For the last few weeks, both the Senate and the House have been unable to enact measures aimed at boosting the economy — like providing aid to states, extending unemployment benefits, or getting money to schools so they don’t have to lay off teachers — because Republicans (and quite a few Democrats) have become infected with deficit hysteria and are staunchly against short-term spending.
The GOP argues that the national debt precludes any steps to boost the economy, with Senate Minority Leader Mitch McConnell (R-KY) accusing those who want to continue fiscal stimulus of “fiscal recklessness.” However, today, Doug Elmendorf, Director of the non-partisan Congressional Budget Office, said that there’s simply no contradiction between advocating short-term stimulus spending and evincing a concern for addressing long-term deficits:
“There is no intrinsic contradiction between providing additional fiscal stimulus today, when unemployment is high and many factories and offices are underused, and imposing fiscal restraint several years from now when output and employment will probably be closer to their potential,” said Congressional Budget Office Director Douglas Elmendorf…He cautioned that he wasn’t advising Congress on what approach to take, but said it was “important to understand the difference between the effects of government borrowing for a limited period when the economy is weak and [borrowing] for indefinite periods when the economy has recovered.”
In fact, it’s very possible that a hesitancy to spend now is going to make it harder to pay back the debt in the future, as tax revenues stay depressed and social safety net spending stays elevated. “What worries me the most is this idea that austerity is going to be helpful,” said Michael Reich, an economics professor at UC Berkeley. “When you make an economy shrink, it makes it harder to pay back debt in the future.”
As CAP’s Michael Ettlinger said today in testimony before the Obama administration’s debt commission, focusing on spending cuts now, like those McConnell and his colleagues in the Senate advocate “would seriously cramp our economic recovery and would, in fact, make longer term deficit reduction less likely”:
It has become a cliché to say “we can’t grow ourselves out of our deficit problem.” It’s true, of course, but it’s also true that we’re not going to “spending-cut our way out of the deficit problem” or “tax ourselves out of our deficit problem”…The consequences of moving towards a balanced budget without an assist from economic growth would be devastating for the country—a grim scenario that we may see in Greece.
But instead, we have a Congress that is unwilling to take steps to boost growth, and it content scoring political points by fearmongering about the deficit.