August 2, 2014

Debates Over Deficits and the Economy Often Confuse Short-Term and Long-Term Goals

  • The national debt has grown significantly in recent years due to rising annual deficits. A deficit occurs in any year the government spends more...

Deficits remain a big focus in Washington as President Obama, Federal Reserve Chairman Ben Bernanke and members of Congress in both parties have struggled to find the right balance between nurturing the economic recovery and demonstrating fiscal responsibility.

But timing is everything. As explained in a new blog post by Diane Lim Rogers, chief economist for The Concord Coalition, it is possible to argue for effective stimulus measures in the short term while calling for greater fiscal responsibility in the long term. “Fiscal hawks,” she says, “can walk and chew gum at the same time.”

Critics from both extremes, she argues, “basically believe that achieving both goals (short-term stimulus and longer-term fiscal responsibility) isn’t possible, or that greater success at one means failure with the other. So they only push for their favored goal, and with their hyper-partisan rhetoric they dismiss the other goal as stupid and evil.” Amid all this partisanship, she adds, “we risk screwing up on both goals.”

The balance between short-term and long-term priorities was also a central theme in Bernanke’s appearance before the House Budget Committee last week. While he warned that the federal budget appears to be on “an unsustainable path,” the Fed chairman also cautioned that “this very moment is not the time to radically reduce our spending or raise our taxes, because the economy is still in a recovery mode and needs that support.”