Amazing, how concerned bobbleheads become about the deficit right after the Republican administration that created it has left the scene of the crime. As people like Paul Krugman keep reminding us, there are obvious economic reasons the deficit cannot be the priority during a major recession. But those facts seem to elude David Gregory during this NBC News’ “Meet the Press” interview with Tim Geithner:
DAVID GREGORY: Let me talk about the deficit and the debt. These are alarming numbers. You've said they are. Let's look at the deficit-- since inauguration day. $1.2 trillion, now $1.4 trillion. It's up 17 percent. The overall debt, inauguration day, $10.6 trillion, now, $11.9 trillion. What's it gonna be a year from now?
TIMOTHY GEITHNER: Well, it's gonna have to come down now. It's-- it's too high. And I think everybody understands this. You know, we got these two central imperatives. Restore growth, create jobs. But make sure people understand we're gonna have to bring those fiscal deficits down as growth recovers. First growth, though. Without growth, you can't fix those long term fiscal problems. But you're not gonna have a recovery that's gonna be strong enough unless people are confident we're gonna have the will to go back to living within our means.
DAVID GREGORY: How do you bring it down, though? Do taxes have to go up?
TIMOTHY GEITHNER: Well, we're gonna have to do-- we're gonna have to make some hard choices. But we're not really at the point yet, David, where we're gonna know what's gonna be the best path forward. The President's very committed to bringing down these deficits. He's very committed to doing so in a way that's not gonna add to the burden of people-- people making less than $250,000 a year.
DAVID GREGORY: I mean, I think a lot of people - I think its fair to say - what are hard choices? I mean, what hard choices have been made so far? Are you gonna raise taxes?
TIMOTHY GEITHNER: We're gonna have to bring our resources and our expenditures more into balance.
DAVID GREGORY: So, it's possible.
TIMOTHY GEITHNER: Well-- again, the President's committed to make sure we get this economy back on track. We'll bring down deficits over time. And--
DAVID GREGORY: But Mr. Secretary you talked about hard choices. So, why can't you give a straight answer as to whether taxes have to come up, when you have a deficit this big?
TIMOTHY GEITHNER: Because David, right now we're focused on getting growth back on track. Okay? And we're not at the point yet where we have to decide exactly what it's gonna take. And I just want to say this very clearly. He was committed in the campaign to make-- he said in the campaign. And he is committed to make sure we do this in a way that is not gonna add to the burden on people making less than $250,000 a year. Now, it's gonna be hard to do that. But he's committed to doing that. And we can do that.
DAVID GREGORY: You can do it. But it's still a chance that you'd have to raise taxes and go back on that, if you've got a debt this big?
TIMOTHY GEITHNER: We're gonna have to do it in a way that's gonna help to meet that test, meet that commitment. The commitment he made to do it in a way that's fair to Americans. And make sure we do it in a way that's gonna allow-- provide for growth and recovery going forward. But we can do this. You know, this is not beyond our capacity as a country to do. But-- but-- but first things first. And in-- unless we have a recovery, our long term deficits are gonna be worse. Now, you didn't raise health care yet. But what's happening with health care now that's very encouraging. Because if you look at what independent analysts say now. If you look at these bills moving their way through Congress, they will make a substantial difference in reducing the rate of growth in health care costs over the long term. And they will help bring down those long term deficits.
DAVID GREGORY: But there is gonna be a heavy burden on the middle class. Through-- through health care. By taxes going up. By premiums going up.
TIMOTHY GEITHNER: No--
DAVID GREGORY: It will affect the middle class.
TIMOTHY GEITHNER: I don't think that's the way to look at it. Our health care system today imposes enormous burdens. Not just on businesses, but on families. There are very high hidden costs to our current system. And the best way to add to our long-term deficits. And the best way to add to those burdens is to not reform health care today.
DAVID GREGORY: But it doesn't answer the question about premiums going up with an individual mandate. And taxes going up on so-called Cadillac plans and other parts of this bill, as they're moving their way through the process it would increase taxes.
TIMOTHY GEITHNER: Again, I don't think that's the right way to think about it. I think you have to look at the entire system today. And the cost that presents. And if you look at those--
DAVID GREGORY: Well, why isn't that the right way to look at it, if that's the reality of what the legislation would do?
TIMOTHY GEITHNER: No.
Meanwhile, today Krugman points out - again - the consequences on understimulating the economy, saying the present rate of growth is not enough to deal with unemployment:
So if we take 3rd quarter growth to be more or less equivalent to average Clinton-era growth, even after 8 years of growth at that rate we’d only expect unemployment to have fallen from the current 9.8% to a still uncomfortably high 6.3%. It would take us around a decade to reach more or less full employment. As I said in my previous post, that’s well into President Palin’s second term.
The implications for Fed policy are also striking. If we use a Taylor rule that suggests zero rates until the unemployment rate reaches the vicinity of 7%, the Fed should stay on hold for around 6 more years.
We need much faster growth.