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More on the job numbers

Last week, pressure from deficit hawks forced the House of Representatives to cut the size of their jobs bill in half. As David Leonhardt wrote, "the case against the jobs bill starts with the idea that the economy is recovering." But as today's employment numbers show, our fitful recovery is going much too slowly given our near-10 percent unemployment rate.

Yes, deficits can become a problem. But the problem facing America is long-term, not short-term, deficits. Which is why every wonk answers this question the same way: Expand short-term deficits to boost employment and commit to credible deficit reduction in the long-term. The right move for deficit hawks would be to release a proposal that pairs a generous jobs bill with serious long-term reforms (for instance, a bill providing $300 billion in immediate stimulus and also lowering the cap on the mortgage interest deduction, bringing back the full estate tax and cutting defense spending). This moment, viewed correctly, actually offers a substantial opportunity for long-term deficit reduction because the need for short-term deficit spending gives hawks a bargaining chip that will bring liberals to the table. But no one seems interested in offering that deal.

By Ezra Klein  |  June 4, 2010; 10:41 AM ET
 
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Comments

so the question it is fair to ask of the obama administration is: why aren't you pursuing a scenario like this?

Posted by: howard16 | June 4, 2010 10:53 AM | Report abuse

I think it would be hard to sell that deal.

Political opponents can easily attack the stimulus part of the deal by saying "look, we've had the 2008 rebate checks, TARP and ARRA, unemployment benefit extension after extension - and now you think the economy needs MORE stimulus? The deficit jumped from 1% to 10% of GDP, when GDP itself only fell 2.4% in 2009. Why on earth do we need more stimulus?" Then you'll get the dollars per job statistics thrown about which look pretty awful to the typical voter.

Then you propose slashing defense and starting to cut a popular tax deduction, while raising the death tax? I think the political ads basically write themselves:

"Our troops are at war - the President has felt it necessary to send more of them to fight in Afghanistan. But now Democrats in Congress want to pull the rug out from under them. They want to spend money on pork barrel projects in their districts rather than to equip our troops in harms way."

"The housing market is in the doldrums, but there is light at the end of the tunnel. But now Democrats in Congress wants to spend more money on a boondoggle and will pay for it by cutting the mortgage interest deduction. Property values will fall and you'll have less money in your pocket. Is this the change you were told to believe in?"

"You've worked hard for your money. But when you pass away, there will be another tax to pay. Democrats want to increase the estate tax, taxing your money after you've already earned it. Want to leave a large nest egg for your children? That's unfortunate, because Democrats in Congress think they know how to spend that money better than you do."

Posted by: justin84 | June 4, 2010 10:56 AM | Report abuse

Liberals don't want to cut spending. That's the problem.

Posted by: obrier2 | June 4, 2010 11:00 AM | Report abuse

disagree about the mortgage tax deduction, but agree with the point broadly.
it's shocking to me that the dems are blowing this political opportunity to reinstate the estate tax. I'd like to see the Republicans defend its reinstatement right now.

Posted by: rt72 | June 4, 2010 11:13 AM | Report abuse

obrier, can't you read: one of ezra's 3 examples was cutting defense spending.

more seriously, you've got your whole argument backwards: liberals don't claim to be in favor of cutting government. liberals want government to do effective things and spend money in socially beneficial ways.

it's conservatives who claim to favor smaller government, so perhaps, if you please, you could provide us any examples of conservatives showing that they actually favor cutting spending.

in practice, after all, we had a multi-hundred-billion-dollar war treated for years as an emergency appropriation, and when a democrat, john kerry, tried to get that spending paid for, right-wingers treated it as the basis of an attack ad.

the actual liberal problem is not a matter of not favoring cutting spending; it's a matter of being afraid to call for higher taxes. you're welcome to level that criticism.

Posted by: howard16 | June 4, 2010 11:31 AM | Report abuse

The gulf between Congress and ordinary people is growing along with the gulf between the top 5% and the rest of the people. I had a sixth grade boy ask me yesterday whether the government understood how people were suffering and I had to say no, not really. Another boy at the table (the top student in the class) said "Congress is just a bunch of old white men." (He's white, the first was African-American). I added, "Rich old white men."

It is really sad how the Dem Party has turned its collective back on ordinary people in favor of the banksters, oil companies and corporate lobbyists generally. People decry the loss of collegiality when lawmakers make weekly trips back to the district. The real problem is that they spend their time back home with people who are just like the people they spend time with in DC.

Posted by: Mimikatz | June 4, 2010 11:36 AM | Report abuse

"[T]he need for short-term deficit spending gives hawks a bargaining chip that will bring liberals to the table."

This may be true but it is irrelevant. The political problem is not how to get deficit doves to the table, it's how to get deficit hawks to the table. What can the doves bargain with?

Obviously not the prospect of employment for the un- and under-employed. The hawks could clearly care less about that.

Support for "long-term" deficit reduction? Why should the hawks bargain for that? Given the standard dove position (that America really does face a tangible, super-scary long-run deficit problem) the hawks can rest secure in the knowledge that the doves will bring themselves to the table anyway, later or (more likely) sooner.

The politics of this can never work, as long as the deficit doves' basic position is that, yes, deficits are a very serious problem that we must be very worried about and be prepared to address with real sacrifices -- only not right now.

Such a stance practically begs to be ridiculed as "party now, pay later." The economic models may come out differently than this, but that is how the politics comes out. It is like first handing your opponent the stick with which to beat you and then calming explaining why he would be better off to refrain from doing so.

The only way to beat the deficit hawks is by frontal assault on their core misconception that public finance is just like private finance. That is what folks like James Galbraith are up to, and we need lots more of that kind of analysis. Scary talk about long-term deficits is part of the problem, not part of the solution.

Posted by: amileoj | June 4, 2010 11:47 AM | Report abuse

EK writes: "The right move for deficit hawks would be to release a proposal that pairs a generous jobs bill with serious long-term reforms (for instance, a bill providing $300 billion in immediate stimulus and also lowering the cap on the mortgage interest deduction, bringing back the full estate tax and cutting defense spending)."

Many deficit hawks who talk fiscal responsibility are part of the 'starve the beast' crowd in disguise. In their own way, they want to have their cake and eat it too. Restoring the estate tax pre-GWB or tinkering with the mortgage interest deduction (even if it only affected sales at the top end of the housing market) wouldn't make much headway. Seriously. That the powers-that-be cannot make the case for the estate tax in a period of rising income disparity, high unemployment, and slowing economic growth shows how far we as a nation have gone off the tracks.

Posted by: tuber | June 4, 2010 11:56 AM | Report abuse

Mr. Klein: The only spending cut you can come up with is to cut defense spending?

That's suicidal. The external threats to this country are increasing, not decreasing.

Posted by: ElmerStoup | June 4, 2010 12:41 PM | Report abuse

This is one area where I have been disappointed in the Obama presidency in not being able to explain the need for short-term deficits while still reducing mid-and long-term deficits and that short term deficits can actually help reduce mid-and long-term deficits by increasing economic growth and, thus, future revenues, and lessening certain future expenses for unemployment, food stamps, et al. Obama should have offered his proposed freeze as a way of paying for extra current spending and done some economic educating. Beyond that, the primary problem is congressional econcomic illiteracy. They simply do not understand the economic need for public purchasing power (expenditures or tax cuts) to compensate for reduced private purchasing power at this time in order to increase growth and employment. Additionally, they are not willing to commit to future spending cuts to offset some of today's special increased spending. One solution would be to establish a 5-year infrastructure budget and you could move projects from later years to earlier years without increasing the 5-year cost. Re the estate tax, it already set to go back in effect next year with the expiration of the Bush tax cuts.

Posted by: gregspolitics | June 4, 2010 2:51 PM | Report abuse

elmer stoup, try and pay attention: the external threats were much, much, much higher during the cold war than they are now.

and the kinds of threats we face now aren't the ones for which the kinds of excessive defense spending that ezra and me and lots of other sentient people want to cut mitigate.

Posted by: howard16 | June 4, 2010 3:51 PM | Report abuse

unfortunately I think that in this country we have somewhat shown a lack of commitment to reducing the deficit in the past so it becomes much harder to stick to our "word" that we will make a commitment to reduce them in the future.

Posted by: cwillis3 | June 4, 2010 5:17 PM | Report abuse

Howard16: After 26 years of active and reserve duty in the U.S. Army, I claim a certain level of sentience about national security affairs.

The size of the military has already been reduced after the end of the Cold War. The wars in Iraq and Afghanistan have placed great stress on the Army and Marines. The 600+ ship Navy is down to 200+ ships.

And yes, there are many threats in today's world: Iran, North Korea, China, Russia all come to mind. Everyone of these countries will be tempted to take advantage of our military weakness. And we haven't even discussed non-nation troublemakers.

Posted by: ElmerStoup | June 4, 2010 6:27 PM | Report abuse

Total nonsense. What the heck is a "jobs" bill anyway? The government is not in the business of creating jobs. If you want to create jobs, lower the minimum wage, cut the payroll tax on both sides, and fight some unions. Then we can bring some work back from cheaper countries and get back in the fight.

Extending unemployment benefits is not a job bill, it's a disincentive to find lower paying employment, which is a painful adjustment many of us have had to make.

Posted by: staticvars | June 5, 2010 12:42 AM | Report abuse

"But no one seems interested in offering that deal."

Because deficit hawks do not exist.

"Total nonsense. What the heck is a "jobs" bill anyway? The government is not in the business of creating jobs. If you want to create jobs, lower the minimum wage, cut the payroll tax on both sides, and fight some unions. Then we can bring some work back from cheaper countries and get back in the fight."

Supply side foolishness from a culture that seems ingrained in econ-101 but no further. There are real demand side issues here. Though a payroll tax cut wouldn't be the worst approach, the rest of your advice is actively counterproductive.

Posted by: adamiani | June 5, 2010 1:05 AM | Report abuse

I agree with Mr Klein.
Full employment is worth the increased taxes which don't have the long term risks of debt growing faster than GDP.

Simply hiring state and federal workers is better than a stimulus such as the one before that had tax cuts.

I would prefer to increase taxes via elimination of deductions rather than raising rates. Spending cuts should be for the long term such as ensuring that pensions, social security, medicare medicaid expenses grow no faster than inflation.

Posted by: AndrewDover | June 5, 2010 5:45 PM | Report abuse

So let me get this straight: your idea of a compromise is that conservatives give you more spending and you give them .... tax hikes? Defense spending cuts? It's not a compromise when you get everything you want and the other side gets nothing. (I'm going to punt on whether this Keynsian spending, which we've been trying now for two years without success, is going to help our economy).

Any tax hikes or new spending should come with something conservatives wants, such as control of entitlement spending, raising of the retirement age or hard caps on future spending.

Posted by: Hal_10000 | June 7, 2010 9:35 AM | Report abuse

EK,

Your proposal would fail to create jobs or lower the deficit. Generous unemployment benefits provide disincentives to work. And your suggestions for dealing with the deficit would merely be band-aids. Without comprehensive entitlement reform, serious deficit reduction isn't possible.

Steve

Posted by: FatTriplet3 | June 8, 2010 10:33 AM | Report abuse

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