Federal Reserve Chairman Ben Bernanke argued this week that putting “the federal government’s finances on a sustainable trajectory” is important, but quickly added that “a sharp fiscal consolidation focused on the very near term could be self-defeating,” and would likely “undercut the still-fragile recovery.”
As the bipartisan debt-reduction talks resume today at the White House after two weeks of silence, Democrats have adopted Bernanke’s approach almost entirely. Indeed, the New York Times reports today that discouraging economic news of late has “altered the climate” for the negotiations, and “Democrats, economists and financial market analysts are raising concerns that too much fiscal restraint this year and next could further undermine the recovery.”
“On the one hand the markets want a deal,” said Howard Gleckman, an editor and analyst at the Tax Policy Center, a joint effort of two centrist research organizations, the Urban Institute and the Brookings Institution. “On the other they don’t want a deal that’s going to send the economy back into recession.”
While the Biden group, which includes Congressional leaders from both parties, is focused on ways to reduce projected annual deficits over the next 10 years, many Democrats say the immediate issue of what to do about a weak economy now looms for the negotiators should they reach a deal. They have taken their concerns to the White House.
The administration is already intent on limiting the proposed spending cuts for the 2012 fiscal year, which begins Oct. 1; Republicans prefer larger cuts up front. [emphasis added]
Yes, 103 House Republicans this week told the GOP leadership that they want at least $380 billion in spending cuts — just for 2012 — or they’ll try to block the debt-ceiling increase and cause a recession on purpose. The NYT noted that “analysts across the spectrum dismissed the conservatives’ plan,” with sane economists concluding that such cuts “would provoke a recession,” and thereby increase the deficit in the near term.
I tend to get in a little trouble every time I suggest Republicans might be trying to sabotage the economy on purpose, so I’ll just say this for now: it’s hard to imagine why GOP lawmakers would be so desperate to take money out of the economy when the recovery is already struggling. Dems are already prepared to accept a huge debt-reduction package; for Republicans to insist that the cuts take effect immediately certainly looks like a party intent on deliberately making things worse.
That said, it’s at least mildly reassuring that the White House hasn’t lost sight of the economic priorities.
“We are working toward a balanced approach to deficit reduction that will be phased in so it wouldn’t interfere with an economy that over the next two years will continue to be strengthening,” said Jason Furman, the deputy director of the White House National Economic Council.