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Two things Congress can agree on to fix budget mess

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By James McCusker
Herald Columnist
At some point in the intellectual development of a child, there is the discovery that blowing into an empty bottle at just the right angle and velocity it will make a loud noise that can be quite annoying and virtually impossible to ignore -- two very important goals for some kids.
It's hard to believe that any good could come of an annoying noise like this, but it did. The same principle, relating angle and air velocity, forms the basis of a device on airplanes called a stall warning.
If the velocity or the angle of the flow of air isn't right, the airplane's wing "stalls." It doesn't create lift anymore and the plane stops flying and loses altitude, sometimes quite dramatically.
The stall warning begins making noise as a stall approaches, and taking quick action then means that the airplane can recover without losing much, if any, altitude. The longer you wait, the more drastic the effects of the stall. A full stall threatens control of the airplane and causes rapid and significant loss of altitude.
The stall warning concept may yet have more good in it for us. It is just barely possible that it could bridge the gap that separates liberals from conservatives on what to do about our economy and government spending.
Government spending has been a divisive issue in American politics for decades, and the disagreement has gathered intensity since the recession began in 2008. It is no accident, then, that we haven't seen a real federal budget in years. Getting liberals and conservatives in Congress to agree on total government spending may not be the most hopeless task in this election year, but it's real close.
The economic heart of the matter is whether government spending should be increased to offset the effects of the recession or cut back in response to reduced tax receipts and growing deficits. It's economics, of course, so both sides have no shortage of ammunition to back their claim that they're right and the other side wrong. The idea that both sides could be right seems impossible.
On the basic economic issue, however, they are both right – although they are more right about each other than they are about themselves. Liberals claim that austerity measures will not help the economy recover from the recession -- and they're right. Conservatives claim that government stimulus efforts are ineffective -- and they're right, too.
Austerity measures that reduce government spending will not, by themselves, promote economic growth or increase employment. This is true in the private sector also, but there are two parts to its truth. Businesses losing money don't recover by cutting expenses. They cut expenses because they have to in order to survive. Only survivors can prosper once they regain their footing.
On the other hand, the economic stimulus effects of government spending have been seriously overrated. Government spending is most effective at the early stages of a financial collapse, when it is used to boost people's confidence and restore order to markets.
President Franklin D. Roosevelt's New Deal spending programs during the Depression, for example, were far more effective in preventing a total collapse than they were in lifting the economy out of the doldrums in the years after the crisis was over. There is no reason to think that new government spending programs would be any more effective at boosting the economy than Roosevelt's.
The basis of an agreement, then, is to accept the federal government's spending programs early in this recession for what they were: programs to stanch the bleeding and restore confidence. Neither the bank bailout under President George W. Bush nor the stimulus program under President Barack Obama was a thing of beauty. And they both have unattractive features in 20-20 hindsight. That should be the end of the story if we are ever to move on.
If liberals and conservatives were to agree on just two things about our economy, maybe we would have less of the "everyone who disagrees with me is stupid" style of argument and start to make some progress:
•We can hear the stall warning about our public debt level. We need to address the deficit issue now, before drastic maneuvers are needed to fix it. If we act now, we won't be forced into austerity later.
Our economic recovery is lethargic and the level of unemployment is a significant problem. Government programs can be helpful in this area even though lasting economic growth and jobs have to come from the private sector.
It doesn't seem like much to agree on, but if the stakes are high enough seemingly dead negotiations can be revived sometimes by simply agreeing on a starting place. What's at stake here is nothing less than our future.
James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Snohomish County Business Journal.
Story tags » Economy, Business & FinanceHouseSenate



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