Economics

On Tuesday, Congressional Budget Office Director Douglas Elmendorf delivered a message to the new congressional debt committee. He preached that the economy would slow down if spending was cut and taxes were raised. The committee is now working to restore the American budget and slash the current deficits. The committee is stressed to exceed its target cutting of $1.5 trillion over the next ten years, because even that large a reduction will still not prevent the country’s debt from exceeding the GDP. 

Elmendorf said the “most effective” approach would be to change taxes and spending to create a larger deficit for today. However, it would be narrowed later in the decade. The issue of timing is crucial. Any abrupt action involving raising taxes or cutting spending has been dissuaded by many economists as it could hurt the already struggling American market. Short term bets, then, would do better boosting the economy, even if they initially add to deficits, coupled with a long-term strategy. Republicans on the panel only want cuts in spending.  Republicans refused to consider new taxes; Democrats refused cuts to Medicare without new revenue included in the deal.

But a failure to produce an agreement in the panel would results in automatic budget cuts in 2013, split between Defense and non-Defense spending., and both parties wish to avoid that.

Lawmakers are cautioned that the future of the country’s budget will look much different than its past.  “Attaining a sustainable budget for the federal government will require the US to deviate from the policies of the last 40 years.”

I’ve been speaking mostly about the state of the economy in the future, but jobs are generally at the front of people’s minds because they are the constant struggle. The congressional debt committee has not moved to pick up Obama’s new jobs bill, and in the face of GOP opposition is not likely to do so. Lawmakers of both parties agree that economic growth will help to fix the record deficits in the nation even if they strongly oppose on ways to go about fixing American employment.

The big question here is what role people want government to play in their economy and in their society. What I’m most interested in is the relationship people have with news of the economy and how that affects their own finances and their own viewpoints on the American market.