There is a recent precedent for this debate. Back in the mid-1990s, most economists believed that the unemployment rate could not get below 6.0 percent without creating serious problems with inflation. They wanted the Fed to raise interest rates to keep the unemployment from getting much below this level.
This group included the economists at the Congressional Budget Office (CBO). In 1996 it projected that the unemployment rate would be 6.0 percent in 2000. It also projected that the budget deficit would be 2.5 percent of GDP in 2000.
Federal Reserve Chair Alan Greenspan disagreed with this view. He saw no evidence of inflation and therefore was content to allow the economy to continue to grow and the unemployment rate to fall. As a result of his position as Fed chair and his stature, he got his way. The unemployment rate fell to 5.0 percent in 1997, 4.5 percent in 1998, and was 4.0 percent as a year-round average in 2000.
So, the CBO was full of shit, are they ever accurate? No.
What we see is steady inflation at 2.5% and a reduction in the deficit and higher federal multipliers because of the reduction in the deficit. And in 1998, the deficit continued to reduce until we had a surplus and federal multipliers remained high.
But this is exactly the opposite of what Dean Baker want. He wants high deficits! Why is he arguing a case where lower d3ficits worked.
He says elsewhere:
Deficit cutting has become the common 'wisdom' of economic policy wonks in DC. But it can't muster one rational argument
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