Why Should We Worry About Deficits Anyway?

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The Deficit Reduction Super Committee holds meeting.

Welcome to Politics Bites, where every afternoon at It's A Free Country, we bring you the unmissable quotes from the morning's political conversations on WNYC. Today on the Brian Lehrer Show, Bill Frenzel, visiting scholar at the Brookings Institution, 20-year Republican Congressman from MN, and ranking minority member on the House  Budget Committee, talks with Heather Boushey, Senior Economist at the Center for American Progress, about how concerned we should be over the long-term deficit, and how the positions differ among various Democratic party factions.

The deficit reduction super-committee, a small group of people charged with creating a ten-year plan worth at least a trillion dollars, is due to reveal their recommendations this Thanksgiving. It will be gridlock! It will be pandemonium! How will they ever succeed? And should you even care?

Boushey has said that the importance of deficits is overrated. While over the long run deficits are a real issue, she said the immediate focus ought to be on job growth.

We are not going to be able to get our fiscal house in order until we deal with our unemployment problem... The real issue is getting our economy back on track.

Frenzel disagreed. He said that the president and Congress probably “consider themselves job-creation committees,” but he said a settlement of the debt problem cannot wait. 

We’re sitting herewith our debt down-graded by one rating agency, and while we’re paying very low interest rates now, the prospect of higher interest rates in the future gives a frightening possibility that we will have to subdue other part s of our budget as interest rates rise. We don’t have the luxury of waiting for our economy to get wonderful.

Debt as a measure of GDP has grown from five percent in the eighties to eight percent now. If deficits climb too high, markets become concerned about repayment, so they raise interest rates, which increases the cost of borrowing and slows growth. Boushey said that while slow growth means fewer jobs, the markets are focusing not just on interest rates, but on whether or not the economy is growing.

If you have an economy with slow growth and high unemployment that appears to be stagnating, the probability that you  are going to be able to pay that backing the future is lower than if you have a high-growing economy, because you’ve made smart investments with those government resources to get your economy back on track.

Boushay said there is a tipping point, but it is not measured in deficit as a percentage of GDP. 

We need to be focused on what is the role of fiscal and monetary policy in getting our economy moving, and then we can focus on our long-term plan.

Frenzel said he does not think the economy in the United States is stagnant, and pointed to federal stimulus programs as “singularly ineffective in boosting employment.”

Our problem is not tomorrow, it’s now, and we cannot sit around and wait until our interest costs are totally out of control.