Imagine that a year ago the president had proposed to begin dealing with the government's budget deficit, and the urgent need for infrastructure investment, by raising the federal gas tax by 60 cents a gallon, from its current level of 18.5 cents. One can only imagine the howls of protest and condemnation, with dire warnings about how it would bring auto sales to a grinding halt, force entire swaths of rural America into bankruptcy and plunge the economy back into recession. Oil industry economists would surely have projected the loss of millions of jobs.
It didn't happen, of course, but guess what? Over the past year, the average price of a gallon of unleaded gasoline in the United States actually increased by the same 60 cents, according to the American Automobile Association. Instead of that money - as much as $100 billion - going to the U.S. Treasury for deficit reduction and infrastructure, it went straight into the pockets of Arab sheiks, Russian oligarchs, global commodity speculators and oil company shareholders.
Steven Pearlstein is a Pulitzer Prize-winning business and economics columnist at The Washington Post.
Senate Republicans criticized President Barack Obama's budget proposal. They say it doesn't go far enough in cutting spending and reducing the federal deficit. (Feb. 15)
During that same period, private businesses created 1.2 million jobs and recorded near-record profits, stock prices rose by more than 20 percent and auto sales were brisk enough that General Motors recently handed out $4,000 profit-sharing checks to each of its unionized workers.
History will also record that, during that same time period, not one politician that I am aware of took to the floor of the House or Senate to denounce this "job-killing" 23 percent increase in the price of gasoline.
The purpose of this real-life fable is to provide a bit of perspective to the bitter and contentious debate that is about to begin here in Washington over taxes and spending. The outcome of this debate will surely have significant impact on the economy, and failure to deal with the government's long-term structural deficit would likely lead to another financial and economic crisis. But in considering the unpleasant tradeoffs we face, it is important to remember that government spending and taxing are not the sole determinants, or even the major determinants, of how the economy performs.
The tendency on the part of nearly everyone who participates in this debate is to exaggerate the impact of any particular policy choice by viewing it in isolation, comparing it to the status quo, and relying on static analyses. Such exaggeration not only makes it harder to reach an acceptable resolution but almost surely results in bad policy.
Put more simply, this budget debate will turn out much better if we all lower our voices, dispense with the histrionics and keep things in perspective.
In that context, a few observations:
Most of the $4 trillion that is slated to be added to the government's debt during President Obama's first term is the result of tax cuts that the country could not afford plus a very bad recession that drastically reduced revenue and increased spending. That doesn't mean there isn't a serious long-term structural deficit that needs to be addressed, but that was baked into the cake long before Obama arrived in Washington. He can be blamed for not yet stepping forward with a plan to deal with that structural deficit but no more than most of his Republican critics, who have yet to come up with a credible plan themselves.