The deficit debate in Washington misses the fundamental point, said House Speaker Nancy Pelosi (D-Calif.) on Tuesday, arguing that the primary objective for policy makers should be job creation -- without which, the deficit will explode as tax revenues collapse.
"What I've told the members is that we have a lot of good ideas [regarding job creation]. We have to prioritize them, get them out there and figure out how we will eventually pay for them, but not be bogged down in the next couple years by that," Pelosi said on a conference call with a handful of economic reporters and economists who blog.
"The debate between deficit reduction and job creation is not a real choice, because we'll never have deficit reduction unless we have job creation. Of course we have to be sensitive to how this is paid for, but that doesn't mean we don't do it."
House Majority Leader Steny Hoyer (D-Md.), who is often more hawkish on the deficit than Pelosi, spoke in similar terms in an interview with HuffPost last week, putting the Speaker and her top lieutenant on the same page.
"Obviously, the economy has to be regenerated before we can have any shot at getting the deficit under control, so you've got to get the economy moving first," he said.
Pelosi said that the House is considering a variety of plans, including extending unemployment insurance (UI), subsidized health benefits (COBRA), assistance to state and local governments, improving small businesses' access to credit, investing in green buildings and "targeted public service jobs."
Democrats are also considering a transaction tax on short-term trades on Wall Street, a measure being pushed by House Majority Whip James Clyburn. "We have seen a great deal of anger from the public about the fact that once again we see Wall Street nationalizing the risk and privatizing the gain," said Pelosi. "The downside is always felt by the worker and the upside is always realized by those who never seem to take a loss no matter what happens."
Aid to states is complicated by the fact that some GOP governors squirrel the money away in the hope of cutting taxes -- or reject assistance outright. Economist James Galbraith suggested on the call that as a condition of accepting the aid, the states agree to keep their tax structure constant. "I think we probably will go down that route. I think we have to. Dave Obey thinks we have to and he's writing the bill for us," Pelosi said, referring to the chairman of the Appropriations Committee.
Centrist political pundits, House Republicans, Blue Dog Democrats and -- on Monday's front page -- the New York Times, have all raised alarms about the growing deficit. Hoyer told HuffPost that he is actively working with Senate Majority Leader Harry Reid (D-Nev.) to institute "statutory pay-as-you-go" (PAYGO) -- a law that would require all congressional spending to be offset by revenue increases or spending cuts elsewhere. That statute would contain emergency exemptions that allow for present spending on jobs to increase, said Hoyer.
For Pelosi, the pundits are wrong. People would rather have a job than a smaller deficit, she emphasized.
The focus on the deficit is also fraught with economic miscalculations. Long-term interest rates are extremely low, despite the hysteria, and the U.S. government is well positioned to meet its obligations indefinitely. The Chinese government, meanwhile, which holds a pile of U.S. debt, has little recourse other than to continue to buy U.S. bonds.
The Nation's DC editor Chris Hayes put it succinctly, using an old saying, in a recent column: "'When you owe $100,000, the bank owns you. When you owe $100 million, you own the bank' -- and it aptly describes the US relationship with China, which holds approximately 70 percent of its 2.3 trillion foreign reserves in dollars."
Conservatives have been pushing for PAYGO for so long that it could entice them to get on board to help the economy recover. Hoyer said that instituting statutory PAYGO could be a political trade-off for short-term spending on jobs. In other words, the message to Blue Dogs and the Senate would be: help us fix the economy now and we'll give you the budget remedy you've wanted.
"Yeah," said Hoyer, when asked if PAYGO could be a bargaining chip tossed to conservative Democrats. "I think from a conservative standpoint, they correctly believe that you've got to impose fiscal discipline and so I think you're right, this is an incentive for them. And it ought to be an incentive for others, as well, to adopt statutory PAYGO so that we can have the votes for short-term stimulus and help at a time when that's needed."
Hoyer said that President Obama, at a recent White House meeting, said that he wanted PAYGO instituted "as quickly as possible" and "endorsed it strongly."
"He's for it, he's working for it and understands that we're going to include it [in a legislative package headed for the Senate], and he's for that," said Hoyer. "But I think he, like I do, feels that you cannot depress the economy at the same time you're trying to stimulate the economy. That's counterproductive."
Pelosi noted that she, too, is a longtime supporter of PAYGO and that one of her top lieutenants, Rep. George Miller (D-Calif.), first proposed it in 1982.
"I don't consider myself a conservative," said Hoyer. "But I do consider myself somebody who believes that we've got to get the finances long-term of the country under control if our kids and grandchildren are going to have the ability to fund their priorities at their time. Obviously, the economy has to be regenerated before we can have any shot at getting the deficit under control, so you've got to get the economy moving first. It's the chicken and the egg, I suppose, in some ways, but you've got to have the economy moving before you have any shot at getting fiscal balance."
Pelosi recalled that deficit hawks won a short-lived victory in 1937 when they persuaded FDR to roll back spending, but all it did was turn the recovery back around. "If we pull our punch, as they did in the mid-30's, we shouldn't be surprised if history repeats itself," she said.