The economy or the deficit

THE ECONOMY OR THE DEFICIT…. The NYT‘s David Leonhardt had a good piece the other day about lawmakers on the Hill who are struggling with a pending jobs bill. On the one hand, they want to help boost the U.S. economy. On the other, they see polls insisting that voters say they want deficit reduction, which scares Dems and makes them reluctant to make necessary investments.

The article took on added significance yesterday, after the latest monthly job totals fell far short of expectations. Policymakers who assumed the recovery would boost the job market on its own, and that further action was no longer necessary, received an unwelcome wake-up call Friday morning.

The question, then, is what officials are going to do about it. Every Republican in Congress, still of the Hoover school of economics, wants to take their foot off the gas and slam on the brake. A few too many center-right Democrats want to do more, but have been convinced the long-term deficit is more important than putting Americans back to work.

There are two arguments for more stimulus today. The first is that, however hopeful the economic signs, the risk of a double-dip recession remains. Financial crises often bring bumpy recoveries. The recent troubles in Europe surely won’t help.

The second argument is that the economy has a terribly long way to go before it can be considered healthy. Here is a sobering way to think about the situation: If the next four years were to bring job growth as fast as the job growth during the best four years of the 1990s boom — which isn’t likely — the unemployment rate would still be higher in 2014 than when the recession began in late 2007.

Voters may not like deficits, but they really do not like unemployment.

And that’s really the political calculation here. For Democrats on the Hill, the fear is that, as the midterm elections draw closer, they’ll be labeled “big spending liberals who increased the deficit” if they approve another jobs bill. It’s better, these fearful Dems figure, to aim low, help less, and avoid more deficit spending.

As a matter of politics and policy, this is a drastic misjudgment with potentially awful consequences. Once attack ads are on the air, Dems will be labeled “big spending liberals who increased the deficit” whether they give the economy another boost or not. They might as well have something to show for their efforts — in this case, an improved economy.

What will the pitch be in the fall if the economy stalls and Dems passed on a chance to give the recovery a boost? I can see the ads now: “Sure, unemployment is back at double digits and economic confidence is faltering — but vote for us because, at the critical moment, we didn’t marginally increase this year’s deficit by a few percentage points.”

This really shouldn’t be complicated: invest in more job creation, help struggling states as they keep laying off workers, and make clear to voters that the economy is more important than the deficit. Do this immediately, without apology.

I realize Dems are overwhelmed by anxiety. They know a new jobs bill has merit, but they’re scared of the attack ads. But if political concerns are paramount, it’s hard to argue with a straightforward calculation: the incumbent party will be far better off with a stronger economy than a weaker one. It ain’t rocket science.

In May, deficit hawks and Blue Dogs fought to make the pending jobs bill smaller, weaker, and less effective. Perhaps now would be a good time for reality-based officials to push the effort in the other direction. Policymakers have a lot of investment options — it’s time they took advantage of them.