Outlining the stimulus and deficits debate
I've been frustrated by the imprecision afflicting the debate over stimulus and deficits. Yesterday, for instance, saw a column by David Brooks that many viewed as anti-stimulus but in fact advocated the two forms of stimulus -- unemployment benefits and state and local aid -- presently on the table. So it may be worth spending a couple of minutes outlining the various positions in this debate. For the purposes of this post, I'm just going to assume all positions are held with total sincerity, as this is simply to outline different poles in the debate.
• Short-term stimulus/long-term deficits: This group believes that we need to spend now, and hard, but it doesn't necessarily believe that we need to worry about medium or long-term deficits. A lot of people are caricatured as holding this position. To my knowledge, very few do. Its most serious proponent is James Galbraith.
• Short-term stimulus/long-term deficit reduction: This is where Brad DeLong, Paul Krugman and most of the White House's economic team sits. This group sees a massive gap between what the country could be producing and what it is producing, near-10 percent unemployment, and record-low interest rates that both suggest deficits are not worrying the market and make borrowing remarkably cheap for the federal government. Stimulus is not only necessary, but feasible, and both fiscal and monetary tools should be employed.
As for the impact on the deficit, it's negligible, and temporary. The long-term deficit is what we need to worry about, and it's largely driven by health-care spending and demographics. It needs to be dealt with -- and the country took the first steps when we passed a health-care reform bill that included an excise tax on high-value health insurance and an independent commission to cut Medicare spending -- but it shouldn't be confused with stimulus.
• Short-term relief/long-term deficit reduction: This is where some of the moderate Republicans sit, and Ben Nelson is there with them. Unemployment insurance is necessary, they say, and maybe even some state and local aid. But no more increases in the deficit. Not a dollar. It doesn't do enough in the short term, and it freaks the market out about our ability to get our house in order over the long-term. Speaking of the long term, we need to do something about it. But there's no consensus -- and usually no mention -- as to what.
• Short-term austerity/long-term deficit reduction: This is where more conservative Republicans tend to cluster. In this telling, we're already Greece -- we just don't know it yet. The only answer is immediate cuts in spending, though there's no willingness to consider tax hikes. The long-term picture is much the same: sharp, albeit mostly theoretical, cuts in spending. Insofar as any specifics are mentioned, it's usually the one John Boehner let slip to Dan Balz: A small increase in the age at which people get full Social Security benefits. A few Republicans, like Paul Ryan and Tom Coburn, have been more specific about their preferred spending cuts, but their ideas haven't gotten much traction.
Readers know that I trend toward short-term stimulus and long-term deficit reduction. In particular, I'd like to see rapid extension of unemployment benefits and fairly generous aid for state and local government. I'm not convinced that many other stimulus policies could get into the system very quickly, so I think monetary policy is a better bet.
I'd be happy to pair that with long-term deficit reduction, but a serious accounting of debt numbers leads you to the conclusion that stimulus isn't a major factor in either direction. At the moment, the federal debt is about $13.2 trillion. To put the stimulus in context, $200 billion in further spending would amount to 1.5 percent of our debt. Say what you will about it, but stimulus is not what created the problem, and given that the real issue is the speed with which debt is projected to accumulate in the future, forgoing it is not part of the solution.
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