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Goose the Economy or Worry About the Deficit: An Either-Or Choice?

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A single day in Washington this week would tell future historians all they needed to know about the preoccupations of our time.
That day would be Wednesday, with an agenda that included at least three think-tank discussions about the national debt, a public meeting of the National Commission on Fiscal Responsibility, a public meeting of the Financial Crisis Inquiry Commission, a press conference conducted by desperate governors pleading for federal help, a foreclosure auction, an alarming new poll, an even more alarming new estimate of long-term debt, a fourth Senate attempt to extend unemployment benefits and, two days before what is expected to be a terrible June jobs report, a president on the road talking about the economy.
All of this is intertwined, not just economically but also politically. The players have manned their battle stations at opposite ends of the ideological spectrum. From the left, we should spend money to help 15 million jobless workers and to stimulate the economy. From the right, we should stop adding to a deficit that's now projected at $1.4 trillion and a cumulative debt heading for a way-above-average 62 percent of the U.S. economy by the end of this year.
But what about those of us who badly want to help the unemployed and just as badly want to stop borrowing against the future? Is there a way to do both?
Leaders at the G-20 conference in Toronto sent a definitive no-new-stimulus message and called on everyone to stop spending. It struck me as a setback for President Obama. Far from having ammunition to press Congress for more stimulus spending, he would, in fact, be hindered by the pressure to focus on deficit reduction. But I'm evolving, to the point where the spending explosion is converging metaphorically with the oil spill. Whether it's oil or red ink, you can't make significant headway until the spewing stops.
So it doesn't make me feel any better to hear Obama say, as he did Wednesday in Racine, Wis., that our big problem is not the emergency steps we took last year, it's what will happen if we don't "change how we do business medium and long term" on Medicare and Social Security. The short-term is unnerving enough.
One problem in evaluating the arguments for and against continued deficit spending, at least for a little while, is that the two sides rely on different historical moments for backup. A touchstone for spending proponents is 1937, when Franklin Roosevelt concluded the Great Depression had abated and he could cut back federal help. What followed was a second downturn that lasted until the economic revival generated by World War II. Ten governors raised a similar specter Wednesday in pleading for Medicaid help that the government promised, but thus far has been unable to deliver. "Now is not the time to risk the progress that has been made," Colorado Gov. Bill Ritter said.
A corresponding reference point for the right is Europe, where looming fiscal doom in Greece, Spain, Portugal, Ireland and elsewhere is now breeding austerity. Recent history shows that ignoring long-term debt projections in favor of increasing spending and deficits "has not worked in Europe," says Stuart Butler, vice president of the conservative Heritage Foundation. The British-born economic policy expert, speaking at a breakfast sponsored by a consulting firm called the Raben Group, added that "I spent my first 30 years in Europe. There's nothing new about the discussion now that we didn't hear then."
The argument has played out depressingly on the battleground of the Senate, where a fourth attempt to extend unemployment benefits for the long-term jobless failed this week. The main disagreement has been over whether and how to offset the spending with cuts or revenues. Some Republicans want to use money from last year's $787 billion recovery act. Sen. Scott Brown (R-Mass.) introduced a bill Wednesday to do just that with $37 billion in stimulus money that he said is "just sitting in a Washington slush fund."
The Recovery.gov website shows that about $500 billion in recovery money has been announced or paid out. That figure includes loans, grants, contracts and entitlements through June 18 and tax relief through March 31; it will jump higher in two weeks when the second-quarter tax relief number is in. So what about the rest of the money? Why not use it for safety-net programs such as jobless benefits and Medicaid? You can argue that they stimulate the economy because they put money in the hands of people who spend it for goods and services.
But liberals counter that spending should not be kept level, that the economy needs a large cash infusion. As AFL-CIO president Richard Trumka put to the president's deficit commission, in a scene that embodied the clash of imperatives if not civilizations, "In the short term, we have a jobs crisis -- not a debt crisis."
The jobs crisis is pervasive and cannot be minimized. Recent polls show jobs topping the deficit when it comes to voter concerns. The latest is a poll of 2,553 voters released Wednesday by NDN, a centrist Democratic think tank. Nearly two-thirds in the survey, conducted by the non-partisan research firm Magid Associates, said jobs and the economy are a critical issue. That compares with 50 percent who said that about federal spending and the national debt.
A startling new Pew Research Center poll paints a stark picture of what the country has endured. People have lost wealth, curbed spending and lowered their expectations. Perhaps most telling, 55 percent of U.S. workers have experienced one or more recession impacts such as reduced work hours, pay cuts, forced unpaid leave or an involuntary move to part-time work.
There is no question that the country needs more jobs, and fast. The White House has so far paid no attention to liberal calls for public works and jobs programs like those instituted by Roosevelt and Jimmy Carter. The Senate can't even pass a simple extension of unemployment benefits, because of wrangling over whether they should be paid for or just added to the deficit.
Here's what I'd do if I ran Washington. I'd order up new federal spending to help the country get through the recession -- help for states to continue paying teachers and cops, help for the jobless and those without health insurance, help for state Medicaid programs, whatever is needed to avoid what California Gov. Arnold Schwarzenegger on Wednesday called the "unfair, devastating consequences" of shredding the safety net at the time it is needed most. I'd also invest in a jobs program -- to repair our infrastructure, to make us competitive with France and other countries on high-speed rail, and to upgrade school buildings until they are at least as modern and high-tech as prisons.
And I would pay for all of it, because it is time to stop digging the hole deeper.
Surely there are programs that are repetitive and projects that are failing. Peter Orszag, director of the Office of Management and Budget, outlined a slew of savings possibilities in a speech this month. Surely there is a weapons system or two that we truly don't need (yes, this would put some people out of work, but better to redirect money and jobs to where we do need them).

Surely there are also tax loopholes we can close, like the 10-year, $25 billion tax break for hedge fund managers and $14.5 billion in breaks for offshore earnings by multinational companies (both moves sought by Democrats, so far unsuccessfully). I would also tap money from last year's recovery bill. Slush fund or not, stimulus money should be used for stimulus, and the most humane and in some views most effective stimulus is helping people to keep their jobs or to subsist after they lose them.
This is, of course, an autocratic fantasy of which the unlikeliest part might be the mirage of a Senate without filibusters. But it's nice to dream.

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57 Comments

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kev

HERE WAS THE NATIONAL DEBT IN JAN 2001 WHEN BUSH CAME TO OFFICE!!! AND THE DEBT JAN 20TH WHEN BUSH LEFT OFFICE AND OBAMA TOOK THE OFFICE THAT SAME DAY!!

01/19/2001 5,727,776,738,304.64 <<01/20/2009 10,626,877,048,913.08 <<
DON'T BELIEVE ME GOOGLE IT!!!!!!!!!!!!!!

July 04 2010 at 9:43 AM Report abuse rate up rate down Reply
kev

Bill Clinton steadily reduced the debt increase while he was in office, thanks largely to the 1993 Debt Reduction Act* that was OPPOSED BY EVERY SINGLE REPUBLICAN IN CONGRESS, led by Newt Gingrich! The Republicans claimed that the Debt Reduction Act would result in HIGHER deficits and also result in an economic recession during President Clinton's term. Obviously, with hindsight they were completely wrong. Republicans don't seem to be very good at math, or economics.

Now, after 20 years of huge Republican deficits and Republican recessions, the National Debt has increased from $937 Billion -- LESS than $1 Trillion -- the day Ronald Reagan took office to ALMOST $10 TRILLION!!! The Debt has increased more than TEN TIMES what it was when Ronald Reagan promised to reduce the National Debt by 1983! We and our children and their children will be paying off the debt added by Ronald Reagan, George H.W. Bush and George W. Bush for the next 100 years and more! For what !?!? Services have been cut across America. Police and Fire Departments haven't grown nearly as fast as our population. Even the number of troops in the military has been cut while military spending has skyrocketed!

July 04 2010 at 9:33 AM Report abuse rate up rate down Reply
punnster

The best way to FIX the deficit is to FIX the economy. Any other approach is temporary and unsustainable.

July 02 2010 at 2:54 PM Report abuse +1 rate up rate down Reply
whalebale

Teh govt needs to stop spending mone, it's proven not the solve our problems.
Spending has only made our problems worse. Obama is wrong, we are not better today because Obama with Congress has robbed our children and grandchildren of their future, Obama needs to focus on the "Will of the People". Our own president is fighting against US. He is suppose to work with us and stand by us, but Obama is doing the opposite. My son graduated from college last year and he hasn't been able to find a job that he's educated for .... many of his friends have the same problem and now there's another class of graduates and they have even worse problems. College degree and no job?? Laid-off and no job? Where are the jobs ?? Obama is busy taxing them to death or tearing businesses down. Economy means nothing to Obama, he just plain doesn't care about PEOPLE.

July 01 2010 at 9:46 PM Report abuse rate up rate down Reply
jkwieler

@cjjanis: You haven't seen any Republican bills because they can't get out of committee.

We can argue about infrastructure and budget re-allocations, but I suggest a different approach: On balance, public sector employees are paid more than private sector employees for equivalent work, and in many (most?) cases their retirement benefits would make a Greek civil servant blush.

I live in California, where cities are laying off people, especially public safety (because that's where the money is), despite getting modest compensation concessions from the public employee unions. How about a "shared sacrifice" jobs program. If a State or local government wants Federal aid to keep staffing up, why not have the Feds match wage/benefit concessions? If a union gives concessions of 5% of the comp package, the Feds match the savings dollar for dollar. No concessions, no Federal aid, and the local governments -- and unions -- have to deal with the layoffs.

I have no fundamental objection to taxing hedge-fund manager profits, but the amounts are peanuts -- $25 billion over 10 years is only $2.5 billion per year, and I'd wager that most hedge funds aren't making the same profits they did in 2007. Re-dressing the private vs. public compensation inbalance is where the money is -- and that's where we need to be looking.

July 01 2010 at 9:43 PM Report abuse +1 rate up rate down Reply
andrc657

Let those tax cuts for the rich expire. Bring our troops home from those two costly and disastrous wars. We will all be surprised at how quickly our deficit will shrink.

July 01 2010 at 6:32 PM Report abuse -4 rate up rate down Reply
nnanciejean

The stimuls and healthcare should not have been passed. Earmarks should have been taken out. With these savings we could have helped the unemployed. Plus companies would have seen less government interference and control and felt optimistic which would result in hiring. Stop the needless spending. We don't have to help all the other countries. Time to help our own.

July 01 2010 at 5:26 PM Report abuse +5 rate up rate down Reply
bbbsquared

Pres. Obama needs to do what all Republicans do - pay cash upfront! Not one Republican has ever gone into debt to buy expensive items, a house for example, because that would require them to spend what they don't have in order to better their lives. Republicans just don't do that. The Democratic mantra of, "You have to spend money to make money", make no sense to the world of corporate fiscal conservatism.

Republicans know the diiference between 'Need' and 'Want', that is why America did so well under a Republican White House and a Republican Congress.

Don't forget, no Democrat is willing to work until age 70 in order to pay for wars!!

July 01 2010 at 4:40 PM Report abuse -5 rate up rate down Reply
punnster

Democrats have a propensity for extensive, expensive and inept bureaucracies. That is where they should make the most cuts to do the most good.

July 01 2010 at 3:11 PM Report abuse +5 rate up rate down Reply
1 reply to punnster's comment
glers

Hmm guess you had you're head in the sand from 2000-2008

July 01 2010 at 3:53 PM Report abuse -3 rate up rate down Reply
kingnus

The article says there is a tax loophole for hedge mangers that is costing $25 billion over 10 years, any republicans posting think this loop hole should be closed?

July 01 2010 at 2:23 PM Report abuse -3 rate up rate down Reply

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