – some long-term deficit reduction. According to the non-partisan Committee for a Responsible Budget, the fiscal cliff deal shaves $650 billion from the ten-year deficit when compared to current policy. But, again, Keynesians would like to have seen more government spending, not less. In addition, while the deal did extend unemployment insurance benefits for another year, it failed to extend the payroll tax cuts, which will raise taxes by 2% on the first $110,000 a worker earns. That hits many of the folks most likely to spend their marginal dollars.