The Blue Dog Coalition -- a group of self-identified moderate Democrats in Congress -- has become the latest group trying to establish its bona fides as "serious" about reducing the deficit. Echoing Republican calls for austerity as we face the worse economic recession since the Great Depression, earlier this week, the coalition released its own proposal to rein in "out of control" federal spending. But as with Republican blueprints that also call for drastic cuts to discretionary spending, the Blue Dog plan offers little hope of ensuring real economic stability.
The coalition is proposing the "largest deficit cuts in history" by drawing down the yearly budget shortfall to 2.3 percent of gross domestic product by 2014; two-thirds of this savings would come from spending cuts, and the rest would come from tax reform. If we continue on our current track, the CBO estimates that the 2014 deficit will be 4.4 percent of GDP. But the agency also projects real GDP growth of 3.4 percent that same year. Assuming that private corporations continue their post-recession tendency to stockpile profits, the Blue Dogs' plan could reduce growth to an anemic 1 percent or lower, bringing the recovery to a grinding halt. Reducing the deficit so quickly and drastically might even turn the recession into a full-fledged depression: As L. Randall Wray has noted, each of the country's previous depressions has been preceded by a rapid reduction in the deficit.
First of all, by proposing deep cuts to government spending, the Blue Dogs are relying on the private sector to lift us out of the recession, a foolhardy bet given corporations' behavior since the recession began. Corporate profits skyrocketed an astounding 38 percent last year, but large firms have nonetheless shown a dogged reluctance to hire; last month, such firms accounted for only 8.5 percent of the job growth despite making up nearly half of the private-sector workforce, a big reason why unemployment only recently fell below 10 percent. You could say the recession might be over in corporate America, but the vulnerable middle class continues to struggle. And reducing the deficit to the level the Blue Dogs suggest would likely require slashing programs, such as Social Security and Medicare, which during the recession have been the only things keeping millions of Americans afloat.
The coalition's proposals are also unnecessarily drastic, even by conservatives' own standards. Blue Dogs want to stabilize the $14 trillion national debt at 60 percent of GDP, and while economists disagree about sustainable debt-to-GDP ratios, few think that 60 percent is the level at which the country would fall off a financial cliff. The notorious deficit hawks at the International Monetary Fund, which oversees the global financial system and hands out emergency loans to member nations, have shown that U.S. debt could reach a little over 100 percent of GDP before debtors begin to judge the country's debt as risky. Even conservative economists Kenneth Rogoff of Harvard and Carmen Reinhart of the Peterson Institute for International Economics have argued that debt doesn't slow growth until the debt-to-GDP ratio is above 90 percent.
Of course, the coalition's plan is just a sketch (the only detailed proposal any of its members have made is to reduce discretionary spending by 6 percent, then lock it in at that rate for two years). But though the plan says that "everything [including defense and entitlements] must be on the table," it seems highly unlikely that Congress will cut our enormous defense budget -- even the president's own proposal doesn't reduce defense spending by a dime. The irony is of course that wasteful and unnecessary wars -- in addition to the Bush tax cuts -- are a major reason the national debt is so large in the first place. "Tax reform" is mentioned, but the only concrete proposal toward that end is to have the Joint Commission on Taxation expand its annual report on the costs of tax expenditures.
Ultimately, the federal government's long-term fiscal health -- and America's economic vitality -- hinge on getting out of the recession and putting Americans back to work. Responsible budget balancing would wait to reduce deficits till the economy has completely recovered, measuring recovery not by GDP growth but by a permanent drop in unemployment below 6 percent. A responsible plan would stabilize debt, but not on the backs of the most vulnerable. The wealthy and corporations, who have captured nearly all of the proceeds of recent economic growth, would be asked to contribute their fair share. After all, isn't ensuring our country's continued prosperity what the entire debate around the budget is supposed to be about?