It is not inconsistent to provide effective short-term support for the economic recovery while laying the groundwork for long-term deficit reduction. To do so, however, Washington will have to move beyond the inflexibility and partisan vitriol of the recent debt limit debate.
President Obama took some helpful steps in this direction in his speech to Congress this evening. He offered several short-term proposals that could conceivably provide both an economic boost and a basis for bipartisan cooperation – which are together essential ingredients for effective fiscal policy and for repairing some of the damage that the debt limit debate inflicted on public confidence.
A full evaluation of the President’s plan, however, will need to take into account the ideas he will release later for paying for his new proposals and moving the federal budget toward a sustainable path. A credible plan to stabilize the debt over the long term will be essential to making short-term measures more effective. It is not just a matter of making the numbers work; it is sound economics.
As The Concord Coalition has long argued, “fiscally responsible deficit spending” need not be an oxymoron. During periods of economic difficulty when deficit spending may be required, the key is to ensure that the country gets the most “bang for the buck” in supporting a strong economic recovery.
This requires focusing on better spending, not simply more of it. Current policies that do little to boost the economy should be replaced by measures that are known to be more effective. Priority should be given to policies that will quickly encourage consumption, create jobs or provide assistance to cash-strapped households. Extending unemployment benefits, for example, is a good way to quickly boost economic demand because those who receive these benefits are likely to spend them rapidly.
Such counter-cyclical efforts by the government should be timely, targeted and temporary. Elected officials must resist the temptation to simply throw federal money “out the door” as quickly as possible -- or to use temporary economic problems to justify irresponsible long-term tax and spending policies, as has happened so frequently in the past.
Measures that effectively support economic recovery and job creation can support the goal of long-term deficit reduction as well. They can lay the groundwork for future growth that can help the government meet the increasing burdens of an aging population and rising health costs.
But more than economic growth will be required to meet those demands and close the huge projected gaps between government spending and revenue over the next decade and beyond. Recent budget updates from both the White House and the non-partisan Congressional Budget Office underscore that point.
So even as the President and Congress discuss the various measures he put forward tonight for the near future, they should work to develop plans for long-term structural budget reforms as well. The President is waiting until a week from Monday to unveil his ideas on this front for consideration by the new congressional super committee. His commitment to pay for his new initiatives is commendable.
Ideally, the offsets should be considered simultaneously with the new initiatives. But in any case, the super committee created by the debt limit deal should aim to exceed its assigned goal of $1.5 trillion in deficit reduction over the next decade, and even exceed the additional deficit reduction the President will propose to pay for his new jobs legislation.
As committee members noted during the panel’s first full meeting today, the president’s fiscal commission, the Senate’s “Gang of Six,” the Bipartisan Policy Center’s Debt Reduction Task Force and other groups have shown that bipartisan agreement is possible on more ambitious deficit-reduction efforts. President Obama would do well to consider the recommendations of those groups carefully as he puts together the proposals he will announce later.
Those groups recognized that neither party has the political clout or the public credibility to impose all of its own preferences. That’s why bipartisan cooperation and compromise among elected officials remains essential. As the public has made clear in recent weeks, elected officials in Washington need to dramatically improve the way they approach fiscal reform.