Pelosi is a lonely voice among politicians but not among economists or investors sobered by a weak economy and, as the fiscally conservative Economist editorialized, “rising fears of a recession.” The politicians are fretting about deficits and debt; the markets are shaken by stagnation and continuing mass unemployment.
After S&P pulled its downgrading stunt on the U.S. debt, the markets scorned the company’s judgment. Bond prices rose and interest rates fell as investors worried about a double-dip recession fled to the safe harbor of American bonds. The stock market lost ground amid the wild churning of speculators. With growth slowed to about 0.8 percent over the past six months, cutbacks at the federal level — the expiration of extended unemployment benefits and the short-term payroll tax cuts — are slated to subtract another 2 percent from growth next year, before the added pain the supercommittee is expected to inflict.
Despite Pelosi’s sound advice, the chatter around the supercommittee is about the potential for a “grand bargain,” like the one Obama and House Speaker John Boehner (R-Ohio) reportedly came close to cutting in the recent debt-ceiling negotiations. That aborted deal reportedly would have cut about $4 trillion from projected deficits over 10 years, trading cuts in Medicare, Medicaid and Social Security (raising the eligibility age of Medicare by two years and cutting Social Security through slower inflation adjustment) in exchange for more revenue. The latter would be achieved by lowering tax rates on individuals and corporations while closing loopholes and deductions. Although the rhetoric features excesses like the private-plane deduction, the only way to raise enough revenue while lowering rates is to go after the mortgage deduction, the employer deduction for providing health care and the retirement deduction.
This “grand bargain” looks unconscionable. In a time of Gilded Age inequality, with the wealthiest 10 percent capturing all of the rewards of growth over the past decade, this would trade cuts in basic security for working families (Social Security, Medicare and Medicaid) in exchange for tax hikes hitting middle- and upper-middle-class families and workers with health-care benefits.
Instead, the committee should consider a real grand bargain, one that takes real courage. First, act to boost the economy and put people to work. Extend the payroll-tax cuts and unemployment benefits. Do what any sane corporate executive would do with interest rates extraordinarily low — borrow a lot of money and, if you’re the U.S. government, launch a major drive to rebuild America’s decrepit infrastructure. Add direct public employment for veterans returning from battlefields abroad, and for young people — the one in five high school graduates who are unemployed and not in college — ensuring that they don’t begin their adult lives with despair, depression and drugs. Rep. Jan Schakowsky (D-Ill.) has a bill that would create 2.2 million jobs through an Urban Corps, a Green Corps and more.
Combine that with serious long-term deficit reduction, designed to kick in when the economy gets moving. If courage were the measure, the supercommittee would go after those who have both contributed the most to and benefited the most from the mess. Tax millionaires, close offshore corporate tax havens and dodges like the one that allows hedge-fund billionaires to pay effectively lower tax rates than the cops who keep their streets safe. Levy a small speculation tax to curb the kind of computerized gambling that increasingly roils the stock markets.
Add cuts in unjustifiable spending — on subsidies for Big Oil and Big Agriculture, and on a Pentagon budget that has gone up a third in a decade, not counting the money spent on wars. Then focus on fixing our broken health-care system, the driver of long-term debt. Medicare and Medicaid can lead by negotiating bulk prices for drugs and by identifying best practices in medicine and ending wasteful ones.
Real courage requires taking on the anti-government fury stoked by Tea Party Republicans and moving to get the economy going in the short run, not adding to its increasing woes. And in the midterm, real courage means taking on the drug lobby, the Pentagon, the health insurance companies, the wealthy and the corporations that have rigged the rules in ways we can no longer afford. A bipartisan grand bargain like the one apparently envisioned by Boehner and Obama will only make government part of our problems, not part of the solution.