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Point/Counterpoint: Should Congress work to cut the national debt now or later?

BY DI EDITORIAL STAFF | JULY 26, 2011 7:20 AM

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NOW

Working to cut the nation's debt is vital even in the midst of possible economic stagflation.

While many aspects of the U.S. economy have yet to recover to pre-recession levels (most notably the high unemployment rate), we also face the unsettling possibility that more economic troubles lie ahead. As evidence, take the recent closing of a Roberts Dairy plant in Iowa City or the layoffs of more than 350 people at a Whirlpool plant in Amana. The U.S. economy remains fragile, with many continuing to struggle with the rising costs of living.

Nevertheless, right now it is essential the United States show the rest of the world we are serious about our determination in addressing the immense debt we have accumulated. With both Standard & Poor's and Moody's threatening to downgrade the rating on U.S. Treasury bonds, the possibility for recovery-crippling aftereffects remains.

If credit ratings on Treasury bonds take a hit, the economy will face another round of debilitating recession. At best, whatever progress has been made will be negated, and unemployment rates will jump even higher. Worst still, interests rates will likely increase with credit becoming less and less available to those willing to take a risk in the unstable housing market.

"Interest rates for state and local government, corporate and consumer borrowing, including home mortgage interest, would all rise sharply," Secretary of the Treasury Timothy Geithner said in a January letter to Senate Majority Leader Harry Reid, D-Nev. "Equity prices and home values would decline, reducing retirement savings and hurting the economic security of all Americans, leading to reductions in spending and investment, which would cause job losses and business failures on a significant scale."

So while our economy remains in a precarious position, the detrimental implications of sitting idle on our debt obligations require us to address the problem immediately by cutting the deficit and preventing the increase of the U.S. debt. If we fail to do so, things will only become much, much worse.

— Matt Heinze

LATER

There's nothing wrong with a deficit every now and then, and the current fervor for budget cuts and deficit/debt reduction could do more harm than good.

No matter how much Congress may talk up the debt-ceiling debacle, the key issue facing the United States is our sluggish economy. With about 14 million Americans out of work, and a jobless recovery primarily benefiting banks, this is no time to worry about the national debt.

The national debt, of course, is essentially the deficit we've accumulated over the years. It's possible to pay down the debt without increasing the deficit, but to do that would require consistent economic growth — growth larger than the yearly deficit, at least percentage-wise. This consistent economic growth is not represented in current U.S. economic trends.

In other words, we need to fix the economy before we fix the debt. And to fix the economy, the government may need to rack up further debt. Large-scale infrastructure investments, government-funded work projects — Roosevelt's New Deal worked, and I'll admit to being a Keynesian. The reason the stimulus failed wasn't because John Maynard Keynes was wrong but because of the deficit racked up by previous administrations, little groundwork set for infrastructure projects, and a political backlash across the country.

None of the viable options for reducing the deficit will have a large effect on the debt (a long-term problem that requires a long-term solution), and none of them will facilitate economic recovery.

Cutting government spending will result in greater unemployment and fewer social services to help those already suffering in the wake of the economic downturn; higher taxes may have a chilling effect, and high enough taxes to take a chunk out of the deficit would stifle economic growth.

Increased government investment, on the other hand, could revitalize the market and lay the groundwork for a future, long-term debt reduction plan.

Deficit spending in times of crisis isn't a problem if our economy makes a smooth recovery. Now is not the time to cut spending (excepting ending overseas wars and cutting the military budget — more a matter of morality than economics). We should get our economy on the right track before attending to debt.

— Shay O'Reilly


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