Somewhere in the Middle

Stimulus or Deficit Reduction?

by Paula Canup

Our country, as well as many others, is engaged in a fierce debate right now over economic policy. It is critically important to our future well-being that we decide correctly before enacting any major changes in taxes and spending. Basically, the question before us is, do we continue government spending to stimulate the economy or focus on deficit reduction?

Despite some hopeful signs last month, the economy remains sluggish, and unemployment continues to hover around 10%. Consumer confidence remains very low, and the stock market just took another dive. Recently, Paul Krugman, Nobel-prize winning economist, suggested it is time to stop calling this a recession and start calling it a depression. According to current economic theory (at least the one in control right now), the government needs to continue spending to prevent a double-dip recession. Advocates of this view argue that FDR made the mistake of cutting spending in 1937, causing the recovery from the Great Depression to stall. They also argue it is vital for the federal government to help troubled states to prevent more lay-offs of teachers and other state employees. In addition, unemployment benefits are scheduled to run out by July 10^th for over a million Americans unless Congress agrees to extend them.

But we have no money. We do have a thirteen trillion dollar debt. Politicians on both sides of the aisle as well as economists believe our current budgetary policies are unsustainable. As I stated in a previous column, “There’s a train wreck coming.” It is becoming increasingly clear that there will have to be significant, painful cuts in spending  and probably tax increases as well at some point. The question is, when?

The Obama administration’s solution so far is to stimulate in the short-run, and plan for fiscal discipline in the long-run, after the hoped-for recovery takes place. Many economists agree with this plan, but there is great disagreement over just how money should be spent to help create real jobs in the private sector as opposed to temporary government jobs that just make the numbers look better. So far, it seems we have gotten a lot of the latter. More money spent on that kind of job creation is probably a waste.

As for extending unemployment, I don’t really see how we can turn our backs on the unemployed with the jobless rate as high as it is. Opponents to extending benefits often argue that subsidizing “not working” just encourages loafing. But if the jobs aren’t there, what are they supposed to do? I think Republicans will regret it if they stand in the way of helping people who are definitely in need, often through no fault of their own. In fairness to those who oppose the bill, however, many would like to extend the benefits but are not in favor of other spending attached to the bill. Congress always does that – they attach unpopular measures to important legislation that people want passed. Maybe we should amend the Constitution to stop that practice.

On a completely unrelated matter, I was pleased with the tone of Jim Fitzgerald’s article in last week’s paper. It is refreshing to read something from the left that doesn’t seek to demonize conservatives. (It would be equally pleasing to read something from the right that doesn’t demonize liberals.) With that attitude, political opponents could actually talk to one another and maybe even solve problems.