Deficit Reduction Equals Recession
The math is not difficult. The US has an annual GDP of $14 trillion, and the nation’s current $1 trillion in annual deficit spending is seven percent of its GDP. Growth in GDP has recently been running at about two percent annually (though in the last quarter of 2012 the economy actually contracted slightly). The relationship between deficit spending and GDP growth may not be exactly 1:1 but it’s probably quite close. The conclusion is therefore inescapable: doing away with a substantial portion of deficit spending would reduce GDP by a roughly corresponding amount, almost certainly causing the economy to tip over into recession.
© 2013 Post-Carbon Institute