Chad Stone is chief economist at the Center on Budget and Policy Priorities.
The United States faces daunting economic and budget challenges, but economic policy and budget policy will likely run on autopilot this year in the run-up to November's elections. That means lawmakers will continue to neglect important national priorities, but it also means we can be grateful they probably won't make things much worse.
To be sure, policymakers are not doing enough to address the jobs deficit. The legacy of the Great Recession is an ongoing economic slump, with sluggish growth and persistent high unemployment that has lasted longer than the recession itself. Policymakers could do more to stimulate faster economic growth and create more jobs, but at the moment they seem barely able to provide even minimum support to the struggling economy by extending the payroll tax cut and extra weeks of unemployment insurance—both of which are due to expire at the end of February—through the end of this year.
[See a collection of political cartoons on the economy.]
Having said that, things could surely be worse. We should be grateful that policymakers have not gone farther down the path of immediate fiscal and monetary austerity that is bringing European economies to their knees. Despite very low interest rates and tame inflationary expectations, inflation hawks are urging a tighter monetary policy now and deficit hawks are urging more budget tightening now. Either would be a disaster for the economy; no action is better than these actions.
Policymakers, of course, cannot and should not keep interest rates close to zero and run large budget deficits forever. But, our immediate economic problem is the huge jobs deficit that persists more than two years after the recession technically ended, and the budget deficits that we incur when the economy is weak are temporary and not the source of our long-run unsustainable deficits. Policymakers should be able to walk and chew gum at the same time—to stimulate the economy today and address our long-term deficits in the coming years when the economy is stronger. As the director of the nonpartisan Congressional Budget Office, Douglas Elmendorf has testified,
There is no inherent contradiction between using fiscal policy to support the economy today, while the unemployment rate is high and many factories and offices are underused, and imposing fiscal restraint several years from now, when output and employment will probably be close to their potential. If policymakers wanted to achieve both a short-term economic boost and medium-term and long-term fiscal sustainability, a combination of policies would be required: changes in taxes and spending that would widen the deficit now but reduce it later in the decade.
Elmendorf's right. The problem is that few lawmakers are likely to see it that way during a high-stakes election campaign.
- See a collection of political cartoons on the budget and deficit
- See a slide show of Mort Zuckerman's 5 Ways to Create More Jobs.
- Read the U.S. News debate on whether the Fed has overstepped its mandate.
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