It’s like a collective case of Alzheimer’s.
Whenever politicians in Washington lose their way, they remember an issue that they selectively forgot, the deficit.
Every two years – each time there is an upcoming Congressional election – they remember to remind themselves they’re spending too much.
It doesn’t really matter who is in power. It’s always the other guy’s fault. The deficit has so much political clout it is as if it were a fourth Constitutional branch of government.
With the mid-term elections quickly approaching, it’s the Republicans’ turn to point fingers. But their efforts to slay the beast are halfhearted at best.
George Bush may have been a lot of things, but fiscally responsible wasn’t one of them. After inheriting a balanced budget and declining federal deficits from Bill Clinton, Bush pursued a disastrous path of intentionally cutting federal revenue — by cutting taxes — while simultaneously increasing spending significantly, primarily to pursue wars in Afghanistan and Iraq.
Bush’s supporters on the Republican side of the aisle went along because his policies pandered to their politics. Then the recession hit, devastating the economy during Bush’s final year, causing tax revenue to plummet just as the need for increased public spending skyrocketed. In response, Bush implemented numerous costly initiatives to bail out the financial industry and others, again financed with debt.
It Ranks First in Importance
In the beginning of June, a Gallup poll asked Americans to name to greatest threat to our country. Terrorism and the growing national debt tied for first.
President Obama has done what countless leaders before him have done. He formed a bipartisan commission to study the problem.
But everyone, including the President, knows there is not much to study. We’re spending more than we’re taking in, and it’s going to get worse before it gets better.
Regardless of the potent politics, and upcoming mid-term elections, both sides know nothing can be done to put a serious dent in the deficit, especially as the economy struggles to claw its way out of the recession.
Nowhere is this tension more pointed than in the controversy over the extension of unemployment benefits.
Despite the nascent recovery, hiring remains sluggish. According to figures released today by ADP Employer Services, companies in the U.S. added only 13,000 new jobs, the smallest gain since February. Economists had forecast an increase of 60,000 new jobs following the 57,000 positions that were created the prior month.
A Dilemma for the GOP
Both sides know that in an economy driven by consumer spending, putting Americans back to work is job No. 1. Until this happens, the economy will not stabilize.
Conservatives, however, have drawn their line in the sand over the issue of extending unemployment benefits. They say they refuse to go deeper in debt even it means that a crucial safety net for millions of unemployed Americans will be removed.
This has put Republicans on the horns of political dilemma. With unemployment near 10 percent, many of their own constituents are among the jobless millions.
Moreover, Republicans are also confronted with the proven notion that unemployment benefits are one of the most efficient means to stimulate the economy. Studies have shown that the unemployed spend every penny they receive on the bare essentials. This spending, in turn, supports local businesses that rely on these customers, and bolsters core domestic industries like food production and distribution.
The political elephant in the room for the Republicans is the preservation of the Bush tax cuts. They oppose the extension of the unemployment benefits because they fear an increase in the deficit, but they support a renewal of the tax cuts knowing this will add to our long-term national debt.
The Republican conundrum doesn’t make this less of a quandary for the Democrats.
Now that debt is a dominant part of the political landscape, it is nearly impossible for the Democrats and the President to pursue further Keynesian stimulus of an economy that remains on shaky ground. To hold their political edge, the President and the Democrats need to focus on job acceleration. But like the Republicans, their constituents are equally alarmed by a widening debt they fear will undermine their future economic security.
Like our politicians, most of us are just as confused about this issue. We muddle short-term deficits with long-term debt. They are not the same. Creating one while attacking the other does not amount to an inconsistent policy. We can do both.
Short-term stimulus spending need not conflict with deficit reduction. A relatively serious injection of funds — for example, $300 billion over the next two years — could be paired with twice as much deficit reduction in the three years following the spending. We simply must have the political will to make hard choices.
Going forward, neither side can have it both ways. The Republicans can’t credibly argue for a continuation of the Bush tax cuts without seeking reductions in programs they support. At the same time, the Democrats must be willing to return to the Clinton-era pay-as-you-go policies and to make tough choices about entitlements they have long embraced, even if it means angering their core constituents.
In the end, some government stimulus must be maintained. Otherwise we run the risk of slipping back into a recession.
Passing an extension of unemployment benefits is a logical and just place to start.
John Cohn is a senior partner in the Globe West Financial Group based in West Los Angeles. He may be contacted at www.globewestfinancial.com
