The Midterm Election: The Deficit Does Not Go Away

The Republicans will win the House of Representatives it seems. They may also control the Senate, although that is less likely. The President could face two hostile chambers of Congress.

To one extent the election does not change much economically. The deficit will be more than $1.2 trillion in the government’s next fiscal year and nearly as much in the one after. The economy does not seem to have made a rapid turn for the better and unemployment, real estate, business spending, and export level problems make it likely that America’s GDP growth will be anemic for the next two or three years.

Neither party has figured out how to bring the deficit under control.  The same problems which have vexed lawmakers for decades challenge them now.  Military expenditures are high but withdrawing troops from Afghanistan and  Iraq would probably throw those countries into chaos. Social security, Medicare, and Medicaid must be paid out. If they are not, Americans over 50 will rise up and throw their elected officials back to their private sector jobs in 2012.

The deficit problem is nearly unsolvable now. Receipts to the IRS are too low. The number of unemployed will keep it that way. The government could raise business taxes but that would burdened them with costs that the recession no longer allows them to afford.

Candidates running for office can say what  they please. They can say that programs will be created to get people back to work. But, companies have no incentive to add workers. The federal government cannot afford to spend tens of billions of dollars on incentives that would tempt businesses to hire new employees. Not if the deficit is to be cut.

A new line-up in Washington will soon realize that some problems cannot be solved by politicians and elected officials. The roots of the recession are too deep for a recovery to be legislated into place.

There is a temptation to say that it does not matter which party controls the federal government when its comes to shaking off the recession. That is not true. Policy does not matter, but as the economy goes, it will not matter much, at least over the next year or two.

Douglas A. McIntyre