Unemployment Trumps the Budget Deficit
Economic growth and job creation should be top goals -- the preconditions for long-term fiscal health
Balancing the federal budget should not now--or ever--be the top priority of Congress . Should Congress govern in a fiscally responsible way? Absolutely. But we should not seek fiscal responsibility for its own sake. We should seek it as part of the broader public goals of a strong economy and a well-functioning government, and in recognition that all bills come due eventually. A single-minded focus on balancing the budget could deliver up a weak country with a floundering economy and, yes, a balanced budget. Yippee!
Right now, of course, the top goals should be stronger economic growth and creating jobs. Those goals are actually necessary preconditions for long-term fiscal health--strong economic growth results in rising tax revenues that are key to having the wherewithal to pay our bills and to bringing down the spending needed during the recent economic crisis. The good news is that the economy has come a long way from the darkest days of January 2009. The bad news is that we need to do much better.
To get the strong economic growth and job creation we need, balancing the budget now would be exactly the wrong thing to do. What the economy most needs are customers in stores and contracts being signed. It needs more demand so that the private sector ramps up hiring and makes investments. For our government to pull money out of the economy right now would be a terrible mistake. The business activity created by government contracts and purchases, by putting money in customer pockets through unemployment payments and middle-class tax breaks, and by the full range of government spending is hugely important in the struggle for economic recovery.
If the economy were growing strongly on its own, with the private sector making investments and hiring at healthy levels, it would be different. Then the role of government would be as a quiet partner to the private sector, not as a prime mover. That's the time for the government to pare back the deficits. But now government spending is needed to create the demand that fuels the investment and employment in the private sector that will build on itself, become self-sustaining, and bring back the economy. This is how to move an energetic recovery.
That said, it is absolutely critical that Congress address the long-term budget picture. Projections for the years after the economy is robust again show alarmingly high and sustained federal budget deficits. If this longer-term problem is not addressed once the economy becomes stronger, then government borrowing will become an economic drain and rising interest rates will hurt economic growth.
The first step is to let the Bush tax cuts on the wealthy expire. These tax breaks are providing minimal immediate benefit to the economy and handicap our long-term fiscal picture. There are much better uses of those public dollars than borrowing more money to give tax breaks to those who need it the least.
The next step is for Congress to level with the American people. Politicians need to stop pretending that the federal budget can be balanced entirely by cutting unpopular spending, or by magic Social Security changes that save vast sums painlessly. Spending cuts of the magnitude needed to balance the budget would be profoundly damaging to the health, safety, and well-being of our nation. Of course the alternative, tax increases, isn't much fun either.
Congress needs to stop fooling around and offer a real plan to reduce the deficits of the future. But for right now, deficits aren't the problem. They're part of the solution.
Read why balancing the federal budget should take precedence, by Brian Riedl, Grover Hermann fellow in federal budgetary affairs at the Heritage Foundation.
Michael Ettlinger is vice president for economic affairs and a tax policy expert at the Center for American Progress.
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Unemployment Trumps the Budget Deficit
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