Is Deficit Fever Easing?

Renee Montagne speaks to David Wessel of The Wall Street Journal about the current debate over what the U.S. government's economic priorities should be and why the deficit fever may have eased.

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RENEE MONTAGNE, HOST:

Since budget talks are about to start, let's see what one other leading voices are saying about the deficit. David Wessel is economics editor of the Wall Street Journal. Good morning.

DAVID WESSEL: Good morning, Renee.

MONTAGNE: Tell us how widespread Lawrence Summers' view is that the deficit is not the main problem.

WESSEL: Well, I think that there is very little debate over his argument that the U.S. economy is growing at a painfully slow pace and that Washington should do something different to fix that. There is, however, an argument about what policies would work best to achieve that goal.

So Larry Summers argues for more government spending, particularly on investment like infrastructure. He's not alone in arguing that the current government belt-tightening is completely counterproductive and hurting the economy. The Congressional Budget Office says that, Ben Bernanke, the Fed chairman, says that.

There is a disagreement, though, over which kind of policies would make the economy grow faster, so Republicans and the economists who advise them are kind of skeptical that more government spending would do much. They'd rather have a sweeping reform of the tax system. They say that reducing the uncertainty about what taxes and spending and regulations are going to be in the future would somehow unleash a lot of business investment and hiring.

And some of them say that putting off the deficit will create anxiety about future tax increases that's a actually a weight on the economy now. So it's what you do about growth that's the big debate.

MONTAGNE: But Summers is saying the deficit is not even a major problem. That sounds very different from much of the conversation in Washington, D.C., voices calling for reigning in entitlements, Tea Party lawmakers who don't want to borrow even another dime. Why is Summers going such a different direction?

WESSEL: Well, I think some of the Tea Party Republicans are actually arguing not so much about the deficit, they want to shrink the size of government, which I don't think Larry Summers wants to do. But I think one reason he's being so emphatic in his interview with Steve Inskeep and speeches and in op-eds is that he doesn't think either politicians or the public can handed this kind of complicated two-part message.

You know, we should spend more now and save more later. He thinks they're so fixated on reducing the deficit at the expense of policies that would quicken the pace of growth today that he's trying to simplify it. He's saying worry about getting the economy growing faster, period. There will be plenty of time to worry about the deficit 20 or 75 years from now.

After all, it's already come down some because of things that the government has done.

MONTAGNE: What's the counterargument?

WESSEL: Well, the government has made promises to pay benefits that exceed the tax revenues the existing tax code with produce. Is it really prudent, Larry's antagonists would say, to wait until the bills come due, hoping that the economy will grow faster than forecasted? Why can't we make legislative changes today that will save us money in the future when the economy is stronger?

MONTAGNE: Thanks very much.

WESSEL: Thank you.

MONTAGNE: That's David Wessell of the Wall Street Journal.

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