By Marshall Kirby, Policy Analyst

As a citizen, the debate over budget cuts and the fiscal crisis has permeated throughout the media.  The one thing all sides agree on is that something will need to be done to shore up America’s fiscal position sooner rather than later.  It seems hard to believe that a decade ago discussion of the US deficit raised little concern even from well respected “deficit hawks.”  However, over the last ten years, our country has consistently spent far more than it received in revenues.  This has led us to the point where even those analysts who believed that America’s fiscal position was strong have now raised their eyebrows with regard to our country’s long term budget sustainability and solvency.

Right now, Republicans and Democrats both acknowledge the situation and the need to produce meaningful budget cuts.  However, Republicans have seized momentum from the political wind and have put forth a budget in the House of Representatives which puts through deeper cuts in non-defense discretionary spending than the President’s own budget.  Both the Administration’s budget and the one put forth in the House have received a lot of criticism with a mix of praise.  Deficit hawks and Tea Party supporters have praised the House budget, and less hawkish analysts also concerned with education and infrastructure have been sympathetic towards President Obama’s.

I’d venture a guess based on polling numbers from various news agencies and organizations that the average American is fairly concerned with America’s and their own state’s deficit problems.  At the same time most are more deeply concerned about the economy, growth, and employment.  Coming out this week in the Washington Post (article can be viewed here) was a report by Mark Zandi, an economist at Moody’s which has predicted that if the House budget were to become our nation’s budget 700,000 jobs would be lost.  Additionally, he warns in the report that GDP would contract by 0.5% this year and 0.2% in 2012 based on the budget which passed the House.  Republican leaders have been strongly critical of the report’s findings, criticizing Mr. Zandi’s role in crafting the Recovery Act (stimulus bill of 2009).  However, even though criticism of Zandi’s role in the stimulus spending bill may be warranted, it is important to note that he is not simply a Democrat policy analyst.  He was a respected economic advisor to Senator John McCain during his failed presidential election bid.  His analysis is not alone either, Goldman Sachs produced a similar report, although with even higher economic and employment contraction.

Despite the heated rhetoric coming from both conservatives and liberals over the analysis of the budget, economic principles remain.  Both the Zandi/Moody’s and Goldman Sachs report both warn that despite the fears of economic and employment contraction, the federal government cannot expect future economic growth to make up the difference between budget and deficits.  The reports bring a sense of urgency that the budget is a very serious issue which must be dealt with soon (within the next few years).  Government spending can be detrimental to an economy in recovery as it leads individuals and businesses concerned over future tax increases.  It also can crowd out monetary capital for investments made by entrepreneurs and businesses which would produce economic growth and employment.  At the same time, strong austerity measures can lead to economic contraction if businesses and the private do not account for the decrease with strong growth numbers.  Unfortunately, we seem to be witnessing this phenomenon in Ireland, the UK, and Spain.  (It is important to mention that in the cases of these countries, the cost of government borrowing has risen beyond the point of being sustainable in the medium term which has made austerity the only real options for policymakers to deal with a serious fiscal threat).

What is the key issue for entrepreneurs is for our elected leaders to be accountable and responsible in crafting budgets in the coming years.  We need to encourage policymakers from both parties to encourage forward thinking and produce meaningful budget cuts which do not rely on long term detrimental cuts in education, research and development, and small business promotion.  Additionally, we need our policymakers to acknowledge the immediate repercussions of budgetary policy and to account for them.  Cutting a large nominal dollar amount out of the budget will help America’s fiscal situation, but if it does not account for the economic consequences of contraction of GDP and jobs it can be just as damaging and irresponsible as ignoring the deficit crisis.

Mr. Kirby joins The National Puerto Rican Chamber of Commerce with an experienced background in Public Policy Analysis.  He has worked for Americans for Informed Democracy, the Center for US Global Engagement, and for local governments in Virginia on issues ranging from international finance, national security, and other areas of foreign and domestic policy.  He holds a Master of International Development Degree from the University of Pittsburgh.

Marshall can be reached at 866-576-5222 x 8, or MarshallK@NPRChamber.org.


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