Issue of the week: Is it time to tackle the deficit?

At long last, Congress is showing some “urgency to rein in budget deficits,” said former Federal Reserve Chairman Alan Greenspan in The Wall Street Journal. For some time, a dangerous “complacency” greeted America’s deficit-fueled debt spiral, largely because long-term interest rates have remained low despite the federal debt’s ballooning to $8.6 trillion from $5.5 trillion in just the past 18 months. But low interest rates are a temporary respite, brought about because the rest of the world considered the U.S. the “least worst” place to keep their money during the financial crisis. Now that the crisis is ebbing, long-term rates could “emerge with unexpected suddenness.” To head that off, U.S. lawmakers must begin to pare the deficit—and not through tax increases, which “would sap economic growth,” but by overcoming the chronic “inability to stem new spending initiatives.”

Here they go again, said Robert Reich in TalkingPointsMemo.com. Like the conservatives who railed against FDR’s deficit spending, which merely won World War II and ended the Great Depression, Greenspan and his “gaggle of deficit hawks” are insisting on drastic cuts in federal spending. Please. Today’s deficits aren’t “driven by new spending.” They’re legacies of Bush-era tax cuts and costly new programs that Greenspan supported. To now say that additional stimulus is unnecessary or even dangerous “is like Tony Hayward saying the Gulf spill shouldn’t worry us.”

The “penny-pinching” that Greenspan is urging “isn’t just cruel,” said Paul Krugman in The New York Times. “It endangers the nation’s future.” If we don’t keep spending now to stimulate the economy and create jobs, there’s a good chance that “many of the long-term unemployed will never come back to the work force, and become a permanent underclass.” We can tackle the deficit in a couple of years, after the unemployment rate sinks to a more manageable 7 percent or so. “This shouldn’t be hard.” A serious effort to control health-care costs, combined with a national value-added tax of, say, 5 percent, would make a big dent in the deficit, “while leaving overall U.S. taxes among the lowest in the world.”

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Oh, really? asked Michael Kinsley in TheAtlantic.com. It’s easy to speak “cavalierly” about a 5 percent tax increase and a newfound sense of responsibility about medical costs. But does anyone really believe that such changes are even remotely possible “in the real world (or should I say ‘unreal world’) of American politics”? It’s true that we don’t have to start cutting the deficit immediately. But if we’re going to have an honest debate, “we have to say, in detail, how we’re going to go about it.” Who wants to go first?