Since the Wall Street crisis hit, voters – and debate moderators – have demanded an update of the presidential candidates' economic plans. This week, they got the latest version. But a persistent question accompanies that demand: How will Barack Obama and John McCain square their plans with the ballooning federal deficit?
In the debate over how to rein in red-ink spending, a distinction must be made between the short and long term. At the moment, the US risks a deep recession. Boosting the economy has to take priority over deficit reduction, especially because the deficit remains historically low as a percentage of the economy.
The US Treasury is moving ahead with a $250 billion injection of capital into the banking system to unlock borrowing. Both candidates wisely endorse this first dip into the Treasury's $700 billion rescue pot. But that still leaves the task of stimulating investment, job creation, and consumer spending, and that's where the candidates' plans come in.
A speedy, but temporary, push is needed – and one with heft. Better too much of an effort, than too little or one that is drawn out, as America learned in the Depression.
In his first term, Franklin D. Roosevelt began major job-creation programs, but they took time to develop. It was the US entry into World War II in 1941 and the economy's massive gear-up that ended the Depression, and quickly.
That speed and heft do matter was just shown in Europe's handling of the financial crisis. It took just days for Europe to fall in line behind British Prime Minister Gordon Brown's bank-rescue plan. The countries are committed to a monumental outlay that's much bigger than what the US Treasury is putting up. On Monday, stock markets showed their approval.
The economic updates unveiled by the two candidates this week aim to stimulate job growth and consumer spending, but in different ways. Mr. Obama targets the middle class and low-wage earners while Mr. McCain is shooting higher on the wealth scale, with the hope that renewed activity there will benefit everyone. (Earlier ideas from both candidates depend on the Treasury to help homeowners.)
Are the latest proposals quick and big enough? Probably not – with both in the $50 to $60 billion range. Whoever wins should work with a lame-duck Congress to clear a stimulus package this year. Indeed, Democrats and Republicans have such plans in the works, with the Democrats willing to go as high as $300 billion.
Federal spending may well push the fiscal 2009 deficit to $1 trillion. But the greater concern is the piling up of deficits – the national debt.
The US has to move toward a competitive, saving- and export-oriented economy. This requires investment in education that boosts incomes and improves competitiveness; in transportation and communication that efficiently move people, goods, and ideas; and in cleaner energy to power it all.
It will be impossible to do this without squarely facing looming debt and cost reductions for Medicare and Social Security. The candidates deserve credit for responding to a crisis whose depth none can foresee, but they have yet to adequately address the long-term one that's been predicted for years.