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Thursday, February 25, 2010

"Address Jobs Now and Deficits Later"

This is from Lawrence Mishel, president of the Economic Policy Institute, and David Walker, president and CEO of the Peter G. Peterson Foundation:

Address jobs now and deficits later, by Lawrence Mishel and David M. Walker: President Barack Obama is in a difficult position when it comes to deficits. Today's high deficits will have to go even higher to help address unemployment. At the same time, many Americans are increasingly concerned about escalating deficits and debt. What's a president to do?
The answer, from a policy perspective, is not that hard: A focus on jobs now is consistent with addressing our deficit problems ahead. ...
As in every economic downturn, federal revenues have fallen steeply because individuals and corporations earn less in a recession. High unemployment also results in higher expenditures for safety net programs, like Medicaid, unemployment benefits and food stamps.
Not surprisingly then, a huge recession can yield a huge deficit. Efforts to put people back to work and help restore the economy ... can also increase short-term deficits.
Though a concern, most of the recent short-term rise in the deficit is understandable. Furthermore, public spending can help compensate for the fall in private spending, and help stem the pain of substantial job losses. With more than a fifth of the work force expected to be unemployed or underemployed in 2010, there is an economic and a moral imperative to take action. ...
That’s why we agree that job creation must be a short-term priority. Job creation plans must be targeted... They must be timely... And they must be big enough to substantially fill the enormous jobs hole we’re in. They must also be temporary — affecting the deficit only in the next couple of years, without exacerbating our large and growing structural deficits in later years. ...
But ... short-term deficits ... should not be confused with the primary deficit challenge facing our nation: structural deficits. These deficits are projected to exist in coming years — even when the country is at peace, even when the economy is growing, even when unemployment falls. ...
While we address our short-term unemployment challenges, we must also immediately establish a path to address our large, and growing, structural deficits. ... Over time, Medicare and Medicaid will be the key drivers of these structural deficits. This is primarily because these programs’ costs tend to mirror overall cost increases for health care...
These structural deficits are too substantial to close the gap without addressing both sides of the ledger: spending and revenues. In doing so, it is important to distinguish critical and effective programs and tax policies from outdated and ineffective ones.
We must be careful to maintain the type of public investments that can help fuel broad-based economic growth while strengthening the safety net for our most vulnerable populations. And we should take into account growing retirement insecurity as employer pension systems erode and personal savings falter. People should be able to count on government benefits they are promised. ...
None of this will be easy... It will require hard choices, and an extraordinary process to engage the American people and to make recommendations to the Congress on budget controls, spending cuts and revenue increases. ... In the end, Congress must step up to the plate...
We must accept higher deficits in the short-term in order to put people back to work. At the same time, we must take immediate steps to agree on a path and a process for reducing the structural deficits that lie ahead. ...

I don't have any problems with this in principle, my concern is the call for immediate action on the long-term problem. I'm not sure that the short-term and long-term budget issues can be kept separate in the political and public debates. Attempts to deal with structural deficit problems -- even just plans for the future -- at a time when the economy is in a recession and needs to increase, not decrease the deficit makes effective policy responses harder. The time will come for an open, public debate about the long-run budget issues, but a time when increases in the deficit are needed to create jobs may not be the best time to take on the long-term budget challenge.

    Posted by on Thursday, February 25, 2010 at 12:48 AM in Budget Deficit, Economics, Social Insurance | Permalink  Comments (43)


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