In the runup to President Obama’s State of the Union address Tuesday night, several pundits have called on the president to focus on reducing the deficit. Early reports, though, indicate the president will talk more about jobs — a good sign, because highlighting deficit reduction is wrong on both political and policy grounds.
On the politics, MSNBC’s Joe Scarborough and my Post colleague Chris Cillizza, among others, have argued that voters want to hear about the deficit — Cillizza writes “the debt is the issue of the day” [italics original], while Scarborough has said repeatedly that Democrats are “out of touch” on deficit issues. But even the polls they cite refute their thesis: Scarborough cites a Quinnipiac poll that shows only 20 percent think the deficit should be the president’s “top priority.” Shortly after showing the poll, he tries to pull a fast one by combining that 20 percent with the 35 percent (nearly twice as many!) who think the economy should be Obama’s biggest priority.
Cillizza’s source is a Pew poll that shows respondents labeling debt reduction a “top priority…soared to 72 percent, by far the biggest increase of any issue” since 2009. Yes, those naming the economy as a top priority has remained flat, but it’s still at 86 percent, far above the debt’s number, and about as close to unanimous as you’ll get in political polling.
On policy, groups such as the Committee for a Responsible Federal Budget and Third Way continue to argue for trillions more in cuts, despite what CRFB calls “notable progress.” Media voices such as National Journal’s Ron Fournier argue that Obama may get political points, but, to use Fournier’s vivid phrasing, “the rest of America gets the shaft.” The fact is, though, that not only is our national debt close to stabilized, whether or not the sequester takes effect, but also deficit reduction in the past two years “would stand far above any other fiscal tightening since World War II.” The historical evidence suggests that reduction is likely to be accompanied by a recession, and indeed recent numbers suggest that budget cuts are already hurting the economy — they were a primary reason for the negative fourth-quarter GDP growth. And as I wrote last week, the Congressional Budget Office expects deficit reduction to lop off 1.5 percent of GDP growth in 2013; if those measures were not in place, we would be looking at 3 percent growth for the coming year, the amount we need to achieve a strong recovery.
In a speech Monday in San Francisco, Federal Reserve Board Vice Chair Janet Yellen included this graph:
Yellen points out “history shows that fiscal policy often helps to support an economic recovery,” and since World War II stimulus has typically been “a plus for growth in the years just after a recession…But instead of contributing to growth thereafter, discretionary fiscal policy this time has actually acted to restrain the recovery.” Indeed, as the chart shows, the first four quarters of recovery, when stimulus was strongest, government spending was a net positive to the economy; only since then, as deficit hawks have become more influential, has government become a net negative. As long as Washington continues to focus on reducing deficits, Yellen says, “I expect that discretionary fiscal policy will continue to be a headwind for the recovery for some time, instead of the tailwind it has been in the past.”
The State of the Union, of course, is limited in its impact, but its audience is large enough that the president can at least try to change a public debate. This year, Obama should do all he can to push Washington’s focus back from the deficit to jobs. It’s what voters want and what the economy demands.
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