Fear of excessive federal debt and annual deficit spending can be a good thing. But when joblessness remains high and the American and global economy remains fragile, it would be foolish to suddenly slash government spending and sabotage a recovery that has barely begun. Yet Republican demagoguery and right-wing, tea party fear-mongering seem to be successfully steering the national political thinking toward making deficit reduction a larger priority than job growth and economic recovery. If pursued, that will lead straight toward a double-dip recession and an even longer economic swoon.
Europe's euro-zone countries, whose economies collectively are larger than America's, seem bent on the same path, even though Europe's biggest economic powers still enjoy lower debt ratios and more manageable unemployment rates than the United States. To make matters worse, some G-20 Asian economies are considering the same tack.
Behind the myopia
There's a reason for this myopia.
In America, it's because Republicans and their right-wing media talk jocks are determined to undercut everything the Obama administration tries. Painting the inherited budget deficit as a hallmark of an out-of-control White House is the easiest and most convenient way to make President Obama's administration a political target. It doesn't require a single constructive remark or job plan. Ironically, Republicans are also happy to tout tax cuts -- their cure for everything -- as a cure for the recession and joblessness, never mind that it would mushroom the national debt and attendant tax-revenue losses and deficit problems.
Stunning hypocrisy
The hypocrisy is stunning. Republicans and their advocates didn't blink when George W. Bush more than doubled the federal deficit, from $5.7 trillion in 2001 to more than $12 trillion in his final budget for 2009. They rode then-Fed chairman Alan Greenspan's pronouncement that he worried about the Democratic path of paying off the federal debt and accumulating a surplus every year -- the course that the Clinton-Gore had actually begun with three annual budget surpluses when Mr. Bush took office.
Further abetted by Dick Cheney, who famously said "deficits don't matter," Republican congressmen cheered the Bush II era's hallmark of two credit-cards wars and horrendously expensive tax cuts for mega-millionaires and billionaires that put us in the current hole. They also kept those costs "off-budget" so the administration's huge and increasing annual budget deficits wouldn't appear as high as they really were. Now that Mr. Obama has rolled those costs into the printed budget and applied some stimulus spending, pushing the overall debt up to $13 trillion, Republicans are suddenly amazed by the costs they long played down.
A euro-bailout phobia
European leaders are feeling debt-reduction pressure for different reasons. Citizens in rich European countries are worried that the euro-zone's weakest economies -- the PIIGS: Portugal, Ireland, Italy, Greece and Spain -- may require a wave of bailouts now that Greece has been granted an ice-breaking 700 billion euro (about $850 billion) bailout to stave off bankruptcy. The European bailout-and-debt crisis is fanned by fears that runaway sovereign debt will lead to a downgrading of their governments' bonds, and a resulting inability to pay public pensions and costs, and to lubricate business and consumer credit markets.
The problem with focusing more on federal debt than on economic recovery and promotion of job growth -- which is slow and would take new stimulus money -- is that the focus on government savings will force the drying up of the very consumer spending that lubricates modern economies. Such a policy would severely worsen the debt and unemployment problems in Europe and in the United States.
It's a virtue for individuals to increase personal savings. But if all citizens simultaneously were to focus on dramatic increases in savings, they would freeze the economy and spin it abruptly into recession by forcing plant closures, job losses and withered economies. When 70 percent of economic activity in advanced economies depends on consumer spending, a dramatic shift toward savings -- including governmental savings -- would be punitive in the extreme.
A dangerous premature shift
That's precisely why it would be wrong for Washington to seek sharp, near-term, dangerously premature reductions in the annual federal deficit to begin whittling down the national debt. Three-quarters of federal spending is locked up in entitlements -- Social Security, Medicare, Medicaid and such human services as unemployment benefits and food aid. Trimming those expenditures would generate brutal, economy-draining results, heighten unemployment, spur deeper tax revenue loss, enlarge deficits and retard recovery.
And rolling back savings in other areas, such as road building and public works, would have similar negatives. Considering the current state of the economy, such cuts would be akin to taking food away from a skinny man because he's almost too thin.
More stimulus needed
In reality, boosting economic growth will be exceedingly hard without an increase in federal stimulus spending. Indeed, most state governments are already begging Washington for an additional $24 billion in aid just for Medicaid, and forecasting widening unemployment and reduced tax revenues. Thirty states have already penciled-in their higher Medicaid requests in their budgets, and warn that thousands more lay-offs will follow if they don't get it.
It takes a steady growth rate of three percent just to add enough jobs to keep up with normal growth in the nation's workforce. With more than eight million people thrown out of work in the past two years, and a total of 15 million total unemployed, it will take a far higher (and unlikely) growth rate over several years to make a significant reduction in joblessness.
In the meantime, Washington will have to limp along on slow growth. And until jobs -- and depressed tax revenue -- come back, the federal debt is bound to keep increasing.
Fed chairman Ben Bernanke warned Congress of that dilemma last Wednesday, even as he agreed that work to trim the deficit must be done when the economy has improved satisfactorily.
When President Obama was installed in office, polls showed that Americans understood this economic conundrum: they widely agreed then that the president couldn't wave a magic wand, and accepted that he would need several years to begin to turn the economy around. The turnaround has begun. It shouldn't be aborted before it has a good foundation because of a feigned, newly discovered fear of the Bush debt hangover by the conservatives who laid it on us.