Obsessed with the Deficit — and Ignoring the Economic Mess

Why don't we first deal with the more pressing problems of growth and job creation?

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Illustration by Stephen Kroninger for TIME

The release of another budget-balancing proposal, this from the Obama deficit-reduction commission's co-chairmen, has unleashed a volcanic eruption of hurrahs from the Olympian peaks of the Establishment — and reflexive harrumphs from the left and right. In the past, I've been a reliable hurrah monger. We do have a long-term structural deficit problem. The largest items in the budget — old-age entitlements, especially — are likely to grow in the future, and we have to pay for them. The solution to this problem is simple: pay for them. Bill Clinton proved the relative ease of starting along this path. He raised taxes on the wealthy and balanced the budget, with the help of a strong economy. (Clinton might have enacted some humane entitlement reform in 1998, but for an intern problem.) Even George W. Bush lets slip in his autobiography that the tax increase imposed by his father in 1990 "benefited" — that is, helped close — the budget deficit. Young Bush then helped reopen the deficit with outlandish tax cuts and two wars for which he refused to pay. These were policies endorsed by many of those yawping the loudest about the need for deficit reduction now.

So you'll excuse me if I muffle my deficit-reduction cheerleading this time. There is much of value in the co-chairs' proposal. I like the fact that Social Security solvency is mostly achieved by increasing taxes on the wealthy and that there are additional benefits for the working poor. I don't like the fact that the chairs would limit the earned-income tax credit, which benefits those same working poor. We could go through the proposal line by line — but why waste the lines? There is a larger problem: Why are we spending so much time and effort bloviating about long-term deficits and so little trying to untangle the immediate economic mess that we're in?

Perhaps it isn't a coincidence that so many of the people whinnying the loudest are prominent members of the financial community, the sector that has had the most to do with hollowing out our manufacturing base and creating the Ponzi scheme in housing that caused the 2008 bust. After all that uncreative destruction, they need to polish their high-minded credentials.

There is, for example, Glenn Hubbard, who was featured on the New York Times op-ed page recently in defense of the deficit commission, describing the problem this way: "We have designed entitlements for a welfare state we cannot afford." This is the same Glenn Hubbard who served as George W. Bush's chief economic adviser when Dick Cheney was saying that "Reagan proved deficits don't matter." One imagines that if Hubbard was so concerned about deficits, he might have resigned in protest from an Administration dedicated to creating them. But, no, he's here to speak truth to the powerless — to the middle-class folks whose major asset, their home, was trashed by financial speculators, thereby wrecking their retirement plans and creating the consumer implosion we're now suffering. Hubbard is telling them they now have to take yet another hit, on their old-age pensions and health insurance, for the greater good.

The obsession with long-term deficits is not limited to conservatives. Exuberantly wealthy center-left types who staged a leveraged buyout of the Democratic Party's economic policies in the 1980s — people like the deficit commission's Democratic co-chair, Erskine Bowles — have been reliable foghorns for long-term middle-class sacrifice. They tended to be big supporters of the irresponsible federal lenders Fannie Mae and Freddie Mac, and most egregiously, they shepherded the deregulation of the financial sector through Congress in the late 1990s. But unlike the Republicans, they trend toward fiscal responsibility. Pete Peterson, a nominal Republican who is a leader of this group, is in favor of higher taxes for the wealthy, means testing for Social Security and Medicare, serious cuts in the defense budget — and even a provision that would tax the profits of private-equity moguls as regular income instead of capital gains, a proposal that his former partner at the Blackstone Group, Stephen Schwarzman, compared to Hitler's invasion of Poland in 1939.

Again, I'm not opposed to long-term deficit reduction, so long as it's equitable. But I do wonder why these righteous burghers are leading the charge on this particular issue and are so obviously AWOL on a more pressing problem: finding a way to encourage productive investment that creates jobs while discouraging the financial speculation that creates bailouts. For starters, there needs to be a stiff sin tax on speculation. At the very least, the resplendent Olympians should work to put their squalid McMansion in order — by launching a public-service campaign against excessive executive compensation and devoting their considerable energies to encouraging our smartest young people to go into careers that produce jobs, not deals — before they're allowed to lecture former assembly-line workers about the sacrifices they have to make in order to balance the budget.