AS CONGRESS girds for a potentially ruinous clash over raising the debt ceiling, the distance between the debate in Washington and the actual deficiencies in the economy grows larger. Many congressional Republicans are determined to use the need to raise the debt ceiling as a lever to force even greater cuts in discretionary spending. This would do little to reduce the deficit — since non-defense discretionary spending is only 12 percent of the budget — and absolutely nothing to create jobs. It would almost certainly cost jobs, in the form of government layoffs.
And yet the voting public, hearing all the noise in Washington and lacking another compelling narrative, seems inclined to believe that the current economic woes came about because of deficit spending. That’s not remotely the case. A huge national debt, for which the government borrows incessantly, can drive up interest rates and choke the economy. It’s a real risk, but it’s not what’s happening now. Interest rates are historically low. And all that money going to debt service? It’s a loss to the economy, but the nation isn’t feeling the effects right now, precisely because it’s compensating with more borrowing.
There are, indeed, serious problems with the federal budget. The structural deficit is projected to explode due to increased spending on Medicare, Medicaid, and, to a lesser extent, Social Security. This deficit must be curbed. But that’s not what’s keeping people out of work today. It’s not what’s keeping companies from hiring. It’s not what’s keeping people from buying homes and cars and electronics. In fact, a dramatic effort to cut government spending in the short term would make the economy worse, not better. Far better to preserve what little stimulus exists.
That’s why Congress should take its focus off of discretionary spending — the day-to-day work of government — and put it on entitlements, the enormously costly Medicare, Medicaid, and Social Security. Action on those programs won’t necessarily boost the short-term economy, but it will make good use of the political energy of the moment to solve a major long-term threat.
That means enacting a combination of modest payroll-tax increases and benefit adjustments for Medicare, Medicaid, and Social Security. Those should include raising the retirement age for young workers, indexing Social Security benefits to inflation rather than the more generous formula currently in use, and grappling intelligently with ways to curb unnecessary medical procedures that nonetheless get charged up to Medicare. None of these ideas are new; the roadmap has always been there, but the political will to implement them is lacking.
In a better political world, where national problems are rigorously and responsibly handled, the raising of the debt ceiling would be an occasion for Republicans to focus on the long-term deficit, rather than discretionary spending, and for Democrats to cooperate on a long-term strategy rather than try to keep Medicare off the table.
In this respect, President Obama’s proposals have been far more responsible, more in touch with the need to balance short-term recovery with longer-term curbs in health care and retirement costs, than the extremes of either party. When liberal Democrats vow to make no changes whatsoever to Medicare or Social Security benefits, they are expressing an ideological commitment to helping the elderly over all other government priorities. Likewise, when conservative Republicans demand deep cuts to everything but defense, they are channeling a sincere belief in small government.
But the economy doesn’t answer to anyone’s vision of an ideal society. It’s an engine that needs to be revved up, so that people will have the resources to hold a debate on the shape of the future. Everyone from the neediest senior citizen to the most tax-burdened Tea Party activist would be better served by a strong and growing economy. And that means avoiding a budget-cutting frenzy that would damage the short-term economy, while making the long-term cuts that will ensure a prosperous future.