In Partial Defense of the White House's Schizophrenia

TNR's Noam Scheiber peeks inside the Obama administration's "schizophrenic" attitude toward creating jobs while minding the deficit. The White House wants to spend money right now to create jobs, but it also wants to demonstrate to foreign investors that it can rein in spending to keep interest rates down. I sympathize with the administration's schizophrenia.

Egregiously moderate economist Brad DeLong is filled with bewilderment:

DeLong writes:

You can either say that you think that bigger deficits now that create expectations of bigger deficits in the future will be ineffective, or (if you are Ricardian about it) that bigger deficits now accompanied by expectations of smaller deficits in the future will be ineffetive, but you cannot say both at the same time.

But you can say both things at the same time, right? If the job stimulus and bigger deficits now fuel expectations of bigger deficits later, interest rates will shoot up and that will screw us. Alternatively if Americans don't spend the job stimulus money now because they're afraid of tax increases later (ie getting "Ricardian about it"), that will also screw us.

So of course the administration is going to handle this with a bit of schizophrenia. The message the administration wants to send to Americans is: Take our money, spend it now, and don't worry about belt-tightening. The message the adminitration wants to send to foreign investors is: Take our money, invest right now, don't worry because we'll tighten our belts when we have to. This is an awfully hard line to hold.

But as DeLong once wrote the three things people need to know about the deficit are: (1) In the long term--after 2020--we get health care spending under control; (2) In the medium term--between 2012 and 2020--we don't have a debt and deficit problem if we keep all spending deficit-neutral; In the short term we need to spend more money. The White House, I think, gets all that. The question is whether the bond markets are going to see health care reform as a first step toward sounder financial footing or a depressing example that the United States can spend a year on important legislation and all it gets is a bloated hodgepodge of reforms that keep the medical inflation high and our deficit in danger.