Back to ‘balance’

The economy has shown sparks of life lately, with hopeful signs in the statistics about consumer spending, the housing market, new unemployment filings and the banking industry. Amid these encouraging readings, though, there are rumblings of bigger problems to come -- problems exacerbated by Washington’s response to the recession. Noting the rapid debt increases caused by huge budget deficits, Federal Reserve Chairman Ben S. Bernanke warned the House Budget Committee that the country needs to “begin planning now for the restoration of fiscal balance” if it hopes to maintain the confidence of the financial markets.

It makes sense to try to stimulate the economy with deficit spending during a downturn, particularly when it’s as sharp as the one that began last year. The question today, though, is whether it’s time for the feds to shift their focus from stimulus to restraint. At the very least, the administration and Congress should be laying the groundwork for the change in approach. But the steps they took last week in the direction of fiscal responsibility just aren’t credible.

The House Appropriations Committee released its spending road map for the fiscal year that starts in October, calling for a 7.4% increase over fiscal 2009 -- or more, if the full cost of the war effort is included. Defenders say the real fiscal problem isn’t in the discretionary programs controlled by the appropriators but in entitlements (such as Medicaid or Social Security) and war-related expenses. But fiscal discipline means making choices about the smaller stuff too. The same day, President Obama called on Congress to pass “pay-go” legislation that would require new tax cuts or entitlement increases to be offset by tax increases or entitlement cuts. A true pay-go rule might help curb the worst instincts of lawmakers, but the one Obama backed is so riddled with exceptions, it’s practically worthless. Nor does it compel legislators to address the relentless spending growth in the existing benefit programs.

The risk posed by the growing debt load isn’t that the United States will default, but that its lenders will lose confidence in its ability to repay. If that happens, lenders will demand higher interest payments from Uncle Sam, vacuuming up money that could have been put to more productive use. Recent comments by Chinese, Japanese and Russian officials hint at a growing global unease about Washington’s ability to get its fiscal house in order. This is a long-term problem; in the near term, there’s the danger that excessive and prolonged stimulus will lead to another economic bubble like the one that led to the current mess. For all these reasons, Washington needs to heed Bernanke’s warning.