Fixing the Economy’s Real Problem

obama shaking hands“Our biggest problems over the next ten years are not deficits,” the President told House Republicans Wednesday, according to those who attended the meeting.

The President needs to deliver the same message to the public, loudly and clearly. The biggest problems we face are unemployment, stagnant wages, slow growth, and widening inequality — not deficits. The major goal must be to get jobs and wages back, not balance the budget.

Paul Ryan’s budget plan — essentially, the House Republican plan — is designed to lure the White House and Democrats, and the American public, into a debate over how to balance the federal budget in ten years, not over whether it’s worth doing.

“This is an invitation,” Ryan explained when he unveiled the plan Tuesday. “Show us how to balance the budget. If you don’t like the way we’re proposing to balance our budget, how do you propose to balance the budget?”

Until now the President has seemed all too willing to engage in that debate. His ongoing talk of a “grand bargain” to reduce the budget deficit has played directly into Republican hands.

As has his repeated use of the Republican analogy comparing the government’s finances to a household’s. “Just as families and businesses must tighten their belts to live within their means,” he said of his 2013 budget, “so must the Federal Government.”

Hopefully, he’s now shifting the debate.

The government’s finances are not at all like a household’s. In fact, it’s when American families can’t spend enough to keep the economy going, because too many of them are unemployed or underemployed and have run out of money, that government has to step in as spender of last resort — even if that means taking on more debt. If government doesn’t fill the spending gap, an economy can collapse into deeper recession or depression, pushing unemployment far higher. Look at what austerity economics has done to Europe.

In addition, it’s perfectly fine for government to borrow and continue to borrow in order to invest in new roads or other infrastructure, or education, or basic research — when those investments pay off in higher rates of economic growth.

The notion that government spending “crowds out” private investment, keeping interest rates higher than otherwise, is obsolete in a global economy where capital sloshes across national borders, seeking the highest returns from anywhere.

Societies that invest in the productivity of their people attract global capital and create high-paying jobs. And since most big corporations are no longer dependent on the productivity of any one nation, the responsibility for making such investments increasingly falls to government.

Not that we should disregard the debt altogether, but the best way to deal with it is to do so gradually, through economic growth. That’s how we reduced the giant debt Franklin D. Roosevelt bequeathed America, and it’s how the Clinton Administration (of which I am proud to have been a member) achieved a balanced budget in 1996.

Republicans want Americans to believe government budgets are like family budgets that must be balanced because the analogy helps their ideological aim to “drown the government in a bathtub,” in the memorable words of their guru, Grover Norquist. As long as there’s a debt and balance is the goal, shrinkage is the only option — if tax increases are ruled out.

robert reichAt last the President wants to change the debate and focus on the real economic problem. In a Tuesday interview with George Stephanopoulos that got less attention than it deserved, he said “my goal is not to chase a balanced budget just for the sake of balance. My goal is how do we grow the economy, put people back to work, and if we do that we are going to be bringing in more revenue.”

Let the real contest begin.

Robert Reich
Robert Reich’s Blog

Friday, 15 March 2013

Related Posts Plugin for WordPress, Blogger...

Comments

  1. Ryder says

    The problem, Robert, is that everyone was warned long ago, that if we keep on a path of progressive social policy, and ever expanding government (government taxation is at a record high), that… “unemployment, stagnant wages, slow growth, and widening inequality” … social would be the result. Social spending is a very inefficient means to do productive things.

    When you convert FROM more efficient means of production, to very inefficient means, then idleness and stagnation and an over reduction in quality of life are the natural result.

    The governments idea that marriage and the nuclear family should be compromised and invaded… that people should look to the government to be a provider, instead of themselves or their spouses… and we convert to a mode of government dependence, then naturally it will be inefficient, and cost more in the long run.

    We were warned of this many decades ago, and have been reminded time and time again. As long as writers like you keep pushing us to make the same mistakes… and to keep growing a money burning, inefficient government to do the things we used to do ourselves with ease… then we can expect more decay, pain, and suffering.

    We’re not North Korea yet, granted… but one has to ask.. which way are we headed?

Leave a Reply

Your email address will not be published. Required fields are marked *