Symbolic deficit reduction
The deficit battles in Congress are reaching a level of absurdity that makes your head spin. Every day brings new confirmation that the economic recovery is sputtering. GDP growth plunged in the 2nd quarter; consumer spending is anemic; the housing market has slumped; private-sector job growth has been well below 100,000 per month since May. Meanwhile, state and local governments are poised to cut another 300,000 jobs over the next year to deal with their acute budget shortfalls -- that's on top of about 200,000 jobs they have cut already.
Yet here is the Senate, bogged down for more than a month on a bill to provide $26 billion for states -- $10 billion to prevent teacher layoffs and $16 billion for state Medicaid programs. David Rogers of Politico reports on the latest impass: Senate Majority Leader Harry Reid hastily postponed a cloture vote Monday night because the Congressional Budget Office estimated that the bill wasn't entirely paid for -- tax changes and savings were still about $5 billion short. It also appears that Reid may acquiesce to Republican pressure for a cap on next year's discretionary spending that would be $20 billion below Obama's budget proposal.
It's bad enough that Republicans -- and it is Republicans -- seem blissfully content to stand by as the economy slumps. But it's an insult to voters to tout this pseudo-austerity as a blow for fiscal rectitude. $26 billion amounts to less than 2 percent of this year's projected deficit. It is barely one-fifth the cost of a one-year extension of the Bush tax cuts, which Republicans want to make permanent without any offsets.
This is wrong on so many levels. Start with the fact that an enormous array of economists, including Fed chairman Ben Bernanke, say the economy is too weak to end stimulus programs just yet Indeed, many Fed officials probably wish the government was spending more, because the Fed's own firepower is limited when long-term Treasury rates are already down around 3 percent. Fed officials are actively mulling new stimulus through monetary policy, but the ideas all seem at the margins. The WSJ says Fed officials are thinking the "symbolic'' step of re-investing their mortgage-backed securities as they mature.
People can argue about how much Obama's stimulus program has helped, though most economists say it did. But it's very hard to argue that fiscal belt-tightening is a good idea this year, and it's just plain nuts to argue that cutting $26 billion in aid to the states or $10 billion in supplemental jobless benefits will put us on the path to fiscal rectitude.