10/03/2012 11:51 am ET Updated Oct 03, 2012

The Trillion-Dollar Deficit: Eight Reasons Why We Shouldn't Sweat It

As the fiscal year comes to a close, President Barack Obama is facing another trillion dollar deficit, and he likely will be called upon to address the topic during Wednesday night's debate with Republican presidential nominee Mitt Romney. Romney, his running mate Rep. Paul Ryan (R-Wis.), and their Republican allies in Congress have been hammering away at Obama on this issue for months. If Romney's people is to be believed, we should be very worried about the debt. But should we believe them? We spoke to five economists who gave us eight reasons why we shouldn't.

It's The Economy

"First off, you have to put the federal budget in the context of the U.S. economy," said Andrew Fieldhouse, the federal budget policy analyst for the Economic Policy Institute. The economy is not doing so great, and when unemployment is high and growth slow, it stands to reason that the government should have to borrow a lot of money in order to make up for the lost tax revenues.

It's not that we should never be worried about deficits. Dimitri Papadimitriou, president of the Levy Economics Institute of Bard College, put it this way: "When you are at the boom and at full employment, that is the time to worry about the deficit." Of course, as he noted, "We are not at the time of boom."

When The Economy Is Bad, Debt Is Good

This may seem counterintuitive, but many economists argue that in times of weak economic growth, debt is actually a good thing. "Let's suppose the deficit goes up because the government decides to engage in some infrastructure project, as they did with the 2009 stimulus bill," said Steve Fazzari, the associate director of the Weidenbaum Center on the Economy, Government, and Public Policy at Washington University in St. Louis. "The government employs more people, creating 100 billion dollars of new income, and these employees save part of it and spend part of it, and the money keeps running around the system until there's enough savings created to offset the government borrowing."

Granted, this only works when a lot of people are out of work, as Fazzari pointed out. If unemployment were low and the government spent a few billion on highway repairs, say, private-sector employers would have to offer higher wages to retain their workers and that could be bad for business. But, with unemployment at 8.1 percent, Fazzari said he's sure that we are still "very far away from that horizon."

The Greek Myth

When you're an economist named Papadimitriou you get a lot of questions about the economic situation in Greece, even if you haven't lived there in years. Papadimitriou tells people who wonder whether the U.S. is going the way of his homeland: "I know enough about Greece to know that it's totally different."

People don't like lending money to Greece for the obvious reason that Greece isn't in a good position to pay them back. This is partly because Greece uses a foreign currency, the Euro, and is therefore unable to print more money to settle its debts. By contrast, if another country lends the U.S. a big chunk of money, it can always pay it back by printing more dollars. As a result, investors like lending to the U.S., and that keeps interest rates down. Many conservative pundits argue that the deficit could drive up interest rates, but all five economists interviewed by The Huffington Post said they see little danger of that happening any time soon. Indeed, despite several years of the largest deficits since World War II, interest rates on government bonds remain extraordinarily low.

So How About Inflation?

But wait -– if the U.S. keeps printing money to settle debts, won't that lead to inflation? "A view of the world that a lot of people hold is that if you create money, you necessarily have to create inflation," Fazzari said.

But that's not the case, he added. Inflation generally involves one of two factors: either business costs increase or consumer demand surges, prompting businesses to raise their prices. With wages sinking and the unemployment rate barely budging, however, consumers aren't exactly beating down the doors of American businesses. And the prevalence of low wages means that businesses aren't compelled to raise prices in order to keep up with costs.

The Empty Mall Factor

Even in Washington, D.C., which has fared relatively well compared with places like Detroit and Cleveland, "there's no shortage of places where you see stores for rent, office spaces for rent," said Dean Baker, co-director of the D.C.-based Center for Economic and Policy Research.

Some conservatives argue that if the U.S. lowered the deficit, it would prompt investors to lend to us at even lower rates, and that, in turn, would give entrepreneurs more of an incentive to build houses and start businesses. But that would only work if there weren't already a lot of empty houses and vacant storefronts. "Large sectors of the economy have huge amounts of excess capacity," Baker said. "You can't tell the story that if you lower your interest rates people will go out and build another mall when you already have a lot of malls sitting empty."

Medicare Costs Are Not The Problem

While it's true that Medicare costs are rising, that doesn't mean that the only way to bring them down is to cut the program's budget. "We have to fix the health care system," said Baker. He suggested doing away with patent protections that cause drug prices to multiply. "This is like Intro Econ," he said.

One Trillion Dollars Is "Just A Really Big Number"

When you hear that the U.S. owes a trillion dollars, that sounds scary. But what if it only owed a half a trillion dollars? That would also be terrifying. Numbers that big boggle the mind, and according to Baker, that's why pundits keep harping on them. "No one in the country knows what a trillion dollars of debt means," he said. When you raise alarms about those numbers without putting them in the proper context, "you're not communicating to people, you're just scaring them." Politicians should express the debt as a percentage of gross domestic product, he said. As it stands, the deficit is roughly 6 percent of GDP -- not nearly as frightening.

Worrying About The Deficit Is Bad For The Economy

The most basic reason not to worry about the deficit, according to all of the economists interviewed for this story, is that those fears could lead to choices that would put the U.S. in an even worse bind.

"What I oppose, because it's false," said James Galbraith, a professor of government at the University of Texas, "is the notion that the deficit either can or should be reduced by cutting public spending and especially by cutting back on basic social insurance programs -- Social Security, Medicare and Medicaid -- that protect the entire population from destitution. Actions of this type inflict unnecessary harm on vulnerable people, and they also have no ultimate effect on the deficit. If you cut people's incomes, you will hurt the economy."