Putting a different Grand Bargain on the table

In light of the latest unemployment numbers and the fact that the jobs crisis is getting worse, I thought we might revisit a post from a couple of weeks ago.

There’s been a fair amount of talk in recent months about a “Grand Bargain.” The idea is based on the notion that tackling the debt must be policymakers’ principal goal, and involves some combination of spending cuts and tax increases in order to bring down the deficit. The efforts are heralded by the political establishment, but appear hopelessly misguided.

We remain stuck in the wrong conversation. We’re focused on debt when we should be focused on the economy. We’re exploring solutions to a problem that doesn’t exist (inflation, interest rates) and ignoring a problem that does exist (painfully high unemployment). And as Ezra Klein recently explained, this is “counterproductive” for both the economy and the deficit.

The jobs crisis is vastly more pressing than our debt problems, but it’s also, in two mostly unnoticed ways, interconnected. For one thing, a weak labor market means a high deficit. It means tax revenues come in low and social spending needs to be high. It’s very hard to begin deficit reduction in any serious way before unemployment comes down. Which means that the sooner we get unemployment under control, the sooner sustained deficit reduction can really begin.

But second, and perhaps more importantly for deficit hawks, the jobs crisis is leverage for deficit reduction. A little bit of stimulus could buy you a lot of deficit reduction. Imagine if Republicans offered Democrats a 4:1:1 deal: For every $4 of specific spending cuts over the next 12 years, they’d back $1 of tax increases and $1 of stimulus. A deficit-reduction deal that cut $3 trillion would carry $1 trillion in tax increases — so, $4 trillion in total deficit reduction — and $1 trillion in stimulus. Who’s the liberal who’d say no? And yet, that’s a big deficit reduction package. Among the biggest in our history, actually.

What Ezra is describing here is, to me, the basis for a real grand bargain. We have a short-term economic problem (high unemployment and sluggish growth) and a long-term fiscal problem (large deficits and growing Medicare costs).

Policymakers could, in theory, use this dynamic to strike a credible deal — Dems would get stimulus now to boost the economy and create jobs, and Republicans, in exchange, would get a deficit-reduction agenda for the coming years.

Fareed Zakaria talked up this approach nearly a year ago, calling it even then a “grand bargain.”

Ezra thinks the left would go for this, and I agree. In fact, I suspect the White House would accept this in a heartbeat. And even fiscal conservatives should be able to appreciate the fact that the surest way to cut the deficit in a hurry is to grow the economy and put more Americans back to work.

But none of this is even open to consideration, and no one has made any effort to put it on the negotiating table. Part of this is because Republicans are actively opposed to any measures intended to create jobs, and part of it is the result of a political establishment stuck in the Beltway Deficit Feedback Loop.

As Ezra concluded, there’s a “win-win” scenario available, which could “address both the problems and the politics, but Washington seems entirely uninterested in it.”

Maybe it’s time for that to change.