Huge deficits will be omnipresent throughout President Obama's first term, complicating his administration's messaging efforts on the economy. But advisers separate the political repercussions from the actual underlying fiscal and monetary policies. In some ways, the short-term politics of the deficit are negligible. They're preferable to the short-term politics of a much higher unemployment rate with no economic growth -- and a smaller deficit.
What's more important, to the administration, at least, is the degree to which the deficit has an impact on market expectations and the behavior of market players. If the goal is to stimulate private sector job growth, how the market feels about deficits -- and to the degree that the deficits reduce the incentives for investment -- this is the site of the most important political interaction. More government spending, in the form of, say, a bailout of state and local governments or a second federal stimulus -- may not have enough support in Congress, but the private sector is where the White House believes that growth needs to come from -- the government has already provided a trillion dollars worth of stimulus. Having abandoned the concept of moral hazard to save the economy in 2009, the administration will use it to their advantage in 2010.
The White House believes that when Americans say they're worried about the deficit, they're motivated by a search for clues that the current administration is budgeting responsibly. The White House time horizon, remember, is focused on sustainable growth over the long term. The employment picture is terrible, but the continuing government transfer payments -- extensions of COBRA and unemployment insurance -- are militating against the social effects off mass unemployment.
Conservatives are going to run on deficits and spending because they can, and because those issues serve as proxies for a range of objections to the size and scope of government. The Obama administration is going to focus on slowly changing the fundamentals. There will be talk of real, across-the-board limits to discretionary spending. There will probably be a bipartisan deficit-reduction panel set up, along with, perhaps, another Social Security reform commission.
The Obama White House won't bail out state governments. Aside from small, precise interventions, like an extension of the homeowners' tax credit, business tax relief, and continual UI and COBRA extensions, the White House won't "do" much of anything to kickstart the economy in 2010.
At some point next year, the unemployment rate will start to come down. The deficit will remain high, but the administration is confident that a good vector for the rate along with visible economic growth will enhance consumer confidence and induce more spending. If consumers are spending -- if they sense that their personal incomes are rising --- they will be less amenable to Republican economic arguments.
Indeed, some GOP strategists are already counseling their clients not to shoot their wad on the economy, anticipating that it will recover enough.
I think you mean mitigating rather than militating in the third paragraph. Militating doesn't make any sense in that context.
I'd like to know the names of the GOP strategists who are counseling their clients not to focus on the economy with a 10+% unemployment rate, that has nearly doubled under Obama's tenure, millions of jobs lost, as a trillion dollars in stimulus spending that we were told was going to keep the unemployment rate under 8%. How much will unemployment improve over the next nine months? Will it get even close to the Bush average of 5.5%? No way. It will remain high by historical standards even if there is a recovery.
If such strategists really exist (which I doubt) they should be fired immediately.
Not nearly doubled, I meant to say the unemployment rate has gone up nearly 50%.
I hate how they are trying to get this government more and more in debt. All it means is me, my kids and probably my great-great-great-great grandkids will be paying for our foolish mistakes. Everyone is having to learn how to cut back and the government should be no different. Instead of finding news ways to spend our money they should be focusing on how to cut back. fall wedding centerpieces harry potter mug
To say that continuing some of the most massive deficit increases in living memory is ok in the short term to get the economy going seems rather like saying in the short term it is OK to light a fire in the middle of your living room to heat your house.
Here's how you defend the deficit: We're a very powerful empire, who's gonna make us reduce it? Since Vietnam, we have gotten every capitalist country participating in globalization to pay for our blunders. Ever wonder how the USSR collapsed due to tremendous deficits from the arms race and proxy wars but we're still intact? Russia only had its poor Soviet colonies to borrow endlessly from, we had the rest of the world. Our public debts and trade deficits have only increased ever since, even Clinton only shifted public debt to foreign debt. The developing world, and increasingly the first world (Japan, Germany) are depending on export growth, selling more than buying, so who's doing all the buying to give those countries economic growth and budget surpluses to run their welfare programs? It's me, it's us. The stability and economic freedom of the middle classes of the world wouldn't be possible without our gross habits. So now more countries are booming and developing because of exports than ever before, but does that mean more people are buying? Nope. That means we accommodate and buy even more to zap all new countries into our economic sphere. Learn to ignore the deficit, and let's take advantage of the current situation to borrow a trillion for new infrastructure, another trillion for UCH, maybe some more for new schools and CO2 reductions, etc. Until another country can surpass us militarily (not for 30 years), anyone using their dollars for anything other than US investments or treasuries, such as demanding our gold and industries, will be taken as an act of war. Once our time has passed, we'll sell our military and anything of worth of value 'till the foreigners are satisfied. If we made the right investments, this country should be ready to start all over and compete in a new world economic order.
Rick Jones illustrates well the problem the White House has on the deficit issue. Rick's argument appears to be that rising deficits are always bad, no matter what. Now, this argument is utterly devoid of any basis in logic, economics, or social policy. The fact is that being a defecit hawk during a time such as this where there is a massive gap between actual and potential output in the economy would be a total disaster. The BIG problems for the White House are 1) Defecits make great sound byte politics. Reporters who don't understand anything about economic policy or the defecit just know that the defecit is some big, crazy sounding number. It is, therefore, ideal for the 5pm local news and the front page of the Neighborhood Times. As a result, readers and viewers know that the defecit is big and bad but can't place the defecit in a braoder understanding of fiscal, economic, and social policy 2) Democrats at the Congressional and State-wide levels have done an absolutely terrible job of being on message that defecits grow much more during Republican government as a result of giveaways to the wealthy. If Obama is the only one talking about how Republicans are the worst to trust on the defecit, the Democrats will have big, big problems.
The defecit will continue to be a major story because it is easy to write about and because the Democrats (besides Obama) have not found an intelligible way to tell voters that they can be trusted to manage the country's finances.
What gets lost in the ongoing myth that deficits don't or won't matter, is the belief that they will be paid. To do that assumes that in the near future, the economy will get back to "normal". Future growth will take care of the problem. From my perspective that may be the biggest myth of all. A new normal may mean an economy running at less than full capacity, burdened by limited resources, and intense foreign competition.At what point do our lenders say enough is enough, and demand higher interest rates to compensate for increased risk? Our past fiscal irresponsibility will catch up with us.