Federal Deficit

What will the Republican party do now?

In case you missed it, we learned today that the Federal deficit has now shrunk back to $680 billion, the level it was in 2008. That means it dropped over $400 billion, or about 37%, in 2013 alone. This is the most aggressive budget correction in US history, apart from the drop seen just after World War II as they US shifted from a war footing. Oh, and the Congressional Budget Office is predicting it while drop even further in 2014.

Curmudgeons like me would argue that the decline has been too rapid and that the economy is suffering from too little demand as a result, but the real problem is for those who have made a case for massive cuts in entitlements in order to control the ‘runaway’ budget. We never needed those cuts. We still don’t. And won’t any time soon.

So what are they to do?

Here’s the strange thing: the shift seas entirely predictable. Revenues are recovering because total income has risen and so tax revenues have grown – nearly 13% in 2013 alone. At the same time there has been an entirely predictable tailing off in crisis oriented government spending. So the vicious squeeze on the budget that the crisis caused has begun to unwind by itself.

Just like we said it would.

Which is why the focus should have been, and still ought to be, on growth.

That won’t happen because of the Republicans, but at least their main talking point has been revealed as vacuous.

As I said: What will they do now?