In his remarks on the so-called “fiscal cliff,” and in numerous campaign speeches, President Obama has repeatedly remarked that “we can’t just cut our way to prosperity,” and that “if we’re serious about reducing the deficit, we have to combine spending cuts with revenue. And that means asking the wealthiest Americans to pay a little more in taxes.” The president has also said that he is “not wedded to every detail” of his current plan to reduce the deficit and that he is open to compromise. But he also has made it plain, as he did in his recent remarks at the White House, that he will refuse to accept any approach that isn’t balanced; that he is “not going to ask students and seniors and middle-class families to pay down the entire deficit while people like me making over $250,000 aren’t asked to pay a dime more in taxes.”

For the millions of Americans who remain out of work, or are struggling with hourly wages that when adjusted for inflation stand where they were in 1978, this is welcome news. But the president’s focus on taxes and the deficit is only part of the story. What the country really needs, according to most economists, is more stimulus, for the best way to reduce the deficit is to expand the economy, which would of course result in more government revenue.


The president has certainly made reference to this, and he has included a modest $50 billion in stimulus spending in his recent budget proposal to Congress, but for the most part the public discourse on how to avoid the “fiscal cliff” and fix our economy has been centered not on jobs or the vast structural inequality that now separates the top 1-2 percent from the rest of us, but on the deficit. This is unfortunate, for it means, in essence, that the country’s economic agenda is still very much in the hands of the conservative right; that we are still focused not on the cause of our economic woes—a collapsed economy brought on by the worst financial crisis since the Great Depression—but on the by-product: the vast fall-off in federal, state, and local revenue that naturally came about as a result of this collapse.

A far better exercise would be to move away from the right’s obsession with the deficit and open up a conversation with the American people about a far more critical issue facing the nation: the ever-widening gulf between the rich and the rest of us and the very real consequences that this disparity in income has had on our economy and indeed on the very nature of our democrac
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...... Although the problem may be too much austerity too quickly, most everyone in Washington is insisting that the solution should encompass much, much more. In theory, this crisis should be easily resolved: If you have too much austerity, lighten the load. The reason the austerity crisis has become so messy is that the connection between the problem and its solution has been severed.

In fact, proposed solutions inevitably include four or even five distinct categories of policy. There are proposals to address the crisis itself — to reduce the dangerous size and speed of the scheduled deficit reduction in 2013. There are proposals to replace the scheduled deficit reduction with a different set of deficit-reducing tax increases and spending cuts, to be phased in over a longer term. There are policies to redesign the tax code or reform certain entitlements. There’s the need to raise the debt limit, as the Treasury is expected to run out of borrowing authority in February. Finally, there are policies to increase the amount of short-term stimulus and boost infrastructure investment.

So while the proximate problem is too much austerity, too quickly, the solutions being offered address an array of other concerns. Meanwhile, amid these wide-ranging proposals, [font color="red"]the conversation in Washington tends to focus exclusively on achieving deficit reduction — even though the economic threat we face in January is too much deficit reduction[/font].

A more sensible approach would deal directly with the problem at hand: the austerity crisis. And that could be defused fairly simply, without doing overly much to harm the deficit. The path would involve identifying policies that pack a big stimulus punch without significantly increasing the deficit. Such “mismatched” policies abound.

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