Dueling Editorials

Start with a basic question: Do you think politicians are better at cutting taxes and increasing spending, or the reverse? The answer should help you to determine whether to worry more about politicians doing too little to stimulate the economy or too little to control the debt.

This week the Washington Post ran a (fabulous) editorial that argued that those who make the case for more stimulus spending now would be more credible if they also included ideas for how to tackle the debt in the medium term, and that the added certainty of having some sort of fiscal plan would be good for the economy in the immediate term and long-term. They even included some specifics: extending the Bush tax cuts only temporarily, gradually reforming the Social Security benefit structure, and increasing the gas tax. Sign us up.
Then today, comes this doozy from the New York Times: The Wrong Message on Deficits. Bottom line, they argue, the economy is still weak and that excessive focus on deficit reduction could make things worse.
“Deficits will have to be reduced once the recovery gains more traction and unemployment recedes. Right now, for the most robust economies — the United States, Germany, Britain, Japan — slashing budgets is the wrong thing to do.”
Right now? Slashing budgets? Seriously?
This straw man argument has been made time and time again by those who want to avoid dealing with the tough choices that deficit reduction involves. They love spending in the name of stimulus, but dealing with the obvious challenge of paying for it all, which they acknowledge in passing will at some point have to be dealt with? No thank you.
No, you should not reduce the deficit this year. No, budgets should not be slashed. As we have said in Red Ink Rising, and Ben Bernanke clearly laid out yesterday, and as the many members of the Announcement Club have argued for, we should commit to a credible debt reduction plan today to reassure markets, and phase it in gradually once the economy is strong enough.
A key piece of this is not growing the deficit further in the medium term. Even stimulus measures—which may well be warranted—and thus should enlarge the deficit over the year, should be paid for over the next five years or so to mitigate the debt effects. That’s why specific suggestions for paying for stimulus and emergency measures such as those from Senators Coburn and Thune are useful.
But if those making the case for stimulus want to see any recovery stick, they may want to shift their focus from stimulus, stimulus, stimulus and nothing else, to how to spend it now (the easy part) and how to pay for it later (the tough stuff.)