Why have so many Americans – including politicians and media – bought into the narrative that our economic problems stem from an out-of-control budget deficit? Because an entire deficit-cutting industry has grown up in recent years, bent on selling the false story that America must get its fiscal house in order? It began with Ross Perot’s third party in the 1992 election and continued through Peter Peterson’s institute and other think tanks funded by Wall Street and big business. It was embraced in the late 1990s and earlier this century by government-haters in the Republican Party and the eat-your-spinach deficit hawk crowd among Democrats. And it culminated in the Simpson-Bowles Commission that President Obama created in order to appease the hawks but which only legitimised them further. Deficit mavens routinely warn that unless the deficit is trimmed, we’ll fall prey to inflation and rising interest rates. But there’s no sign of inflation anywhere. The world is awash in underutilised capacity. As for interest rates, the yield on the 10-year Treasury bill is now lower than it’s been in living memory.
© The Financial Times Ltd 2014 FT and 'Financial Times' are trademarks of The Financial Times Ltd.