Cheer, because they reflect a newfound determination to rein in the rapidly growing deficits embedded in the post-1998 baseline budgets. Cry, because both the words and the music reveal a fundamental misunderstanding of what purpose deficit cutting is meant to serve. Much of the harm will be visited on people who are poorly placed to withstand it. The object of deficit cutting is not to save the government money, or even to enable it to pay its bills without borrowing. We contrive to make money scarce.
Inflation comes into consideration to the degree that it affects production and distribution.
But during the next decade or so, U.S. policymakers will face another task as well, having to do with the composition of spending. Since the early '70s, productivity and real income have grown, on average, very slowly. This is where deficit cutting comes in. What combination of federal tax and spending measures we adopt to bring about the desired curtailment of consumption should depend on the balance we wish to strike between personal consumption and the provision of public services, and, ultimately, on whose incomes and consumption we wish to curtail. Deficit cutting, if not accompanied by steps to offset its negative effect on total spending, will in the short run shift workers and capacity from producing consumption goods and public services mostly into unemployment and non-use.