Full Employment is the Best Deficit Reduction Plan

Despite the fact that Democrats have already agreed to large spending cuts, the Republican position continues to be that further reductions are needed, despite the fact that spending on social programs has already been cut to the bone.

The problem, of course, is that there just isn’t much money left in social programs, absent major, unpopular cuts to programs like Social Security and Medicare. Those aside, the most ripe area for savings is the Pentagon, and Republicans have no interest in reducing military spending—indeed, Mitt Romney spent the past year campaigning on more military spending, regardless of actual needs.

If deficit reduction is a priority, then more revenue is needed. This chart illustrates the problem:

The Bush tax cuts and the Great Recession precipitated a massive drop in the revenue collected by the federal government. Until we return to at least pre-recession levels, deficit reduction will be a difficult enterprise.

Which gets to a broader point: The best plan for reducing the debt is full employment. With a healthy and vibrant labor force, the federal government will collect enough revenue from enough workers to solve a good deal of its medium-term fiscal problems. Indeed, insofar that the picture is even dire, it’s largely because we haven’t recovered from the immense economic damage of four years ago.

If Washington were serious about getting our “fiscal house in order,” it would spend less time devising budget caps and looking for “grand bargains,” and far more time doing everything possible to get back to work. If, then, the government still faces a budget problem, then we can start to talk about paring back programs and raising taxes. Until then, it’s ridiculous to obsess over long-term fiscal problems when the actual threat to our economic success is mass unemployment.