CHRISTINA D. ROMER An economics professor at the University of California, Berkeley, she was chairwoman of President Obama’s Council of Economic Advisers.
THE United States faces two daunting economic problems: an unsustainable long-run budget deficit and persistent high unemployment. Both demand aggressive action in the form of fiscal policy.
Waiting until after the November elections, as seems likely, would be irresponsible. It is also unnecessary, since there are plans to address both problems that should command bipartisan support.
On the deficit, the big worry isn’t the current shortfall, which is projected to decline sharply as the economy recovers. Rather, it’s the long-run outlook. Over the next 20 to 30 years, rising health care costs and the retirement of the baby boomers are projected to cause deficits that make the current one look puny. At the rate we’re going, the United States would almost surely default on its debt one day. And like the costs of maintaining a home, the costs of dealing with our budget problems will only grow if we wait.
We already have a blueprint for a bipartisan solution. The Bowles-Simpson Commission hashed out a sensible plan of spending cuts, entitlement program reforms and revenue increases that would shave $4 trillion off the deficit over the next decade. It shares the pain of needed deficit reduction, while protecting the most vulnerable and maintaining investments in our future productivity. Congress should take up the commission’s recommendation the first day it returns in January.
But we can’t focus on the deficit alone. Persistent unemployment is destroying the lives and wasting the talents of more than 13 million Americans. Worse, the longer that people remain out of work, the more likely they are to suffer a permanent loss of skills and withdraw from the labor force.
Despite heated rhetoric to the contrary, the evidence that fiscal stimulus raises employment and lowers joblessness is stronger than ever. And pairing additional strong stimulus with a plan to reduce the deficit would likely pack a particularly powerful punch for confidence and spending.
The payroll tax cut for workers and employers and the extended unemployment insurance that President Obama proposed last September would help put people back to work.
But even better would be measures that increase employment today, while also leaving us with something of lasting value. Because many people worry about increasing the role of the federal government, why not give substantial federal funds to state and local governments for public investment? Tell them that the money has to be used for either physical infrastructure like roads, bridges and airports, or for human infrastructure like education, job training and scientific research. Then let the states, cities and towns figure out what would work best for their citizens.
Ronald Reagan once said that “there are simple answers — there just are not easy ones.” What needs to happen on fiscal policy is relatively straightforward. The hard part is getting politicians to do it.
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This is the same balderdash that's been peddled for the last four years and logically it still doesn't hold up. The budget deficit is composed of two factors, government revenues (not enough) and government spending (way too much). There are two sides in the budget struggle, one that wishes to increase taxes, mostly on the "rich" to balance the budget and a second that wants to dramatically cut government spending. Romer pays lip service to balanced budget architects but implementing the Bowles-Simpson recommendations involves the cooperation of the Congress, the members of which are unlikely to submit to spending reductions in their own districts without a battle. This piece-meal approach isn't going to result in the changes needed for true fiscal reform, namely the abolishment of whole departments like Agriculture, Commerce and Education and the major down-sizing of others such as the EPA and Interior. Amazingly, she doesn't mention, in this particular contribution, raising taxes.
The second part of the Romer recipe is lowering the number of jobless. Naturally, this requires increased government spending on stimulus and unemployment benefits, although she presents zero evidence that these actions have resulted in increased employment in even the near past. We've seen that much of the stimulus funding has gone not to infrastructure but instead has been used by lower levels of government to retain cops and school teachers. Regurgitating the canard that unemployment benefits increase employment is the kind of thing we expect to hear from that intellectual heavy-weight Nancy Pelosi, not a tenured professor at one of the country's most prestigious universities. Logically, as Austrian economists would attest, paying people not to work discourages their search for employment. If you pay for unemployed workers, you get unemployed workers, just as if you pay women to be unwed mothers, you get lots of single moms, not fewer.
Additionally, Romer is implying the other unemployment myth, that benefits are quickly spent and multiplied throughout the economy, the essence of Keynesian magic. That's illogical as well. There's no doubt that some portion of the weekly benefit goes to a couple brews at the saloon down the street and some frozen pizzas from the supermarket but surely much of that largesse is spent on the two most important expenses an American has, his mortgage or rent and his car payment. Both of these are existing contractual obligations, not stimulative at all and having no net positive effect on employment. Other necessary expenses, like heat, power and cell phone service aren't discretionary expenses, either.
The socialist/humanitarian theory that wealth should be extracted from the collective to subsidize the less fortunate is considered valid by many. Fine, but maintaining that this course of action actually produces wealth and increases long term employment is silly.
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