Is Emphasis on Deficit Reduction Impeding Recovery?

The New York Times reported on May 9, 2013 that “Emphasis on Deficit Reduction
Is Seen by Economists as Impeding Recovery”.  According to the reporter, “Tax increases and especially spending cuts, the critics say, take money from an economy that still needs stimulus now, and is getting it only through the expansionary
monetary policy of the Federal Reserve.  … In all of this time, the president has fought unsuccessfully to combine deficit reduction, including spending cuts and tax increases, with spending increases and targeted tax cuts for job-creation initiatives in areas like
infrastructure, manufacturing, research and education.”
The $845 billion deficit for the current year, as estimated by the Congressional Budget Office, hardly represents austerity, and is in fact a massive stimulus.  The president says that he wants “sensible” deficit reduction, but simply offsetting sequester
spending cuts and higher taxes on the wealthy with other spending increases and
targeted tax cuts as above, really amounts to no deficit reduction at all.
Most observers agree that it is entitlement spending, especially for Medicare and Medicaid, which is the main driver of the national debt.  Serious deficit reduction will not be achieved by further whittling away at discretionary spending, as wasteful as
some of it is.  The president has proposed changing the way the Consumer Price Index is computed, by switching to a “chained CPI” which will save the federal government about $30 billion per year.  This is a worthwhile change to make but represents a relatively modest savings by itself.
If the Democrats want to spend more money on “investments” and other forms of
fiscal stimulus, to try to speed up the recovery, they will have to get on board with serious reform of health entitlements.  The rapidly exploding national debt is a far too serious and urgent problem to ignore any longer.  The president might say that it should be addressed in a sensible manner, but postponement is no longer a sensible option.

2 thoughts on “Is Emphasis on Deficit Reduction Impeding Recovery?

  1. Jack:
    Actually I believe the horrible reality is that postponement is the only sensible option for American politicians. Today over half the population pays no taxes. Over half benefit from government programs either directly by getting a government check or indirectly by providing some product or service for that government given money. All these people have elected politicians with the criteria that can do whatever they want as long as they don’t cut benefits. In that atmosphere, postponement is the only sensible option.
    Pierce Carpenter

  2. You may be right, of course, but we still need to hope for, and try to achieve, a better outcome. The easiest course of action is for members of Congress to appear responsible by deploring the deficit, and yet refuse to reform entitlements in any significant way. The only way to get beyond the status quo is for more voters to insist on action and thereby elect more people to Congress who are committed to action.
    Tea Partiers in Congress are forcing the Reublican Party to be more serious about shrinking the deficit to zero and doing it fairly quickly. Is the Tea Party extremist? Perhaps in some ways but in this instance Barry Goldwater was right: “Extremism in defense of liberty is no vice!” If our problems are serious and urgent enough, then our response also has to be serious and urgent!

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