Deficit Reduction and National Priorities

Something is very, very wrong here. Why are we getting a spending freeze, now, when unemployment is at 10%? When home foreclosures are still taking place at a record rate?

What about Econ 101: government spending creates jobs in a slow economy, slashing spending eliminates jobs? Hmmm.

A few days ago, Obama endorsed the creation of a bipartisan deficit-reduction panel with "fast-track" authority to create legislation that can only receive a yes/no vote in both houses of Congress, therefore avoiding tricky amendments and reconciliation.  Much like the BRAC panel that recommended unpopular military base closures in 1989-95 and 2005, only such a bipartisan panel can administer the bitter medicine of spending cuts and tax hikes. It's such a good idea that it has been recommended by the Economist magazine, among others, as a way for the US to chart a course out of the deep deficit hole it has dug itself into. (See my earlier post on this issue.)

Indeed we have dug ourselves into a pretty deep hole. This year's budget deficit is projected to be $1.35 trillion, one of the highest since WW II. Even under relatively optimistic assumptions, the CBO projects that
interest payments on the debt will more than triple over the next
decade, rising from $207 billion this year to $723 billion in 2020.

But should we start slashing the budget now?

It seems like what is needed is a careful plan, a road map, so to speak, that charts a course out of the economic abyss of unemployment and low growth, and, once there, sets a course to fiscal responsibility. If we rein in spending too quickly, we risk undermining the economic recovery now in its early stages. But if we go back to business as usual, after the recovery has worked its magic, it is possible that global confidence in the American economy (and the dollar, especially) will quickly erode. With the CBO projecting the national debt to be somewhere between 67 and 100% of the overall economy by 2020, something will need to be done. The world will need to see our plan, and need to see that we are serious, in order to restore confidence in the future of our national economy.

Since spending money gets politicians re-elected, deficit budgets are common in good economic times. But we need to stop this practice (hence the bipartisan panel) and focus on what is important. That is why I recommend - crazy as it sounds, particularly right now - a discussion of national priorities. When we get out of this economic disaster we are in, there will need to be some belt-tightening. But does this mean that the poor need to suffer more? That more people need to go without health insurance? Should we continue to belch greenhouse gasses into the air? Should we let down our guard against terrorism? What do we want: guns or butter?

It seems like Americans are more polarized than ever. But we are going to have to communicate to our politicians clearly and effectively from now on what we want them to spend our hard-earned tax dollars on. Talking to each other first and deciding what our priorities are can really help streamline what will be a difficult process.