04/04/2010 05:12 am ET Updated May 25, 2011

Progressives, Investment, and the Federal Deficit

Many of the progressive economists and political leaders I respect the most tend to downplay worries about the federal budget deficit, or say that while we need to worry about it someday, we can't do anything about it until the economy recovers. For example, the great economist James K. Galbraith wrote a piece the other day entitled "Why Progressives Shouldn't Fall For the Deficit Reduction Trap". In it, he reacts to a press statement from some left-of-center groups where they discuss responsible ways to cut the deficit that don't involve cutting Social Security/Medicare by arguing that progressives should not even concede deficits are bad in any way, let alone talk about constructive ways down the road to deal with them.

As much as I respect the people holding both positions -- the one saying we should work on deficit reduction but not right now, and the one saying it's wrong to even acknowledge that running deficits is bad -- I believe that both positions are a deep political and economic mistake. While I support Keynesian deficit spending in a recession like this one, I also believe that progressives do our bigger political cause a huge disservice if we ignore the deficit issue. I believe to my core that when faced with an intractable political problem, the only way to deal with it is to face it head on rather than ignore it or stay on the defensive about it. Democrats would have taken control of Congress in 1998 if they had pushed back sooner against Republican impeachment efforts rather than trying to change the subject. Al Gore would have won West Virginia, Tennessee, Arkansas and the presidency if he had dealt with the gun issue head on rather than ignoring and hoping it would go away. And progressives will get far more traction by taking on the deficit issue directly and having our own strategy for dealing with it than by saying it doesn't matter, or saying we'll deal with it later, and then trying to change the subject.

Before I go on to say what I think our deficit strategy should be, let me also go out on a limb and say this: getting the deficit under control does actually matter. As long as we owe the Chinese this much money, we are never going to take them on as aggressively as we should on trade and climate change and other issues. As long as the deficit and the interest on our national debt skyrockets, there will be no political will for investing the money we need to invest in our people. The owners of our national debt, whether we are talking foreign countries or wealthy bankers, are not the kind of folks I want to be benefiting from our national treasury. We need a plan to reduce our annual deficits. But the bottom line for me is that the politics of ever-expanding deficits and debt are unsustainable over the long run. Voters prefer jobs over deficits in the short term, for sure, but over the long run it becomes a bigger and bigger symbol for voters of an out of control government, and that is not good for the progressive cause over time.

So here's what I think progressives should be doing about our deficit:

1. The first thing I think everyone needs to understand is that the best way, the only way really, to be serious about deficit reduction is to get our economy moving again, and there's no way to do it without dramatically reducing unemployment. Everyone with a job is paying income taxes and payroll taxes, and is buying more things which (a) generates more jobs, and (b) brings in more sales tax revenues to local government. More people employed is the only way to get house prices stabilized and headed up, which also means more in property taxes. On the other hand every unemployed worker on unemployment comp or other welfare programs is a drain on our government budgets (I am mixing and matching federal taxes and spending with state and local, but to some extent it's fungible given all the revenue sharing being done with state and local governments).

We need to be investing in the kinds of jobs that build and sustain our economy over time. The two areas most important to that mission are infrastructure projects and green energy jobs. Infrastructure jobs -- roads, bridges, schools, mass transit, universal broadband, etc. -- does more than any other kind of investment to set the stage for a stronger economy in the future, and green energy jobs will grow and grow over time as green energy and conservation replaces fossil fuels in the world economy of the future.

Now I know what you are saying; but this is spending, not deficit reduction. Well, if you take the long view, and approach this as rebuilding the economy for the future, all of these investments will more than pay for themselves over time, especially if you take into account the better economy is the best-way-to-cut-the-deficit argument in the first paragraph of this section. But I would also advocate a 10-year budgeting plan to more than pay for all this by taxing the parts of the economy that have done the most damage to our economy and environment: taxes on the fossil fuel energy industry to pay for green energy, and a tax on financial transactions to pay for infrastructure projects. You could backload the taxes if you want since the economy is more fragile now to give the jobs programs more of a Keynesian stimulus effect, but since we want to promote green energy over dirty energy, and we want to discourage the reckless speculative trading on Wall Street and promote the main street economy instead, this is the perfect formula.

2. It's been said so many times that it's become a cliché, but reforming health care, if done right, will absolutely do a great deal to reduce the deficit. Of course, doing it right would mean doing things like a strong public option and the federal government negotiating drug prices with pharmaceutical companies, so if those don't get done in this round of health care, us deficit hawk progressives should go back and fix health care reform so that it really does reduce the deficit, but that should absolutely be part of our deficit reduction plan.

3. There's this little federal program called the military where the waste and fraud involved has not been deeply examined in many, many years. If experts went in and examined the military budget, weapons systems, procurement and other contracting issues, and other parts of that budget, I bet that 20% could be saved pretty easily. And 20% of the military budget is a fairly hefty chunk of change.

4. There is one outrageous corporate tax loophole after another built into the overly complicated federal tax system, and speaking of an area of the budget that hasn't been closely looked at, I think it's time to go over all these loopholes with a fine-toothed comb. It's very clear that if progressives were in charge of the government we could eliminate scores of billions of dollars a year in these kinds of loopholes.

5. My home state is Nebraska, and I have a farm in the family, so I'm a little more sympathetic than some to some kinds of farm subsidies for family farmers. But the subsidies going to the mega-wealthy corporate agri-business firms, many of which help them drive smaller family farms out of business, are obscene. Tens of billions of dollars could be cut with a few hundred agribusiness multi-millionaires being the only ones to not benefit.

6. Finally, there is the old tried and true: taxing really, really rich people. Republicans can howl class warfare all you want, but it is a simple fact that wealth is the most concentrated it has been in this country at least since the 1920s, and getting more so every year. The people hoarding all the dough can afford to pay a little more in taxes, especially give how many times their taxes have been deeply cut over the last 60 years.

Now I ain't a numbers guy or a federal budget wonk, I'm just a simple country boy. But there is more than enough money, even if we add the money we need for domestic programs and jobs, in these six areas to balance the budget over the next 5-10 years, especially if we invest in our people and get the economy back on track. We can do it without phony commissions or discretionary budget freezes or slashing Social Security and other entitlements. Progressives should begin talking now about our own common sense plan for dealing with the deficit, so that we don't have to be on political defense for the next decade and beyond.