Amid the sighs of relief that the U.S. has avoided default on its debt payments, there are widespread fears in both the public and the private sector that curbs on government spending will push the economy back into recession.
In the U.S., the debate is pretty much colored by partisanship. The deficit hawks and the embattled band of economic stimulus advocates don’t agree on the facts, much less on policy. But on NPR this morning, I heard an interview with a private-sector Japanese economist who believes the U.S. is about to repeat the mistakes made in Japan in cutting back on spending at a time when the economy needs more stimulus–a position that President Barack Obama himself has abandoned.
I don’t know if this economist is correct, and neither do you. But we may all know in a year or so. If I were the Democratic president at this moment in history (and I’m glad I’m not) I would spin the debt ceiling compromise this way: “Okay, Republicans. You got the deal you wanted. Spending cuts. No tax increases. Let’s see if this stimulates the economy to create jobs. This economy is yours now. I invite you all to run on the economy’s performance in the second half of 2012.”
It’s also worth noting that the deal approved earlier this week reduces the rate of increase in the national debt. It does not put us on a path to eliminate that debt. Check out the chart on this report, also from NPR.