The Beltway's Destructive Obsession with the Deficit

Yesterday afternoon at the National Press Club (the standard Washington venue for events that need a little class), the Committee for a Responsible Federal Budget—a bipartisan debt-reduction group—rolled out its “Fix the Debt” campaign, an attempt to push deficit reduction to the top of the congressional priority list. It's hard to overstate the extent to which this was an almost stereotypical gathering of Beltway deficit scolds. The event featured Pete Peterson—businessman and former Commerce secretary in the Nixon administration—who funds the Committee, as well as members of the Bowles-Simpson fiscal committee—including the titular Erksine Bowles and Alan Simpson—along with former New Hampshire senator Judd Gregg, former Pennsylvania governor Ed Rendell, and former OMB director Alice Rivlin.

Despite the subject, policy recommendations were not the focus of this event; at most, the panelists praised Bowles-Simpson for its “boldness,” and repeatedly described it as a plan to put the country on the right track. Instead, the bulk of the conversation was devoted to hyperventilating over the threat of the federal debt, and indulging the centrist conceit that both parties are responsible for the impasse in Congress. For the attendees, who filled the room and the overflow section, this was catnip.

“While Washington is embroiled in ideological, and near-theological, combat over low revenues and no entitlement cuts, the public wants compromise,” said Peterson, giving his take on the challenges of passing a deficit reduction package. This was followed by Honeywell CEO Dave Cote, who declared, “We can’t continue to revel in discordant pluralism,” as if there were something problematic with democratic decision-making. Simpson had a lighter touch, though it came with a bit of Beltway resignation over the pain of “necessary” cuts to entitlements and other programs for ordinary people. “Understand that the problems are real," he said, "and the solutions will be painful.”

The astounding thing about this entire show was the extent to which unemployment went unmentioned. Each panelist spoke about how economic growth was paramount, but none seemed aware of the country’s employment crisis. Indeed, listening to the panelists, you wouldn’t know that 12.7 million Americans are unemployed, and that millions more have dropped out of the workforce altogether. At most, you had fact-free statements about how debt reduction was a necessary precondition to economic expansion. “Fixing the debt and growing the economy are tied together,” said Alice Rivlin. “We can’t grow the economy without fixing the debt.” 

Of course, this isn't true: As we saw to a limited extent with the stimulus, you can improve the economy by taking on debt, as long as that debt is used to finance consumer spending. A second, $1 trillion spending program would increase the debt, but would do more for jumpstarting the economy than any agreement on long-term budgets.

This isn't hard to see. But in the Beltway, among the permanent establishment, there is a dangerous myopia that leads to the conclusion that our short-term budget deficit—and a hypothetical, long-term debt problem—is the greatest threat to our continued economic health. Indeed, this is believed so strongly that disagreement is dismissed with dogmatic certainty, and contradictory facts are ignored; the market’s ongoing confidence in U.S. debt, for one, often goes unmentioned in these discussions.

This also goes for the most important reality of today's Washington—the extent to which congressional dysfunction is a Republican problem more than anything. The GOP has adopted a categorical opposition to upper-income tax increases, despite the fact that the wealthy have seen the vast majority of income gains over the last decade. Democrats, by contrast, have shown their willingness to sign on to a “grand bargain,” to say nothing of the Affordable Care Act, which continues to stand—unheralded—as the most significant debt reduction measure since Bill Clinton’s 1993 budget bill[1].

It would be one thing if this group were pushing for long-term debt reduction and short-term economic relief. The centerpiece of President Obama's economic plan is the American Jobs Act, which calls for hundreds of billions in new stimulus, to jumpstart the economy. This would necessarily add to the deficit, but the gains from employing people—1 million additional workers, over the next year—would more than make up for the additional debt. Different sides might disagree about the best way to accomplish the long-term goal of reducing the debt, but focusing on short-term economic improvement is clearly the right thing to do.

Instead, these self-styled masters of consensus are entirely focused on reducing the deficit now. In the current economic environment—where demand is still lagging—this is a guarantee of disaster.

  1. It’s worth noting that, during the 111th Congress, Gregg was an avowed opponent of the Affordable Care Act, despite his constant posturing on the deficit.  ↩