The $4 Trillion Question: Deficit Reduction or Stimulus?

Money

October 28, 2012; Source: American Prospect

Bob Kuttner, the co-editor of The American Prospect, warns that President Barack Obama is preparing to undertake a major, recovery-dragging deficit reduction after the election, an action that will respond both to those in money markets expecting deficit reduction and to voters that have been inundated with dosages of the need for deficit reduction during the current election campaign. Obama told the Des Moines Register that he planned to pitch a “grand bargain” with the Republicans, which the president described as “$2.50 worth of cuts for every dollar in spending.”

Obama’s target is $4 trillion in deficit reduction—the Bowles-Simpson Commission target—and even further evening out the deficit-to-GDP ratio in “the out-years.” Kuttner is perplexed by the president’s plan, to say the least. He describes $4 trillion in deficit reduction as an economic contraction that “guarantees that a sluggish economy will continue.” He predicts that on the day after the election, “a struggle begins within the Democratic Party to save him (and us) from himself—to keep him from agreeing to a budget deal that will only slow growth, needlessly sacrifice Social Security and Medicare, and make the next four years much like the last four years.”

Writing for OpEdNews, William K. Black calls Obama’s plan a “Faustian bargain” and argues that, like the conservative Republican Richard Nixon opening up relations with Communist China, “only a Democrat can begin the destruction of the safety net.” Black calls Obama’s grand bargain the “Great Betrayal” and warns that it reflects the presence of “a fifth column within the Democratic Party” that will abandon longstanding Democratic principles. Black and Kuttner both believe that a post-election austerity program by President Obama will lead the U.S. into the economic stagnation and decline that affects the Eurozone.

It is odd, but the voice of nonprofits on the contours of a post-election austerity program emanating from President Obama or, if the election goes the other way, President-elect Mitt Romney, isn’t all that distinctive. Are there nonprofit voices on the problem of the deficit? Do they agree with what Black calls the Robert Rubin wing of the Democratic Party that the deficit is so threatening to economic stability that it merits a major frontal attack? Or, do they lean toward an agenda of continued stimulus measures (currently emanating from Ben Bernanke’s Federal Reserve, as opposed to the Obama White House) to get the economy back onto a sustained upward trajectory regardless of the deficit? Nonprofits are invited to weigh in below.—Rick Cohen

 


About

Rick Cohen

Rick joined NPQ in 2006, after almost eight years as the executive director of the National Committee for Responsive Philanthropy (NCRP). Before that he played various roles as a community worker and advisor to others doing community work. He has also worked in government. Cohen pursues investigative and analytical articles, advocates for increased philanthropic giving and access for disenfranchised constituencies, and promotes increased philanthropic and nonprofit accountability.

  • michael

    Let’s stop kidding ourselves…..even such a ‘Faustian Bargain’ like this is not enough to stop the debt spiral. We’ve seen negative growth the past 5 years…any improvement in GDP has come about because of $1.5trillion/yr in deficit spending, but it’s just putting it on the credit card and thinking things look somewhat better. Last year we did not borrow $1.5 trillion….we borrowed $4 trillion. Yep, $2.5 trillion in governmnet debts came due, and how did we pay for that….by borrowing more.

    First we had the Dot-Com Bubble….then came the Housing Bubble…..next will come the Government Bubble, and when that pops there will be no where else to go except for the Fed to crank up the printing presses and thus destroy all private savings with ruinous inflation (we remember the 70s)

    It’s going to get very, very ugly.