Worse, when deficit is particularly severe, it can cause many people to experience a fear/panic reaction that supercedes higher reasoning abilities, and they consequently are more amenable to concessions they would never make under more normal circumstances.
This creates an unfortunate incentive for those in power to arrange for conditions likely to cause short-term economic shocks that will cause the desired emotional reaction without damaging long-term profits -- the financial equivalent of shock and awe tactics.
Regardless of whether such shocks were deliberately engineered, their occurrence has been used successfully (from a financial elite point-of-view) in a number of places. Attempts to do this in the United States in the wake of the 2008 financial meltdown were only partially successful, as the Obama administration took power at a crucial moment during the most recent major crisis and responded with economic stimulus rather than strict austerity measures. As a result of this, the US economy has recovered much better than in countries such as Greece and Spain where austerity measures were implemented instead.
Despite this recovery, and corresponding reductions in the deficit, the alarmist claims continue and are often repeated in blogs and social media as justification for continuing cuts to infrastructure and social programs. Countering these claims therefore becomes of paramount importance, so that these mistaken beliefs will not propagate and result in the election of leaders who will implement the austerity measures desired by the powerful -- which would benefit them, but harm most everyone else directly or indirectly.
In order to understand why current debt levels in the United States are not a cause for alarm, it is necessary to be aware of the following:
- When trying to determine whether debt is excessive or not, the figure to watch is the ratio of debt to GDP.
- In particular, it is a matter of concern if this ratio is high and increasing. If it is going down, and projected to continue to do so, then it's fair to describe the debt as "under control".
- Reducing a deficit too quickly can result in long-term economic downturns, making it much harder to reduce over the long run.
- While the US's ratio is high (70%), it is not extraordinarily so.
- Current laws (as of 2013) are projected to reduce it still further (58%) by 2022.
- As of February 2014, the deficit has already been falling steadily since 2009 -- whether you look at ratio or absolute dollars (although it is expected to worsen for a few years after this due to various factors).
- The austerian prediction that debt levels over 90% of GDP would ultimately lead to economic disaster turned out to be based on a spreadsheet error.
- There is therefore no reason to panic about current deficit levels.
Further, the actions usually recommended by deficit hawks are likely to make debt worse, not better:
- The best way to reduce deficit is to improve the economy.
- Spending cuts which hurt the long-term health of the economy are therefore not just unnecessary but actually harmful -- like eating your seed corn to save money.
- Many of the people now attempting to enhance public concern over debt levels are the same people who spent the Clinton surplus during the Bush years, and who refuse to raise taxes on the rich (which would be helpful both towards reducing the deficit and towards lessening income disparity, itself a serious and growing economic and social problem).
- We should therefore regard such claims with high levels of cynicism, and look for other evidence to determine the truth.
The "debunking" points were originally posted here as part of a debate with someone who maintained that the crisis is real; as of 2014-08-24, there has been no response.