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US Politics Analysis: Can America Overcome "Deficit Fear" to Deal with Unemployment?

Senator Patty MurrayIn November 2010, Republicans took control of the House of Representatives after a historic “shellacking” of the Democratic Party in the mid-term Congressional elections. Their message then --- as it remains today --- is that America’s overall debt and the annual deficits that keep adding to it are the country's greatest challenge. The problem, they contend, is that federal government spending has spiraled out of control and must be tamed before the US goes into economic freefall.

Democrats disagree with that premise, but only to the extent that deficits need to be reduced solely through cuts in government spending. They argue that the debt can be decreased through a balanced approach, where revenue is increased through tax rises for the wealthy alongside a modest reduction in the budget.

For the last two years, that debate has dominated political discourse in Washington, driven by a Republican majority in the House. Along the way voters’ main concern --- policies that create jobs --- has been sidelined as Democrats have concentrated on defending the entitlement programs, primarily Medicare and Social Security, that Republicans have targeted for reform.

A sign of how that preoccupation with the deficit has replaced a commitment to reducing unemployment came on Thursday when the President’s Council on Jobs and Competitiveness --- launched in January 2011 when the jobless rate stood at 9% --- was shut down.

This was no great surprise. The Jobs Council produced a report in January 2012 that contained 90 recommendations for spurring growth. Several of the smaller proposals were implemented, such as an executive order quickening the process for foreigners getting US visas, but the weightier suggestions for action required Congressional approval. That was not happening in an election year.

The demise of President Obama’s Job Council has come from a misguided “deficit fear”, fueled an “incestuous amplification” that has been identified by Paul Krugman of The New York Times:

A closed group of people repeat the same things to each other --- and when accepting the group’s preconceptions itself becomes a necessary ticket to being in the in-group. A fundamentally flawed notion --- say, that the Germans can’t possibly attack though the Ardennes --- becomes part of what everyone knows, where “everyone” means by definition only people who accept the flawed notion.

Krugman’s outburst came after his appearance on MSNBC’s Morning Joe, in which he repeated his belief that job creation should be the principal focus of politicians. Pressed by co-host Joe Scarborough, and other panelists, he declared that the deficit was fifth or sixth on his list of economic concerns, and that Medicare and Medicaid spending were issues that could be resolved at some time in the future.

Shortly after the Monday show, Scarborough used his column in Politico to post "Paul Krugman vs. The World", which berated the Nobel Prize-winning economist for having a “worldview that runs counter to almost all mainstream economists".

Krugman highlighted Scarborough's argument in his “incestuous amplification" argument:

The reality is that among those who have expressed views very similar to mine are the chief economist of Goldman Sachs; the former Treasury secretary and head of the National Economic Council; the former deputy chairman of the Federal Reserve; and the economics editor of the Financial Times. The point isn’t that these people are necessarily right (although they are), it is that Scarborough’s attempt at argument through authority is easily refuted by even a casual stroll through recent economic punditry.

But these people aren’t part of the in-group, and if they do make it into the in-group’s conversation at all, it’s only by blurring their message sufficiently that the in-group doesn’t understand it.

Larry Summers, the "former Treasury secretary" in Krugman's article, wrote of “deficit fear” last week:

By all means, let’s address the budget deficit. But let’s not obsess over it in ways that are counterproductive, nor should we lose sight of the jobs and growth deficits that ultimately will have the greatest impact on how this generation of Americans lives and what they bequeath to the next generation.

What Summers and Krugman want is another stimulus, larger and more effective than the intervention in 2009. They argue that increased government spending on infrastructure and education, financed by historically low interest rates, will get Americans back to work.

This Keynesian theory has had few adherents in Washington since the 2010 Congressional elections, with Democrats running scared after Republicans triumphed running against the 2009 stimulus.

However, that may be about to change. Senator Patty Murray, the Democratic Chair of the Budget Committee, is not as respectful of the need to build coalitions as her predecessor, Kent Conrad, who failed to get a Grand Bargain with the Republicans. Murray is a conviction politician, and she feels her middle-class constituency is being betrayed by a callous GOP caucus more interested in abstract arguments about deficit reduction than the human costs of a damaged welfare system.

Last week, a day after assuming her post, Murray declared:

As Chairman of the Budget Committee, I am going to be very focused on making sure that our government is supporting job creation and encouraging broad-based economic growth. Trickle-down economics has proven to be a failed theory and a wrong-headed ideology, and I feel very strongly that real prosperity and growth comes from the middle out, not the top down.

So the Budget Committee will be examining our nation’s spending priorities closely and working to make sure we are making the long-term investments in our people and our communities that will allow us to compete and win in the 21st century economy. And as someone whose own family benefited from a government that was there for us when we needed it most, I am also going to fight to make sure the most vulnerable families have the support they need to put food on their table and keep their heads above the water while they work to get back on their feet.

Murray did not explicitly call for another stimulus, but she has outlined support for investment in job creation:

Democrats are eager to contrast our pro-growth, pro-middle class budget priorities with the House Republicans’ Ryan budget that would end Medicare as we know it, gut investments in jobs and programs middle class families depend on, and cut taxes for the wealthiest Americans and biggest corporations. We know that when our priorities are laid out next to [those of the] Republicans, the public stands with us.

On Monday, Murray's first initiative was to launch MyBudget, an on-line tool for members of the public to interact with the Committee:

I feel very strongly that politicians and bureaucrats shouldn’t be making our budget decisions in a vacuum, but that the ideas, stories, values, and priorities of families across the country have a loud voice at the table and a platform to be heard.

Will Murray persist against the “incestuous amplification” over the deficit? One sign may be agreement between Krugman and her on a different issue. Krugman argued, in a parallel to the damage of a proclaimed consensus over debt:

We saw that in the run-up to Iraq, where perfectly obvious propositions –-- the case for invading is very weak, the occupation may well be a nightmare –-- weren’t so much rejected as ruled out of discussion altogether; if you even considered those possibilities, you weren’t a serious person, no matter what your credentials.

In October 2002, Murray voted against the War Authorisation for invading Iraq.

In her home state of Washington, Murray was once belittled as a "mom in tennis shoes". If she shows the political fortitude over the economy that she displayed in challenging a march to war, those tennis shoes may make quite an impression.

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