Coordinating Stimulus and Consolidation
The Wall Street Journal points out that deficit aversion is coming to Washington at a bad time. Just as lawmakers are looking to provide an extra kick to the economic recovery, a growing number of them have become concerned about adding to the deficit. As the article states, President Obama has been forced into "arguing...that spending be increased and cut at the same time," and Congress has been reluctant to move on the extenders bill.
Stimulus or a jobs package should not add to the long-term debt, but that doesn't mean that we should shy away from any sort of package at all. The unfortunate fact is that lawmakers seem more willing to do nothing than to simply pay for the measures they are proposing. We have argued that a short-term stimulus combined with longer-term offsets would be the most effective one-two punch for the economy, since the fiscal credibility of the plan would keep interest rates down as the stimulative effects went to work.
If lawmakers are going to pass a stimulus package, then they should pay for it over the medium term. More importantly, they should develop a fiscal consolidation plan to take effect when the economy recovers. They should not start slashing the budget deficit immediately, and they also should not keep deficit spending under the catch-all banner of "stimulus."
Bottom Line: Fiscal concerns are not a reason to ignore the economic recovery, but stimulus concerns are certainly not a reason to delay in committing to a fiscal plan.