Finding Middle Ground In The Economic Debate Democrats and Republicans are arguing over the best way to handle the economic recovery. While Democrats are pushing for more stimulus, Republicans want a reduction in the federal deficit. Two economists suggest that what the country needs is a little bit of both.
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Finding Middle Ground In The Economic Debate

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Finding Middle Ground In The Economic Debate

Finding Middle Ground In The Economic Debate

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Concern that the U.S. economic recovery is faltering has ignited a furious political debate over how the government should respond. Democrats want more stimulus, while Republicans want to reduce the federal deficit. Both argue that the other's remedy could send the country back into recession - or depression.

As NPR's John Ydstie reports, a couple of prominent economists from each side are now calling for a more nuanced approach.

JOHN YDSTIE: There's little middle ground in the political argument over whether the economy needs more stimulus or fiscal discipline. Here's Democratic Majority Whip Dick Durbin on the Senate floor.

Senator DICK DURBIN (Democrat, Illinois; Senate Majority Whip): The Republicans come to us now and say: We've got to stop putting money back into the economy, it creates a deficit. Yes, it does. But if you don't get the 14 million unemployed Americans back to work, the deficit will get worse.

YDSTIE: Senate Republican Leader Mitch McConnell had this response.

Senator Mitch McConnell (Republican, Kentucky; Senate Minority Leader): What we're not willing to do is to use worthwhile programs as an excuse to burden our children and our grandchildren with an even bigger national debt than we've already got.

Professor ALAN BLINDER (Economics, Princeton University): This is one those sad cases where subtly is needed, and subtly doesn't come through in political debates.

YDSTIE: That's Alan Blinder, once an economic adviser to President Clinton and a former vice chairman of the Federal Reserve. He says the truth is the country needs both more stimulus and deficit reduction, but in different timeframes.

And Blinder has some notable company from the other side.

Professor ALLAN MELTZER (Political Economist, Carnegie Mellon University; Fellow, American Enterprise Institute): My view is we should do both.

YDSTIE: Allan Meltzer advised conservative icon Margaret Thatcher in the 1980s. He's now a fellow at the American Enterprise Institute.

First, says Meltzer, the government must address the deficit by answering this question.

Prof. MELTZER: How are we going to handle a deficit and debt that everyone recognizes, including the administration, is unsustainable? Well, let's announce a policy and say not that we're going to make draconian cuts in expenditures starting tomorrow, but that we have a plan for bringing this down.

YDSTIE: And there also needs to be stimulus, says Meltzer, but not from spending.

Prof. MELTZER: Cancel the current stimulus program and replace it by a program that will work, and that's a program which cuts corporate taxes.

YDSTIE: Allan Blinder, now a professor at Princeton, agrees with Meltzer that President Obama needs to outline a more detailed plan to begin bringing down the deficit starting at some date in the future, probably 2012. He does warn that starting serious deficit reduction immediately could send the economy spiraling. But Blinder disagrees with Meltzer that corporate tax cuts would be a good form of stimulus.

Prof. BLINDER: The evidence on business tax cuts is extremely mixed, so I wouldn't put much store in business tax cuts. A permanent cut in income taxes, if we could afford it, would stimulate the economy. But we cannot afford it. Whatever we do has to be temporary.

YDSTIE: Blinder also warns a repeat of President Obama's $787 billion hodge-podge stimulus bill is not what's needed. What is needed, he argues, is a huge program of tax credits for businesses that create jobs.

Prof. BLINDER: And/or an overt jobs creation program analogous to the WPA during the Depression. What unites those two ideas is that they're very efficient at creating jobs per dollar of deficit.

YDSTIE: Blinder also supports the effort to extend expiring unemployment benefits, which has stalled in the Congress.

Prof. BLINDER: Extending unemployment benefits is one of the best forms of stimulus we know.

YDSTIE: Republicans have blocked the benefit extension arguing it will increase the deficit.

John Ydstie, NPR News, Washington.

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