Is it time for the panic button? > Politics Trumps Economics

By Irwin M. Stelzer at The Weekly Standard

Don’t hit the panic button just yet. But keep it handy. Absent drastic, “and I mean drastic” spending cuts, and tax increases, and continued bond buying by the Federal Reserve Board to suppress interest rates on the federal debt, the U.S. will be unable to balance its budget. That’s the advice I got from Larry Lindsey, former Federal Reserve Board governor and White House economic adviser, when we discussed the current and prospective state of the political economy…

While Republican leaders cater to their right, the president will cater to his left when he presents his budget on Monday, a Valentine’s Day gift to those who believe deficit spending, even with the debt mountain at its current height, will bring down the unemployment rate. He will renew his call to let the Bush tax cuts expire for “the rich,” and back off his plan to curtail the increase in social security (pension) benefits. He will propose some spending cuts, but mostly in programs he knows Congress will in the end preserve, such as agricultural subsidies, near and dear to farm-state senators.

This dims any hope for compromises to reduce the unsustainable budget deficit. The president’s deficit-reduction commission made some sensible recommendations, but since it was set up by executive order rather than by congressional legislation, its suggestions were just that – suggestions with no binding force.  Read it all here …