Fiscal responsibility demands addressing the economic crisis at hand, not the imaginary one
The deadline for the supercommittee is approaching, and so we welcome budget ideas from our friend and former board member, Andy Stern. But he and Reagan OMB Director David Stockman are advising the supercommittee to “go big” on deficit reduction, based on the false premise that “our debt crisis is so severe, so obvious,” in this CNN opinion piece. In Washington parlance, that means $4 trillion plus in deficit reduction, heavily weighted toward spending cuts. The economic crisis we face today is not a debt crisis at all. We have a jobs crisis, and that is why we currently have large fiscal deficits. In today’s economic context, the most compelling case for long-term deficit reduction is to finance greater efforts to create jobs in the short term. Invoking a debt crisis that is not happening, however, can only lead to a rush for changes that need not be addressed in the short, nontransparent process of the supercommittee and are likely to do needless damage to our retirement and health programs, if not the economic recovery altogether.
Our “debt crisis”: 2.05% 10-year sovereign bond yields, independent central bank
Italy’s emerging debt crisis: 7.26% 10-year sovereign bond yields, no independent central bank
Greece’s very real debt crisis: 27.33% 10-year sovereign bond yields, no access to capital markets
We didn’t have a debt problem until conservatives in Congress concocted a debt ceiling crisis this summer, “ceiling” being the operative word. We’re struggling through a huge economic shock, and bigger budget deficits have ensued as a result. And it’s still the economy that Congress should be paying attention to: well over half of this year’s budget deficit can be chalked up to the weak economy and policies to boost employment.
Our economic crisis is so severe, so obvious, that it is visible in just about every U.S. data release. Unemployment has been stuck at or above 8.8% for over two and a half years. The economy and employment are growing too slowly to lower the unemployment rate. Poverty is rising, and real median incomes are falling. The economy is running $895 billion (-5.6%) below potential, which singlehandedly accounts for roughly a third of the budget deficit.
Yet Congress ignores these data in favor of the imaginary. There is no talk of a jobs program coming out of the supercommittee, even though fiscal policy is poised to shave one to two percentage points off of real GDP growth next year. The filibuster is repeatedly used to obstruct meaningful jobs legislation in the Senate.
We do face real long-term fiscal challenges that must be addressed. Along with Demos and The Century Foundation, EPI drafted a long-term budget for economic recovery and fiscal responsibility. We should address the health cost escalation but having just witnessed a yearlong process to achieve health care reform (at the time, the biggest piece of deficit-reduction legislation in over a decade), one wonders why this supercommittee should revise our health care system again—likely undermining reform—even before we see the results of reform. Social Security is not in any crisis and there is no need for its long-term fiscal challenge to be addressed in this process, either. We must restore revenue adequacy, but the prospects of the supercommittee doing so are zilch. Stern’s piece with Stockman does contribute to that effort by getting a prominent Republican on the record for substantial revenue increases (which is presumably what the point was, at least for Stern). But if long-term fiscal challenges misguidedly produce premature withdrawal of fiscal support and near-term spending cuts, as looks all too likely, both economic recovery and fiscal sustainability will remain elusive. Those genuinely concerned with long-term fiscal sustainability should pay attention to the economic crisis at hand, the jobs crisis, since we will never have a sustainable fiscal situation with the persistent high unemployment we are facing.