Larry Summers wrote a smart column in the FT this past weekend, arguing that the debt ceiling deadlock in Washington and its attendant wrangling over minutiae like medical device taxes may very well go down in history as a minor event. The debt itself, he argues, shouldn’t be keeping us up at night: it’s a second-order problem. The real challenge is ensuring robust growth:
Data from the CBO imply that an increase of just 0.2 per cent in annual growth would entirely eliminate the projected long-term budget gap. Increasing growth, in addition to solving debt problems, would also raise household incomes, increase US economic strength relative to other nations, help state and local governments meet their obligations and prompt investment in research and development.
Summers is quite right. The growth problem is much more important than the deficit problem. Raising the overall level of economic growth would substantially improve the budget picture long term.But the reality, which Summers probably understands much more clearly than does much of his party (and this is partly why liberal Democrats sabotaged his bid to become Fed chairman) is that boosting growth involves an attack on some of the regulatory practices and social policies dear to the hearts of many Democrats. Another way of saying this is that changing technology is making it possible for the US long-term to combine generous social programs with low taxes and low debt, but that in order to gather in this bounty we need significant social reforms and many existing programs need to be changed.Promoting growth is much better politics and policy than peddling austerity. America needs a growth party much more than it needs an austerity party—and it needs a status quo, stand pat party even less.[Photo courtesy Getty Images.]