NRO’s eye on debt and deficits . . . by Kevin D. Williamson.

What’s the Problem? Debt or Jobs?


Pres. Barack Obama is neither dumb nor dumber, but he is tempting fate if his message is: “things could be worse.” Yes, things could be worse — and if we keep on the current track, we stand a pretty good chance of discovering how much worse things could get.

I was not much surprised when the Obama administration more or less shrugged off the new GDP numbers over the weekend — numbers  suggesting our already anemic growth is slowing, perhaps portending the second part of a double-dip recession. But the Obama administration mostly is interested in those GDP numbers to the extent that they have an effect on the number they’re really watching: the unemployment rate.

GDP growth is long-term and complicated. Unemployment is short-term — and, unfortunately, it is gameable. You can do all sorts of things to mess with the unemployment numbers: You can keep a few hundred thousand marginally employed in federal temp jobs, you can shunt great streams of federal taxpayers’ dollars to state and local governments to encourage them to hire and retain workers, or you can keep extending unemployment benefits so that the sting of joblessness is felt a bit less acutely. But once you’ve done all that, you’re pretty much out of options.

Which means that you have to, in the end, deal with reality.

And the reality is this: No amount of Keynesian theorizing or federal demand-management is going to get us out of this mess, get the economy growing, or get unemployment down. In fact, it was precisely that kind of government demand-boosting that got us into this mess to begin with: Hey, let’s increase demand in the market for mortgage-backed securities! What could possibly go wrong? Remember? So instead of throwing away another Iraq-and-Afghanistan-wars-combined-sized pile of money on beekeeper subsidies and cars that run on unicorn juice, you can put that money to much better use by — not spending it.

We have a gaggle of economic problems. Unemployment is one of them. The debt-to-GDP ratio is another: It’s heading toward World War II levels in the near term and Greek levels in the medium term, if we do not change course soon. (Note to President Obama: I’m guessing you were more of a humanities guy back in college. You studied a little Greek drama, I’m sure. Remember the key ingredient in a Greek tragedy? Hubris. Think about that.) There is no magic formula for making the economy grow in order to buck up that GDP vs. debt calculation. But we can work on the other side of the equation: by cutting spending.

A real-estate developer (and Obama supporter) writes that he wishes somebody would sit down with Americans and give us what he calls “the grown-up talk,” which goes, in part:

The economy is likely to be stagnant for some time, unemployment is likely to remain high for the foreseeable future, and near term significant GDP growth will be elusive. The time has come for us as a country to retrench for the future. Retrenching is not fun. It’s hard. But it is necessary. We have to address our real problems and solve them and those problems start and end with entitlement spending. Like it or not, we are going to have to accept things like means based testing, and increasing mandatory retirement ages. Our country cannot afford to be held hostage by the AARP and aging baby boomers . . . . We are going to have to make painful cuts. Our economic well being does not rise and fall on the fate of beekeeping and ethanol subsidies.

There are obvious areas where we can afford to cut and should cut. We have to end our sacred cow mentality toward defense spending. Is is absolutely vital for the security of our country to spend 3 times more on defense than the next country? How much additional risk do we assume if we spend 2.9x more than the next country?

The upshot is that neither tax cuts nor additional stimulus spending is likely to cause the kind of growth hoped for by advocates of each approach. There’s a lot of malinvestment out there, a lot of misallocated capital, and it is simply going to take time, pain, and frustration to work through it. We cannot magic those problems away. But government can — and must — start to get its fiscal house in order, and that begins with getting out-of-control spending on a leash.

If Barack Obama wants to serve a second term, he’s probably got about six months to get religion on spending — and if the Republicans want to do something useful with all those congressional seats they are expecting to pick up in the next two elections (rather than just redirect pork away from green-energy boondoggles and back to black-energy subsidies and the Small Business Administration) then they are going to need a plan. Here’s one. It’s not perfect, but if any Republican has a better agenda — or, for that matter, any credible agenda at all — let’s hear the plan.

Kevin D. Williamson is deputy managing editor of National Review.

Tags: financial Armageddon , GDP , Obama , Unemployment


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