Washington's Suicide Pact
Klein, Ezra, Newsweek
Byline: Ezra Klein
How Congress is careening toward the worst of all worlds: massive job losses and an exploding deficit.
The headlines out of Washington probably have most casual observers convinced we're embroiled in another of our annual slapfights over the budget, and maybe the deficit. That's not the case. What's actually going on is a lot stranger, and a lot more perilous.
Right now, Republicans and Democrats are going to the mat over a bill to keep the federal government's lights on through the end of the fiscal year--a "continuing resolution," in Washington's customarily inelegant parlance. And this fight is little more than sparring practice for April or May, when we're scheduled for an unnecessary and dangerous brawl over whether Congress will raise the debt ceiling. Only after that, during the summer, will debate begin over the budget for 2012. What you need to know about each of these bills is that they're "must pass" legislation: a breakdown in negotiations or collapse into gridlock could mean economic catastrophe, with our fragile recovery shattered amid the market chaos of a government shutdown or, worse, a default on our debt.
What I wish I could tell you is that all this wrangling is likely to produce what economists say we need: growth now and a plan to tackle long-term deficits soon. But the reality is quite the opposite, I fear. There's a good chance politicians will destroy hundreds of thousands of jobs this year without doing anything at all about our long-term deficit problems. There's a win-win on the table here, but there's also a lose-lose--and it looks like Washington may choose the latter.
Most economists don't think we should start cutting spending until 2012. The recovery is simply too weak, the labor market too fragile, and businesses too restrained in their hiring for the government to slash spending on goods, services, and workers. Eventually the private sector will take up the slack so that Washington can focus on deficit reduction and debating whether to subsidize National Public Radio. But until then, the government needs to keep supporting the recovery.
That's why the budget hawks--the people who worry most about the deficit--have all proposed holding off on deficit reduction until 2012. This was the position of both the president's fiscal commission and the widely respected Bipartisan Policy Center. Stimulus now, cuts in a year or two.
But in December, Republicans blocked Democrats from passing money to fund the government in 2011. That had an unanticipated result: when the Tea Party candidates came into office in January, they took the next step and demanded that the GOP's promised $100 billion in cuts--a figure that Republican leaders had meant for the 2012 budget--apply to the remainder of 2011. Speaker John Boehner put up some initial resistance but quickly folded.
The prospect of sharp cuts in 2011 have turned the economists downright gloomy. Forecasters were predicting a year of growth strong enough to launch the economy to self-sustaining recovery. But then they were asked to add the GOP's cuts to their calculation. Fed chairman Ben Bernanke estimated they would cost 200,000 jobs. The firm Macroeconomic Forecasters ran its own analysis and came back with 500,000 in job losses. Mark Zandi, the chief economist of Moodys.com, predicted 700,000. No matter who's right, the number is far too high.
If those job losses were the necessary cost of doing something serious about the deficit, perhaps Republicans could justify them. …