When President Obama came into office in January 2009, he inherited an economic mess, including a deficit of more than $1 trillion. Yet he soon piled up even more debt by tripling the number of U.S. troops in Afghanistan and pushing through Congress a shortsighted stimulus bill and a health-care package that did not fundamentally address the excessive costs of the health-care system. After his party took a midterm drubbing from Republicans, the Obama White House then supported the extension of the Bush-era tax cuts and other “stimulus” items, adding another trillion dollars or so of red ink to Washington’s ledger.
Not so long ago, Keynesians guaranteed that Obama’s stimulus plan would move the U.S. economy more quickly toward growth by providing full employment and lowering deficits. We both were skeptical from the start, for good reason. In May 2009, the White House forecast 4.6 percent growth in 2012, an unemployment rate of 6 percent and a budget deficit of $557 billion. The actual outcomes were much worse: growth of 2.3 percent, unemployment at 8.1 percent and a budget deficit of nearly $1.1 trillion.
Both of us opposed the stimulus package, the increased spending in Afghanistan and Washington’s fixation on short-term thinking. We said that the only result of this short-termism would be exploding deficits. And well before Obama acknowledged the point, we said that there was no such thing as “shovel-ready” projects worthy of public investment in the 21st century.
Sadly, our concerns have been borne out. Public debt was around 41 percent of the gross domestic product in 2008. Today it is around 76 percent and still rising. Yet the economy continues to languish.
Nevertheless, a few hardy Keynesians urge the president to raise deficits still further. We respectfully disagree. Doubling down on this dubious policy will move the United States only more quickly towardexcessive indebtedness and a possible economic crisis.
Keynes worried about the long-term buildup of public debt and called for balancing the budget over the course of a business cycle — allowing deficits during downturns to be offset by surpluses during good times. Unfortunately, Republicans and Democrats spent the past decade supporting reckless tax cuts, irresponsible wars and budget commitments without supporting revenue. That shortsightedness has created a crisis, soon to be exacerbated by an aging population and rising health-care costs.
Krugman, an economist and New York Times columnist, agreed not so long ago with our position that demographic challenges demanded fiscal restraint. In 2001, he wrote that deficits mattered as he inveighed against President George W. Bush’s tax cuts. With the gross federal debt then at a mere $5.6 trillion, Krugman nervously declared that balancing the budget “is mainly a matter of preparing for the fiscal consequences of an aging population.” But these days, Krugman tends to be a bit more dismissive about the dangers of long-term debt despite America’s aging population and the addition of another $10 trillion of debt in the past 12 years.
The Congressional Budget Office’s February budget outlook showed just how much rising public debt service will crowd out needed public investments and other programs later this decade. When that happens, conservatives will complain about the squeeze on defense spending; liberals will bemoan funding limits placed on education, job training and renewable-energy programs. And both sides will see how the high cost of servicing the debt will harm students in the classrooms, soldiers on the battlefield and drivers on America’s highways.
It doesn’t have to be this way. Republicans and Democrats can still find common ground to address our long-term debt. Military spending can be reduced, and our decade-long wars can be brought to an end. The Pentagon should move beyond a defense strategy based on a Cold War threat that no longer exists. Americans also know that costs for Medicare, Medicaid and private health services must be brought under control. A recent study by the prestigious Institute of Medicine puts the waste in total health-care spending — both public and private — at $750 billion per year. And a bipartisan tax reform plan could close egregious loopholes, promote fairness and economic efficiency and align revenues with spending.
There are, of course, real differences in how liberals and conservatives would approach spending cuts and tax increases. One would prefer lower tax rates and less spending in Washington. The other would prefer higher taxes to pay for higher spending. Yet we both agree that, regardless of the direction policymakers choose, Washington must start paying for its priorities. Failing to do so will burden our children and limit our ability to thrive in the future.