SOUND JUDGMENT STILL EXISTS…. It can be frustrating to read media reports on the Obama White House, which often give the impression that the administration’s economic priorities are out of whack. A Washington Post report yesterday, for example, suggested the president wants to spur job growth, but is principally concerned with keeping the deficit in check.
It leads many on the left, including me, to wonder if the administration’s economic agenda is askew. If there’s a choice between creating jobs and a modest increase in the short-term deficit, the answer should be obvious.
It’s good to be reminded, then, that the president has not lost sight of what’s important here — and that his instincts are still where they should be. At yesterday’s job summit, Bob Kuttner reminded Obama of the progressive economic vision: “I hope that your administration will recognize, as I know you will, that it’s possible, first of all, to reduce the deficit over time and sometimes in the short run realize that you need to increase the deficit. I hope the concern about the deficit in the long run doesn’t crowd out the need for additional spending in the short run.”
The president’s response was encouraging:
“Well, I think this is an important point. We have been talking a lot about specific initiatives. There is a macroeconomic element to this whole thing, and so let me just amplify what was just said. We have a structural deficit that is real and growing, apart from the financial crisis. We inherited it. We’re spending about 23 percent of GDP and we take in 18 percent of GDP, and that gap is growing, because health care costs — Medicare and Medicaid in particular — are growing, and we’ve got to do something about that.
“You then layer on top of that the huge loss of tax revenue as a consequence of the financial crisis, and the greater demands for unemployment insurance and so forth. That’s another layer. Probably the smallest layer is actually what we did in terms of the Recovery Act. I think there is a misperception out there that somehow the Recovery Act caused these deficits. No. I mean, we had — we’ve got a 9-point-something trillion-dollar deficit. Maybe a trillion dollars of it can be attributed to both the Recovery Act as well as the cleanup work that we had to do in terms of the banks.
“It turns out, actually, TARP, as wildly unpopular as it has been, has been much cheaper than any of us anticipated. So that’s not what’s contributing to the deficit. We’ve got a long-term structural deficit that is primarily being driven by health care costs and our long-term entitlement programs. All right, so that’s the base line.
“Now, if we can’t grow our economy, then it is going to be that much harder for us to reduce the deficit. The single most important thing we could do right now for deficit reduction is to spark strong economic growth, which means that people who’ve got jobs are paying taxes, and businesses that are making profits have taxes, are paying taxes. That’s the most important thing we can do. We understand that in this administration. That’s not always the dialogue that’s going on out there in public, and we’re going to have to do a better job of educating the public on that.
“The last thing we would want to do in the midst of a — what is a weak recovery, is us to essentially take more money out of the system either by raising taxes or by drastically slashing spending. And frankly, because state and local governments generally don’t have the capacity to engage in deficit spending, some of that obligation falls on the federal government.”
First, this has been another edition of “Obama clearly isn’t Bush.”
Second, this off-the-cuff response suggests the president is thinking about the issue the right way. “If we can’t grow our economy, then it is going to be that much harder for us to reduce the deficit.” The more Obama emphasizes this simple concept, the better off we’ll be.