Fiscal Cliff Deal Not Reached, Leaders Agree To Continue Talks

There's Only One Way To Fix The Deficit — And Actually It's Totally Painless

People who insist that the US has a gigantic "spending problem" are ignorant of what really drives the deficit and the national debt, as Henry Blodget easily demonstrated in a series of charts.

Closing the deficit is not just about lowering spending, relative to GDP, but also about increasing revenue from our very low levels.

So how is that accomplished?

When people talk about the deficit, they almost always use the "pain" metaphor.

In almost any op-ed extolling the wisdom of the Simpson-Bowles plan, it's pointed out that we're going to need to take some pain. Obama has said that the Federal Government needs to tighten its belt, which is something that is painful. Conservatives say the government needs to go on a diet. Diets are painful. A recent USA Today headline was very standard: "Nation's soaring deficit calls for painful choices."

It's understandable why the pain metaphor is so popular. One, it's logical to think that the answer to big deficits is cuts, and cuts are painful. More importantly, it appeals to an innate sense that pain is frequently a long-run redeeming thing to experience. You go to do Crossfit, and you feel pain. But then pretty soon you're a beast that's never felt better. Some religious people used to mutilate their own flesh to show proper respect to The Lord.

So this is just a popular idea: Take the pain now, be redeemed.

The good news is that in economics and when talking about the deficit it doesn't need to work that way! Fixing the debt is painless!

That's because the primary driver of deficits is a lack of growth.

A chart that everyone needs to have seared into their brains is this one, which shows the deficit as a percentage of GDP (red line) vs. the unemployment rate (blue line).


Read more: http://www.businessinsider.com/closing-the-deficit-is-painless-2012-12#ixzz2GTqFc2nR

Read the Article at HuffingtonPost