March 12, 2013 – At a Shorenstein Center event on Tuesday, Greg Ip, U.S. economics editor for The Economist and author of The Little Book of Economics: How the Economy Works in the Real World, made the “liberal case for deficit reduction.” He explained that “deficit hawks” are “made, not born” as a result of circumstances in office that convince them that dealing with the deficit is more important than focusing on other issues. While liberals have traditionally filled the role of deficit hawks, Ip said, Obama – while sounding hawkish – has not produced the policies and priorities that would reflect it, and Paul Ryan’s new budget plan in attempting to reduce the deficit “is not the traditional conservative approach.” In the past 20 years, Ip said, conservatives have focused on shrinking the government, no matter the impact on the deficit.
Ip explained that currently there is a “deficit by necessity” as a result of the Fed stepping in to assist the weakened economy. During times like these, he said, when the economy is weak and the private sector is struggling, it is “dangerous” to enact austerity measures because “the Fed isn’t there to absorb the harm [austerity] brings to the economy.”
Another problem in reducing the deficit over time is the lack of “human capital,” Ip said. The number of people in the workforce is projected to go down in coming years, due to decreased immigration and fertility rates. In addition, the “labor force participation” is at its lowest level in 30 years, he said, as a result of the weak economy and demographics.
Since there is a profound and widespread “allergy” to raising taxes across the country, both Republicans and Democrats are unwilling to approach the idea, Ip said. Therefore, the answer to deficit reduction must come from somewhere else. Ip suggested raising the retirement age on Medicare and Social Security, in order to increase the labor force participation. Additionally, he said that the “growing safety net” which includes programs that protect the middle class and especially children, should be protected and preserved so that the deficit is not made worse in the long term.
If Obama does not initiate reforms to middle class entitlements now, Ip said, the reforms might come under a Republican administration. And Paul Ryan’s budget, which makes cuts to Medicaid and food stamps, is an example of “what happens to priorities when you don’t have the courage or strategy to make middle class entitlements affordable,” Ip said.
Article by Janell Sims. Photos by Janell Sims and John Wihbey.
