Spend or Scrimp? Two Sides in White House Debate

From The New York Times:

Not since the first years of the Clinton administration has a White House had to debate whether to give precedence to stimulating the economy or reducing budget deficits. Now, as the recovery shows signs of faltering, that debate is playing out within the Obama administration, with a twist compared to the 1990s: the economic and political teams have switched sides.

While President Bill Clinton’s political advisers favored more spending and tax cuts coming out of the recession of the early 1990s and his economic team pushed to start reducing deficits, in President Obama’s circle the opposite is true. Political advisers are channeling the widespread public anger at deficits while the economic team argues that the government should further spur the economy to avert another recession.

In Mr. Clinton’s day, the economic team, asserting that a credible commitment to fiscal responsibility would reassure financial markets and lead to greater long-term growth, won the argument in favor of deficit reduction, helped by moderate Democrats in Congress. These days, the Obama political team has the edge, again in the cause of emphasizing deficit reduction and with an assist from Congressional Democrats nervous about the midterm elections.

Even so, the proponents of additional stimulus got more ammunition on Friday with the government’s release of disappointing jobs numbers for June, confirming that private sector hiring has slowed from earlier this year. The evidence of the shaky recovery underscored the stakes in the continuing debate in the White House and Congress, especially as states and cities are raising taxes and cutting tens of thousands of public employees to balance their budgets, and debt-laden European governments are retreating from stimulating their economies.

Within the White House, all of the Obama advisers, along with many outside economists, agree that both things are needed — additional stimulus this year and, before long, a clear sign that the government will soon take actions on taxes and entitlement spending, phased in over time, to reduce a debt that mounted during the recession to the highest levels since World War II. The advisers’ debate is over the timing and scale of any stimulus or deficit reduction.

Those pressing for more stimulus measures include Christina Romer, the chairwoman of the Council of Economic Advisers; Jared Bernstein, economic adviser to Vice President Joseph R. Biden Jr.; and the Treasury secretary, Timothy F. Geithner, who took that message internationally to the Group of 20 summit meeting of developed nations last weekend in Canada. Lawrence H. Summers, who as director of the National Economic Council tries to broker what he calls the “brakes-versus-accelerator” debates, nonetheless makes the economic arguments for an additional stimulus, officials say.

More focused on deficits — or at least on positioning Mr. Obama to show his concern — are his chief strategist, David Axelrod, other political advisers and Rahm Emanuel, the White House chief of staff, according to Democrats. Their lone supporter among the top economic aides is Peter R. Orszag, the budget director, who will leave the administration this month.

[T]he administration’s ambivalence about promoting legislation to help create jobs, given public opposition to rising debt, reflects a shift from late last year when the economy, while recovering, was still shedding jobs.

Then, officials say, it was the political advisers who told the economic team to come up with a big package of new and extended stimulus proposals. By February, in his annual budget Mr. Obama outlined $266 billion in “temporary recovery measures” to save or create jobs.

But as antideficit fever built, and senators grew more nervous about another high-cost stimulus package, the White House advertised only about $100 billion of that. Now the entire agenda is in doubt.