President Obama invited more than 100 guests to his recent summit on job creation – from Nobel Prize economists to clean-energy entrepreneurs. But one “guest” showed up uninvited, in a manner of speaking: the Ghost of Deficits Future.
For years, elected officials have been able to support spending that exceeds tax revenue by a large amount. Many have done so even as they warned that corrective action will eventually be needed. Others have adopted the slogan “deficits don’t matter,” arguing that the country can either grow its way out of debt or keep on borrowing.
In the past year, though, America’s fiscal compass has shifted toward discipline to a degree not seen since the 1990s. Now, even as Washington officials look to ease a 10 percent jobless rate, concern is rising – among lawmakers, the public, and some economists – that budgetary constraints are tightening and may limit the options.
Here are some signs of the times:
•Mr. Obama and fellow Democrats are rolling out a jobs proposal with careful framing on how to pay for it. Some $200 billion is available, they say, because the financial rescues of the Troubled Asset Relief Program are proving less expensive than forecast. Republicans counter that the TARP and any stimulus programs are being paid for by borrowing. It’s a partisan squabble, but neither side is saying deficits don’t matter.
•Debate over healthcare reform has pivoted around cost questions, with legislation moving toward passage only as it is designated “deficit neutral,” at least for the first 10 years of the reforms.
•The national debt is $12.1 trillion, and Congress must vote soon to increase a self-imposed debt ceiling or the Treasury won’t be able to issue new debt.
A bipartisan group of lawmakers says the traditional budget process is keeping the nation on an unsustainable path, and they are calling for a new approach – based on a commission – to achieving discipline. They may attach the proposal to the debt-ceiling legislation.
“What used to be a problem that would take 30 years to mature is now upon us in the next decade,” Douglas Holtz-Eakin, an economist who advised GOP presidential candidate John McCain, said at a Senate hearing last month. “There is less time to waste.”
The hearing was organized by Senate Budget Committee chairman Kent Conrad (D) of North Dakota, a backer of the commission idea. The panel might craft fiscal solutions that Congress would vote up or down, similar to the method used to break impasses over which military bases to close. Mr. Conrad is not alone in his concern. House majority leader Steny Hoyer and Treasury Secretary Timothy Geithner are among those who’ve said existing budget mechanisms aren’t likely to get the job done.
A revived focus on deficits, however, does not mean the government will soon operate in the black or that job creation is a lower priority.
With 15.4 million Americans out of work, many economists continue to back government spending for job creation – on top of the $787 billion stimulus already under way. The idea is that federal expenditures can add fuel to an economic recovery to help make up for retrenched spending by households and many businesses.
A few days after his jobs summit, Obama laid out proposals that draw on many ideas economists and business leaders had offered. The ideas have support among those who worry that the pickup in private-sector job creation will be tepid. Some even say Obama should be much more aggressive, given the depth of joblessness.
Although the Senate doesn’t appear ready to act on Obama’s ideas, Democrats in the House showed their enthusiasm this week by voting for a $155 billion jobs package. The bill focused especially on two areas. First is spending on infrastructure such as highways and subways, which proponents say can add jobs quickly and at a relatively low cost per job. The other focus is aid to state governments, to reduce job cuts due to tight budgets.
But another sizable camp says using deficit spending to revive growth isn’t working very well. So far, some $175 billion in stimulus has created between 600,000 and 1.6 million jobs, according to estimates by the Congressional Budget Office. The economy needs many more than that.
The fix, conservatives say, mainly requires restoring private-sector confidence by keeping taxes and regulations in check.
Though the Obama administration differs with Republicans on jobs policy, it agrees that charting a path to sustainable federal budgets is vital. Otherwise, investors could lose confidence in the soundness of the dollar and the safety of Treasury bonds. Secretary Geithner wants to bring budget deficits down to 3 percent of US gross domestic product, from about 10 percent now. If GDP can grow at a 3 percent annual rate, that would hold the nation’s overall debt level constant, as a share of the economy.
Achieving that objective won’t be easy, because of the projected rise in healthcare and other entitlement spending. But without sustained attention to fiscal health, the risk is that rising debt and taxes will slow the economy’s growth rate – and make jobs even harder to come by.