(cross posted at freeforall)
My first post of 2012 said the top public policy priority for 2012 was to:
…enact policies that encourage economic growth now, while moving toward a sustainable budget over the long run. This main policy need is unchanged from 2011, and we didn’t manage to do either very well.
This is still true.
The jobs report today has triggered the panic button for many (here is Jared Bernstein’s first take on the report), showing that the slow economic recovery is further slowing. I think the biggest mistake we have made the past few years is to lose government jobs; we lost 13,000 more this past month, and the unemployment rate would be about 1% point lower than it is if we hadn’t shed government jobs (mostly state and local cuts). For the short run, and with the real interest rate paid by the federal government at or below zero, we should be boosting state and local jobs with federal money, not losing such jobs. It is not too late to do so.
For the longer run, we need a path toward a sustainable federal budget, and that is the focus of my book. These two ideas–we need to do more in the short run to boost employment and growth, while adopting a longer range plan to reduce budget deficits–are not incompatible. In fact, I believe some movement toward the latter could actually help enable us to do more of the former. However, politically both seem impossible, which really means that our political system is incapable of enacting the type of compromise that will enable us to address our biggest short run problem (slow economic growth), and our biggest long run problem (large deficits due to normal spending given our current tax code and demographic changes). Maybe it will take some sort of economic catastrophe for our political system to act, and that is demoralizing.
In the long run, it will take a tax increase and a health reform plan that can slow the rate of health care cost inflation, to ever achieve anything near a balanced budget in the future. There are other policy changes needed, but without those two we will never have a sustainable federal budget. We need a forceful response on both the short run and long term problems facing our country. I am not sure we will get away with waiting until after the 2012 election to begin doing the obvious.