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).
For 60 years (!) the pattern has held. When unemployment drops, the deficit as a percentage of GDP drops. When unemployment rises, the deficit rises.
So now let's break this down further, to address the idea that we need to increase revenue as a percent of GDP, which is undeniably true if we want to prevent the national debt from growing. The answer there is, once again, improve the employment picture (i.e., increase growth).
This chart shows revenue as a percent of GDP (red line) vs the unemployment rate (inversed).
The chart isn't quite as pretty, but as you can see, the primary driver of how much revenue we get as a percent of GDP is unemployment. Want to get the red line up closer to 0.18? That will take getting the blue line closer to 6 percent.
It's the same deal with the spending side.
This chart shows spending as a percent of GDP (red line) vs. the unemployment rate (blue line). Want to get the red line down to its historical range closer to 22 percent of GDP? Improve the unemployment rate! This makes total logical sense, of course, since lower unemployment implies reduced spending on all kinds or programs.
These charts showing the connection between the unemployment rate and the deficit (and the drivers of the deficit) are especially powerful when you consider that they've held firm through a variety of different tax regimes.