Media outlets are reporting that Mitt Romney's selection of Rep. Paul Ryan (R-WI) as his vice presidential running mate will shift the election debate to deficit reduction. But economists argue that creating jobs, and not cutting the deficit, should be the current economic priority for policymakers.
Experts Maintain That Focus Should Be On Job Creation, Not Deficit Reduction...
Bernanke: Congress Must “Take Care Not To Unnecessarily Impede The Current Economic Recovery.” In a February 2 article, The Washington Post reported:
Federal Reserve Chairman Ben S. Bernanke on Thursday cautioned lawmakers against taking any steps that would hurt economic growth as they work to cut the nation's debt, and he defended the central bank's recent actions to support the economy.
In testimony before the House Budget Committee, Bernanke urged Congress to put a priority on finding a sustainable level of federal spending over coming decades.
But, he said, they also must “take care not to unnecessarily impede the current economic recovery.” Supporting growth now, he said, “will lead to lower deficits and debt in coming years.” [The Washington Post, 2/2/12]
Dean Baker: Focusing On Deficit Reduction “Makes No Sense” In The Face Of “Serious Lack Of Jobs.” Dean Baker, co-director of the Center for Economic and Policy Research, explained that prioritizing the deficit now “makes no sense” :
The economy has one major problem right now and that is a serious lack of jobs. We still have more than 25 million people unemployed, underemployed, or who have given up looking for work altogether because there are no jobs. This should be the issue that everyone in Washington is talking about.
Instead, many politicians and pundits want to distract people's attention from unemployment by complaining about the deficit. They have deceived many people into thinking that the economy would somehow be stronger and there would be more jobs if the deficit was reduced, either due to spending cuts or increased taxes.
This view makes no sense. There are no businesses that are going to hire additional workers because the government laid off school teachers or firefighters and we cut back spending on food stamps. Businesses hire more workers when they see more demand for their product. All of these actions that reduce the deficit, either on the spending or tax side, translate into less demand and therefore less employment. In short, those who want to cut the deficit now are lobbying for fewer jobs and higher unemployment. [U.S. News & World Report, 2/10/12]
Baker: Those Complaining About Budget Deficit Are “Distracting The Public From The Country's Real Problems.” In a column titled, “Deficit Reduction: The Great Distraction,” Baker further argued that those who say “we should be worried about the deficit at a time when 25 million people are unemployed, underemployed or have given up looking for work altogether and millions face the prospect of losing their homes” are “distracting the public from the country's real problems.” [The Huffington Post, 5/14/12]
Betsey Stevenson: “Pursuing Deficit Reduction Given The Current Economic Climate Is Completely Misguided.” In an interview with Think Progress, University of Michigan economist Betsy Stevenson stated:
STEVENSON: Pursuing deficit reduction given the current economic climate is completely misguided. We need to be thinking about investing in the future of the country. If we borrow today, if we borrow today and we invest that money wisely, it's going to be cheap to pay it in the future because the economy's going to grow and we're all going to be earning more.
STEVENSON: We need to be saying that there are costs that come with this. It's not a free lunch to cut the debt. It's certainly not a free lunch to cut the debt at a time when we have such high unemployment and we know that there's the potential for us to be in a situation where these workers are never able to get integrated back into our economy. That has big, permanent, long-lasting effects on our productivity, on our overall economy, and if we could spend money now to prevent that from happening, that money will be well-spent. I think there are programs, and I outlined them when I was talking, the President has proposed getting teachers back into the classroom. Why would be reducing spending on education at a time when we need it more than ever? Why would we be cutting important community service positions like firefighters and policemen at a time where, you know, we need those services and people need those jobs? [Think Progress, 8/1/12]
Paul Krugman: “The Deficit Is Way Overstated As An Immediate Action-Forcing Issue.” In an interview with RollingStone.com, Pulitzer Prize-winning economist Paul Krugman of the New York Times explained that increased government spending, not deficit reduction, “is the way to get the economy back on track.” He went on to say:
You could get a lot of stimulus, about $300 billion, just by providing aid to states and localities so they can reverse their budget cuts. That would create a million jobs, including those 300,000 schoolteachers that were laid off.
The deficit is way overstated as an immediate action-forcing issue. It's something to worry about over the next decade, but not something that should be dictating your policies right now. And the fact of the matter is that austerity, when you're in depression economics, doesn't even work from a fiscal point of view. Slash government spending and the economy contracts and it cuts into the economy's long-run prospects. [RollingStone.com, 5/2/12]
Krugman: “There Was And Is No Evidence To Support The Shift In Focus Away From Jobs And Toward Deficits.” In his book, End This Depression Now!, Krugman wrote that the shift from a focus on unemployment to focusing on debt and deficits is “strange” because “there was and is no evidence to support the shift in focus away from jobs and toward deficits.” From an excerpt of Krugman's book posted at The National Memo:
The strange thing is that there was and is no evidence to support the shift in focus away from jobs and toward deficits. Where the harm done by lack of jobs is real and terrible, the harm done by deficits to a nation like America in its current situation is, for the most part, hypothetical. The quantifiable burden of debt is much smaller than you would imagine from the rhetoric, and warnings about some kind of debt crisis are based on nothing much at all.
In fact, the predictions of deficit hawks have been repeatedly falsified by events, while those who argued that deficits are not a problem in a depressed economy have been consistently right. Furthermore, those who made investment decisions based on the predictions of the deficit alarmists, like Morgan Stanley in 2010 or Pimco in 2011, ended up losing a lot of money. Yet exaggerated fear of deficits retains its hold on our political and policy discourse. I'll try to explain why later in this chapter. First, however, let me talk about what deficit hawks have said, and what has really happened. [The National Memo, 5/9/12]
Lawrence Mishel: Deficit Reduction “Should Be Addressed Once The Recovery Becomes Robust.” In a column arguing that the “preeminent economic challenge of our time is to generate robust job growth and make sure unemployment drops steadily and rapidly,” Economic Policy Institute president Lawrence Mishel wrote: “Any further spending cuts at the federal -- as per the plans by Wisconsin Rep. Paul Ryan (R) or presumptive GOP presidential nominee Mitt Romney -- or at the state or local levels will only exacerbate the problem and slow the recovery or even cause the economy to shrink.” Mishel went on to explain that the “best approach” to jobs creation “means having a higher fiscal deficit for a few more years” :
This still remains the best approach: Invest in infrastructure and school modernization at a time when savings are ample and interest rates are low. Prevent further cutbacks in needed state and local services that have been slowing the recovery. Maintain safety net benefits such as food stamps and unemployment benefits that help those hurt by the recession and also help boost consumer spending. These create more jobs than other spending at this moment, according to the Congressional Budget Office.
Such a plan necessarily means having a higher fiscal deficit for a few more years. This is necessary to support overall demand in the economy and should be joined by expansionary monetary policy as well. The real deficit problem we face is not from current deficits, which are primarily due to the weak economy and the associated loss in revenues. Rather, our deficit problem is the longer-term rise in healthcare costs and the scaling back of tax rates that have been undercutting revenue. This should be addressed once the recovery becomes robust. We must also do more to strengthen wage growth and improve job quality and security. [The Hill, 7/11/12]
Isabel Sawhill: “Republican Rhetoric About Job-Destroying Deficits Is Simply Wrong.” Responding to arguments that debt and deficits are “the most serious domestic problem facing the next president,” Brookings Institution fellow Isabel Sawhill wrote:
[I]n my view, jobs, not deficits, are the most important domestic problem facing the country. Republican rhetoric about job-destroying deficits is simply wrong. Yes, we need to rein in deficits and debts over the longer run, and we should take legislative steps now to insure a fiscally responsible future. But as Michael Greenstone and Adam Looney have shown, it will take five years even under the most optimistic assumptions before the unemployment rate returns to pre-recession levels. The problem is not a lack of capacity for the economy to grow.
The problem, as Martin Baily argues in another chapter of this volume, is primarily a lack of demand. When businesses and consumers are not spending, government needs to be the spender of last resort. At a minimum, it should do no harm. Cutting spending or raising taxes when private demand is weak will only make matters worse. For these reasons, most economists have argued for short-term fiscal stimulus combined with long-term fiscal restraint. Unfortunately, it now appears that the short term could easily be as long as five years. [Brookings Institution, 1/19/12]
...But Media Seems Willing To Let Ryan Pick Shift Debate To Deficit Reduction
Reuters Columnist: Ryan Pick Could Focus Campaign On “Something Substantive: A Referendum On Fixing The American Balance Sheet.” In his Reuters column, Rob Cox wrote:
It's the budget, not the economy, stupid. That variation of the 1992 slogan that propelled Bill Clinton into the Oval Office may now apply to Mitt Romney's candidacy. The Republican presidential wannabe's choice of conservative House budget chief Paul Ryan as his running mate has the power to transform a heretofore mealy campaign into something substantive: a referendum on fixing the American balance sheet.
It's pathetic that it has taken the nomination of a 42-year-old Wisconsinite from Congress to give Romney's candidacy much appeal, even to his base, beyond the simple fact that he is not Barack Obama. But at a time when debt crises threaten the sovereignty of developed nations and the U.S. fiscal picture is about as bleak as it has been has outside of wartime, righting the country's finances is the stuff of long-term legacy creation. [Reuters, 8/11/12]
Reuters: Ryan Pick May “Shift The Race For The White House Into A Debate Over Reducing Government Spending And Debt.” A Reuters article reported:
Republican presidential candidate Mitt Romney announced Wisconsin Congressman Paul Ryan as his vice presidential running mate on Saturday in a move that could dramatically shift the race for the White House into a debate over reducing government spending and debt.
Romney, needing a burst of energy for his campaign after falling behind Democratic President Barack Obama in recent polls, made the bold yet potentially risky selection of the conservative budget hawk after ruling out more conventional candidates - such as Ohio Senator Rob Portman and former Minnesota governor Tim Pawlenty - whose impact on the race likely would have been more benign.
Now, Romney's choice of the powerful chairman of the House of Representatives Budget Committee is likely to turn the campaign - which has focused largely on the economy and a series of nasty attacks by both sides - into more of a debate over government spending, specifically Ryan's controversial budget plan that would include reductions in health programs for the elderly and poor. [Reuters, 8/11/12]
Bloomberg: Pick Shifts Focus To Differing Visions For “Putting The Federal Government's Fiscal House In Order For The Long Term.” A Bloomberg News article reported:
Articulate, sarcastic, self- confident, U.S. Representative Paul Ryan brings an evangelical fervor to the task of tackling the government's growing debt, which leaders in both parties agree will eventually trigger a crisis.
“This coming debt crisis is the most predictable crisis we've ever had in this country,” the House budget committee chairman said earlier this year. “What if your president, your senator and your congressman knew it was coming? What if they knew what they needed to do to stop it from happening” and “they chose to do nothing about because it wasn't good politics? What would you think of that person? It would be immoral.”
The decision by Republican presidential candidate Mitt Romney to make the Wisconsin congressman his running mate will transform the U.S. election into a choice between two, vastly different visions for restoring the country's economic strength and putting the federal government's fiscal house in order for the long term. [Bloomberg News, 8/11/12]
Polls Show That Americans Believe Jobs Is Most Important Issue
Pew Research Center: “Jobs Are The Top Issue For Voters.” A recent Pew Research Center poll found that “jobs are the top issue for voters,” with 33 percent of respondents saying that jobs is the issue that matters most to them in deciding to cast their vote. By contrast, 19 percent cited the budget deficit, which was lower than the 22 percent who chose health care:
[Pew Research Center, 7/12/12]
CNN Poll: 52 Percent Of Registered Voters Cite Economy As Priority Over Budget Deficit. A May CNN/ORC poll found that 52 percent of registered voters think the economy is “the most important issue facing the country today.” By contrast, 18 percent said that the federal budget deficit was the most important issue. [CNN, 6/1/12]
Wash. Post: 52 Percent Believe The Economy And Jobs “Is The Single Most Important Issue In Your Choice For President.” A Washington Post/ABC News asking respondents what was “the single most important issue in your choice for president” found that 52 percent said jobs/economy. Only 1 percent said the federal budget deficit was the most important issue. [The Washington Post, 5/22/12]
CBS News: “Sixty-Two Percent Of Registered Voters Cited The Economy As The Most Important Issue In The Presidential Election.” A CBS News/New York Times poll found that "[s]ixty-two percent of registered voters cited the economy as the most important issue in the presidential election" and that "[c]oncern over the budget deficit ranked a distant second at 11 percent." [CBS News, 5/14/12]