It's time for Congress to stop playing politics and start getting serious about job creation and economic growth.
One month ago, I wrote that I was heartened to see a strong bipartisan consensus emerge on the need to reduce America's long-term debt burden. I am still hopeful. Yet, I also wrote in that column that I was deeply disheartened to see a dangerous new political tactic emerge: a relatively small group of elected officials threatening to allow the United States to default on its financial obligations if their specific budgetary demands were not met.
I believe this approach was nothing short of economic hostage-taking and that the debt deal ultimately adopted by Congress was an extraordinarily costly ransom. I say this because the costs of this deal will undoubtedly be slower economic growth and greater uncertainty for unemployed Americans, struggling workers, and small businesses.
Much of the $917 billion of short-term cuts came from important outlays such as law enforcement and science research, which contribute to long-run economic stability and growth. The evidence from history is clear: countries that cut short-term spending in the midst of recession suffer higher unemployment and slower market recoveries. While I strongly believe we need action to reduce our long-term federal debt, even many conservative economists agree that such near-term spending cuts are unwise amidst high unemployment. Prominent economists also agree that these near-term cuts are unnecessary: The federal government can still raise funds in the short term at interest rates of almost zero; the benchmark 10-year U.S. Treasury bond yields stands at just three percent, an extremely low long-term rate. This -- in spite of whatever Standard and Poor's may say -- is a powerful statement that international markets still have confidence in US finances.
If we want to truly address America's long-term debt, we need to address the rising costs of healthcare and abandon the notion that we can spend trillions policing the world with military force. We need to address the fact that the US Treasury is taking in less revenue as a proportion of gross domestic product than at any time in the past 50 years. More than anything, we need to address the unemployment crisis that is killing demand and ruining millions of lives.
I still believe we can win enough Republican support for meaningful action. For starters, we can:
* Follow Ronald Reagan's example, and reform the tax code in a manner that keeps tax rates low but raises additional revenue. This means simplifying the tax code to make it harder for multinational corporations and the super-wealthy to exploit loopholes. It also means providing robust incentives for businesses -- especially small businesses -- to create jobs.
* Give Americans more purchasing power by finding ways to reduce the burden of household debt and student loan debt. Specifically, I am working on developing legislation to fix accounting rules and the tax code to eliminate perverse incentives for banks to avoid restructuring mortgage debt. This would not require additional government spending.
* Begin a careful yet significant phased withdrawal from Afghanistan starting today. This could save our nation up to $2 billion per week while saving the lives of brave and talented citizens.
It's essential that progressives frame the debate effectively. It's imperative that we break the political sound barrier and get a serious conversation going again. If we've learned one thing from this week's credit downgrade, it is that political dysfunction has real economic consequences.
So, Members of Congress, let's throw away these inflexible ideologies and cynical tactics and remember why we were elected in 2010: to end the recession and get Americans working again.
A version of this column appeared in the August 11, 2011 edition of The Detroit News.