Is deficit commission wrong? Critics say there's no national debt crisis.

President Obama's deficit commission says the national debt requires urgent action. But economists are split on that basic premise.

Harry Hamburg/AP
President Obama's Commission on Fiscal Responsibility and Reform meets on Capitol Hill on Friday.

Whatever their disagreements, members of President Obama's fiscal reform commission rallied around a basic premise: America's public debt problem is serious, and the need for action is urgent.

But is that premise true?

It's actually a matter of sharp debate among economists, with some prominent Nobel Prize winners arguing for higher federal deficits – as a means of stimulating economic growth – rather than for quick steps on deficit reduction. Even Federal Reserve Chairman Ben Bernanke appears sympathetic to this position.

This view, of course, is politically at odds with the public mood of deficit anxiety that helped to sweep Republicans into greater power in elections a month ago.

But it could gain some traction in Washington due to weak job-market numbers released Friday. Unemployment rose to 9.8 percent nationwide, as the private sector added a lower-than-expected 50,000 jobs in November, the Labor Department said.

Whoever is right, the debate over stimulus and debt reduction is important at a time when Congress is grappling with these issues.

Lawmakers will soon consider the fiscal commission's blueprint on national debt and they are already in talks regarding stimulative fiscal policies such as extending both the Bush tax cuts and benefits for the unemployed.

Here are the contrarian voices, arguing that stimulus should be the bigger priority:

"We don't have a recovery" in the economy right now, says Joseph Stiglitz, a Nobel winner from Columbia University. He argues that, for practical purposes, the US is still in a recession – growing too weakly to create strong job growth.

"We have to intervene," he said in a telephone interview a few weeks ago, spelling out arguments from his book "Freefall."

Mr. Stiglitz said that, with consumers weakened by high debt and unemployment, government needs to step in with a large new stimulus effort. Secondly, he says a more effective program of relief for borrowers at risk of foreclosure would help to put consumer spending back on track.

Similarly, Nobel winner Robert Solow of the Massachusetts Institute of Technology argues in the academic journal Daedalus that pursuing deficit reduction now "seems at best perverse, and in sufficient force, a suicidal recipe for renewed and protracted economic downturn."

Mr. Solow, writing those words with Benjamin Friedman of Harvard University, argues that even though the US will need to address its deficit and debt problems at some point, fiscal stimulus can be a powerful tool for lifting the economy.

Another Nobel winner, Paul Krugman, has made similar arguments to those of Stiglitz and Solow in recent columns for the New York Times.

Beyond the question of added stimulus, many economists caution against the view that the US is at risk of a Greece-style debt crisis. Investors currently are happy to let the Treasury borrow at very low interest rates. And unlike Greece, the history of America doesn't suggest a strong likelihood of debt default.

This doesn't mean the economics profession is united against a deficit-cutting agenda. Plenty of finance experts question whether more stimulus would help.

And in contrast to those who say the government debt problem is overblown, members of the Obama fiscal commission say it requires immediate attention. On Friday, the commission plan fell short of the hoped-for support of 14 of 18 members. But a solid bipartisan majority of the panel approved the report.

To be fair, both sides in this debate over stimulus and deficit reduction present nuanced views.

Stimulus proponents generally agree that the federal deficits will need to be tamed at some point. And the commission chairs have stated a blunt guiding principle: "Don’t disrupt the fragile economic recovery."

The commission plan would slash federal deficits by nearly $4 trillion over the next decade, a move that could stabilize the national debt at 60 percent of gross domestic product. But the changes start slowly. The plan calls for a relatively modest $56 billion in deficit reduction in 2012, the first year covered in its proposals. The federal deficit would still be unusually large that year: $949 billion.

Still, even some commission members worry that the plan fails to grapple with the risk of a "jobless recovery" and economic stagnation.

Panel member Alice Rivlin (D), an economist, said the plan should include substantial short-term stimulus (she favors a big payroll-tax cut) even while planning for big fiscal restraint later in the decade.

It's notable that Federal Reserve Chairman Bernanke, a former top economist for President George W. Bush, appears to be in the Rivlin camp -- interested in more stimulus combined with a long-term plan on the debt and deficits.

"A fiscal program that combines near-term measures to enhance growth with strong, confidence-inducing steps to reduce longer-term structural deficits would be an important complement to the policies of the Federal Reserve," Mr. Bernanke said in a November speech.

And in a public forum this week, Bernanke warned that the current roughly 2 percent growth pace in the economy is not enough to substantially reduce the jobless rate – similar to Stiglitz's view that the current economy is stagnating in a "growth recession."

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