Whatever Happened To “Jobs,” “Recovery” and “A Balanced Approach”

Remember all the Republican talk about how President Obama had failed to focus on jobs, economic recovery, and a balanced approach to budget deficit reduction? Remember all that scare talk about how President Obama planned to gut sacrosanct social programs like Medicare?

Well, it turns out all that talk was only posturing.

Fool Me Once: As Congress debates the sequester, all three of these ideas have been taken off the table, and the discussion now focuses solely on making cuts to those sacrosanct popular social programs, over the wishes, and votes of the majority.

The Realistic Plan That Has No Realistic Chance

Fortunately, there is a workable plan. Unfortunately, it’s politically impossible.

Greg Sargent‘s excellent Washington Times commentary titled “Memo to Congress: To bring down the deficit, focus on jobs” lays out the case for a recovery plan based on sound economics rather than political slight of hand.

The Congressional Progressive Caucus in the House of Representatives have put forward a plan to avert the sequester and bring down the deficit through investment in job creation. Unlike the plans that have been put forth to date, this one calls for a truly balanced mix of new revenue increases and spending cuts focused on defense — one that would bring the balance between revenues and cuts of the past two years into a one-to-one ratio. As Greg points out:

Needless to say, this plan…has no chance whatsoever of passing Congress…No plan that prioritizes job creation as the best means of reducing the deficit…no plan that includes equivalent concessions by both sides — could ever have a prayer in today’s Washington. It’s yet another indication of how out of whack Washington’s priorities are.

A 3-Stage Plan To Deficit Reduction and Growth

The plan, laid out here, specifies three stages of deficit reduction for a total of $3.3 trillion in deficit reduction, evenly balanced between cuts and new revenues. Better yet, two of the three stages have already happened:

Stage 1: $1.7 trillion in spending cuts (which Democrats agreed to as part of the 2011 debt ceiling deal before the sequester.

Stage 2: $737 billion in new revenues (which Republicans agreed to as part of the fiscal cliff deal in early 2o13.

Stage 3: Achieving the same $948 billion in savings (and new revenues) that the sequester does by closing loopholes and deductions for corporations and wealthy individuals.

Investment In Job Creation: The plan also invests in job creation, fully paid for through defense spending cuts of $278 billion. This would create jobs, improve infrastructure, and provide stimulus measures already proposed in President Obama’s American Jobs Act.

A 3-Fold Impact

The plan would kill 3 birds with one stone, as explained here:

  •  Deficit Reduction
  • Job Creation
  • Economic Recovery
What do economists say about it? Greg cites Paul Van de Water,  senior fellow at the Center on Budget and Policy Priorities, who assesses that it could actually work:

The general approach that’s laid out here does add up, with respect to what’s needed to stabilize the debt as a share of the economy. It would leave the overall package almost evenly balanced between tax increases and spending cuts.”

It’s certainly consistent with the CBPP’s assessment that the proper approach would be to stabilize the deficit as a share of GDP, which is the aim of this plan.

Deficit Hawk Fantasy Land

Few in Washington seem willing to admit the fact that the deficit hawks are living in fantasy land when it comes to managing the economy. Here are 3 reasons that their approach is economically illiterate:

  • First, deficit hawks have not been willing to entertain a proposal that is balanced in the sense that it requires roughly equivalent concessions by both sides —  roughly equivalent cuts and revenues.
  • Second, the deficit is not the problem that it is hyped up to be: In fact, CBO finds that the deficit is projected to fall to below $1 trillion in 2013.
  • Third, the draconian entitlement cut approach ignores public opinion, and promotes a different set of priorities that the ones the public voted for in the 2o12 elections, and continue to express in public polls.

But, equally important is the pragmatic perspective that austerity just doesn’t work and stimulus does. This isn’t a matter of opinion or theory; it’s been thoroughly tested in the American economy since the time of the Great Depression. The downward trajectory of the working class economy over the past 50 years corresponds with the exercise of a set of policies that can be generally referred to as “supply side economics,” (today known as favoring the “job creators”) — or, more accurately referred to by G.H.W. Bush as “voodoo economics.”

In short, why continue to promote the same ideas and policies that led to the Great Recession and the current erosion of the middle class when there are tried and proven strategies that make the economy healthier and stronger?

The top priorities in the economy should be reducing unemployment and improving the financial viability and purchasing power of the American consumers — the actual “job creators” rather than just seeking to balance the budget over the short term.

Why Balancing the Budget Now Would Be a Wasted Opportunity

Balancing the budget quickly might be a viable idea if this would correct the   source of the problem, but it doesn’t. Here’s why:

First, history shows that as soon as one administration balances a budget, as President Clinton did, a subsequent administration proceeds to binge on military boondoggles and unneeded and economically devastating corporate giveaways in the form of new tax cuts, grants and deregulation of the sort that resulted in the Great Recession under G.W. Bush. While I am not an advocate of the economic policies of either administration, the point remains that ever since President Reagan introduced the first systemic budget deficit, the concept of “balancing the budget” has been disingenuous.

Second, macroeconomics tells us that you can’t cut your way to growth. Businesses must invest to increase revenues. The formula for a balance sheet is as follows:

  • Assets = Liabilities + Shareholder Equity

To have sufficient liquidity to run a business or an economy, you must balance assets and liabilities. In other words, you can’t just cut liabilities and expect the asset side of the equation to grow.  In plain English, you must invest in production, promotion and the fixed costs of running a concern or an economy to generate profits, income and wealth.

What’s missing from the balance sheets of the deficit hawks is investment,  the most important driver of success.  All the cost cutting in the world is not going to make consumers buy your products — especially when we are killing off the markets for our products, the middle class consumer.

The Bottom Line

Put simply: An economy that simply cannibalizes itself cannot succeed.  But an economy that invests in the consumers, the infrastructure, and new technologies (instead of the dying old oil and gas sectors whose drilling costs will eventually surpass the benefits of drilling) is an economy that thrives.