Don’t Fear The Deficit

If politics play out as they normally do, Tuesday’s report that the federal deficit has hit a record $407 billion this fiscal year, and is on its way to topping $500 billion by the time the next administration takes office in January, will have would-be liberal politicians sounding even more like fiscal conservatives.

This is a good time to resist that urge. Not only does it hardly ever work politically—voters hate cheap imitations—but it is not what the economy needs. In fact, a federal deficit that is threatening to spiral out of control is the perfect occasion to talk about the bold, fundamental reforms, including a robust role for government, at the core of the progressive agenda.

That, of course, is not the picture you’re getting from media coverage of the deficit problem. The Washington Post declares matter-of-factly:

A deficit of that magnitude could severely constrain the next administration’s agenda, regardless of whether Sen. John McCain (Ariz.), the Republican candidate, or Sen. Barack Obama (Ill.), his Democratic opponent, wins in November. Each has promised billions in new tax cuts or new spending. The expanding deficit also will increase the national debt and could impair future economic growth, particularly if lawmakers are forced to pay down that debt by raising taxes.

Meanwhile, the McClatchy Washington Bureau declares—misleadingly, I think—in a headline, “Federal deficit soars, but McCain, Obama offer no answers.” It goes on to repeat the conventional wisdom:

The widening gap between what the government spends and the revenue it brings in is sure to weigh on the next president and impede his efforts to spend on new or larger programs or to cut taxes.

You cannot deny that there are serious, long-term structural problems with our economy. That point—that we are on the road to “severe financial hardship”—was made most recently in a two-page ad Sunday in The New York Times that took the form of an open letter “to the presidential candidates and the American people.” The ad was sponsored by the Peter G. Peterson Foundation and was signed by a cast of characters that includes David M. Walker, the foundation president and former U.S. comptroller general; Paul O’Neill, the former Treasury secretary who was drummed out of the Bush administration, and former New York governor Mario Cuomo.

The foundation’s ad asserts that the country is in “a $53 trillion hole”—that’s the combination of our federal debt and future unfunded entitlement liabilities, most of which is for Social Security, Medicare and Medicaid. It is true that in the face of this daunting potential debt, “we need major reforms for our budget processes, entitlement, health care and tax systems to put us on a more balanced, responsible financial path.”

But that should not scare us into reneging on the promises that have been made to seniors that they should have a secure retirement; or backing away from the principle that all of us should have access to health care and an economic safety net, or that we should have a strong government that provides for the common good as well as a fair and ethical playing field in which the private sector can prosper. If we do what conservatives are suggesting as solutions to the deficit—more tax cuts for the wealthy, across-the-board cuts in government spending, more policies that leave households in distress to fend for themselves—we are bound to make our long-term economic condition worse.

The truth is, contrary to the headlines, there are progressive answers to the deficit crisis. They lie in being both bolder and smarter about the policies we propose and in how we leverage government resources. To take just one example: On Tuesday a coalition of labor, environmental and progressive policy organizations unveiled a two-year, $100 billion energy investment program. Much of the spending would take the form of tax credits and loan guarantees for businesses involved in such businesses as weatherization and green-energy retrofitting. Such a program would create an estimated two million jobs—bringing our current 6 percent unemployment rate down to under 5 percent—and pump far more taxable income into the economy than equivalent tax credits for the oil industry or equivalent tax cuts for corporations and millionaire taxpayers.

Further, moving rapidly to the Health Care for America Now plan would reduce health care costs, the biggest single driver of the country’s long-term fiscal problems, by making possible significant administrative cost-savings, forcing pharmaceutical companies to negotiate prices, and enabling currently uninsured and underinsured people to better maintain their health and avoid the higher costs of deferred emergency care.

Both of these proposals would require leadership prepared to make the case that when government invests in the welfare of its people, even at the sacrifice of politically expedient short-term gestures, we are all better off. They represent the kinds of dramatic changes that we need to keep pressing in the face of a drumbeat that says that we should trim our sails and narrow our vision. In fact, we’ve been hearing that drumbeat from conservatives for three decades now, and we have seen the result: a government and a citizenry that is less financially secure than anytime in recent history. Instead of being cowed into more fiscal conservatism—which in the end has conserved nothing—it is time to be outspoken with a smart, fiscal boldness.

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