The deal struck by Washington policymakers to cut federal spending in order to raise the federal debt limit and thereby avoid a federal default will harm the U.S. economy at a time when job-creation ought to be their top priority, according to a top Washington economist.
Moreover, policymakers ought to end the legislative debt-limit mechanism that triggered this “needlessly manufactured crisis” in the first place, says Lawrence Mishel, a nationally recognized economist and president of the Economic Policy Institute.
In a deal agreed to by President Obama, as well as top congressional Democrats and Republicans, about $1 trillion in federal spending would be cut over the next 10 years — a spending level which even the president notes hasn’t been seen since Dwight Eisenhower was president.
The House approved the budget package Monday; the Senate was expected to follow suit on Tuesday.
Mishel notes the deal was done only because Republicans were able to hold a vote hostage to allow the government to increase its debt ceiling. Without that increase, the federal government was expected to fail to be able to pay all of its bills starting Tuesday. That first-ever federal default was expected to damage the already-fragile U.S. economy.
“This proposed debt ceiling deal tentatively concludes a needlessly manufactured crisis and will do great harm to our nation,” he says. “The debt we are undertaking now and scheduled to undertake over the next ten years is solely the product of past decisions (primarily unfunded wars, an unfunded prescription drug benefit and two rounds of tax cuts under President George W. Bush) and the recession-related revenue losses caused by the financial crisis generated by financial deregulation and weak oversight.”
There was no economic necessity to undertake spending cuts or deficit reduction plans at this point in the economic recovery, when high unemployment is expected to persist for several more years, Mishel says.
“Jobs should be the priority and jobs are the path to get our nation’s fiscal situation to a responsible place,” he says. “A long-term deficit reduction at this time should only be done if coupled with substantial deficit-related supports to the economy to rapidly lower unemployment this year and next.”
The need to legislatively raise the debt ceiling, which has occurred dozens of times under both Republican and Democratic governments, should be ended, “since debt decisions are already made when budget bills are passed, and we should hold our elected officials accountable for the budget decisions they make,” Mishel says.
The spending caps included as part of the deal do not allow the budget to meet the nation’s basic needs for public investment, regulation and other domestic needs, Mishel argues.
“The spending caps will reduce non-security domestic spending to just 1.8 [percent] of GDP in 2021, the lowest level since the 1950s and the amount we now spend on public investment,” he says. “Thus, this spending level will not allow us to both maintain current levels of public investment and the normal functions for housing, criminal justice, regulatory enforcement and other needs.”
Moreover, a second round of spending cuts could kick in starting in 2013, which could cause further economic damage, Mishel says.
“If triggered, those cuts would kick in while unemployment is between 8 and 9 [percent] and lead to higher unemployment and lower family incomes,” he says.
Scott Nance is the editor and publisher of the news site The Washington Current. He has covered Congress and the federal government for more than a decade.