The deal they should — but won’t — make

June 9, 2011

Economist David Autor recently introduced me to a delightfully depressing concept: “Now-more-than-everism.” Credit for the coinage goes to Larry Summers, former director of the National Economic Council, but anyone who follows politics will recognize the premise: Faced with a crisis, a political party that doesn’t want to do the hard work of rethinking its ideas or coming up with new ones simply says that its old ideas are needed — now more than ever.

There’s a lot of now-more-than-everism in Washington these days, at a time when we can afford it even less than usual. The recovery is sputtering. Unemployment is back above 9 percent. Economic growth projections are being revised downward. Yet neither political party is promoting policies crafted to address the crisis. Instead, each party calls for the same prescriptions it would offer in an economy with 6 percent unemployment and 3 percent GDP growth.

Consider the big economic speech that Republican presidential candidate Tim Pawlenty delivered this week. Tax cuts? Check. Declaration of war on regulations? Check. Balanced budget amendment? Uh-huh. Anything that the GOP wouldn’t have championed in 2006? Not a thing. Back in 1996? Nope.

The same goes for the “jobs plan” that House Republicans introduced a few weeks ago. The menu included tax cuts, trade agreements, regulatory reform, domestic energy production, more visas for highly skilled immigrants and vague spending cuts. It omitted anything designed to address a specific economic crisis in the specific country that Republicans happen to be trying to govern right now.

The Democrats are little better. They believe the economy needs more stimulus, but they’ve stopped pushing for it. They know the housing market remains in crisis, but they’re not doing much about it. The smartest among them know that the Federal Reserve needs to lean harder into the recovery, but, unlike the Republicans who loudly and publicly oppose the Fed’s interventions, they’re not making a big deal out of it.

In other words, we’ve got one party without solutions and another party that’s given up on promoting them.

Both sides have their excuses, of course. Republicans say that deficit reduction is all that matters now. When they’re being more honest, they say that spending restraint is all that matters, and deficit reduction is a desirable second-order effect. Democrats say that stimulus spending might be good for job-creation and the economy, but that actually proposing legislation will accomplish nothing, since such proposals will be rejected by House Republicans or filibustered by Senate Republicans.

The two parties protest too much. In reality, they could help each other achieve their goals — and help the economy in the process.

The Democrats’ desire for stimulus, for instance, gives the GOP leverage to extract concessions. In return for stimulus now, Democrats would likely agree to the kind of deep spending cuts and long-term deficit reduction that they normally oppose. For Republicans, more stimulus now could mean much more deficit reduction later.

For the Democrats, agreeing to deficit-reduction later will also help make a stimulus more effective now. It will calm fears about federal spending, demonstrate that the government can overcome political paralysis and encourage businesses to take advantage of short-term tax incentives by confirming that Washington won’t be handing out more goodies once recovery takes hold.

Imagine a 3:1:1 compromise. For every three dollars in spending cuts between 2013 and 2022, there would be one dollar in tax increases, along with one dollar in stimulus prior to 2013. If Republicans were willing to be flexible on the precise nature of the spending cuts, I bet they could get Democrats to accept a 4:1:1 ratio of even deeper cuts. A commitment to stimulus would lure liberals to support the spending cuts in the deal, helping a bill pass Congress while neutering the 2012 campaign attacks that Democrats will otherwise wage against the cuts in the House Republican budget.

This sort of policy deal wouldn’t make sense in ordinary times. Why should Democrats give up three or four dollars in spending later for one dollar in spending now? Why should Republicans accept further deficit spending now when deficits and federal spending are already sky high? But it’s a deal that makes sense when 15 million Americans are unemployed, half of them have been unemployed for six months or more, and we’re paying extremely low interest rates on federal debt. It’s the kind of compromise, in other words, that we need now more than ever.

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