Now is not the time to reduce the deficit
With the President’s budget last week, he seems to have succumbed to the pressure to cut spending now. This is bad policy.
Unlike Dick Cheney (at least when he was VP) I do understand that deficits matter. In the long term, the US needs to reign in its spending and try to have at least balanced budgets.
But not now. The country is barely starting to recover from a debilitating recession. US unemployment is still staggeringly high. The President and Congress should be discussing further stimulus focused on job creation, not arguing over what job creating programs to cut.
Cutting government spending now risks derailing the recovery. Nothing I’ve seen in the data suggests a double dip recession, but a concerted push to reduce government spending could be the game changer. When FDR reduced the deficit in 1937 and 1938, it sent the economy into another devastating tailspin and prolonged the depression.
Does the deficit matter? Of course it does. Should the long term goal be a balanced budget? Absolutely. But “for everything there is a season…”
A responsible government should run surpluses in good years, and be prepared to move into deficits when economic cycles turn. Unfortunately, the US has not been a responsible government for some time. The last budget surplus was Clinton’s final budget in 2000. Before Clinton’s four balanced budgets, you have to go back to Johnson’s final budget in 1969 to find surplus. Kennedy, Nixon, Ford, Carter, Reagan, George HW Bush, and George W Bush never had a balanced budget. Not one. Johnson managed one.
Trying to cut government spending is decidedly hard. There is no apparent political gain from a balanced budget, and no apparent political pain from deficit spending. (This, BTW, was what Cheney was referring to when he said deficits don’t matter.) So getting Congress to reduce spending when there is nothing in it for them is near impossible. Add to this the fact that most of the budget is untouchable, and it is a terribly difficult task.
Ultimately, the best the US can realistically hope for is some long term concerted efforts to control spending until the economy grows enough to make the debt less relevant. I am not optimistic about this.
But clearly trying to address the deficit now risks sabotaging the recovery.
