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The "Biggest Single Stimulus" is NOT Deficit Reduction

David Callahan

In a speech today before Third Way, the centrist Democratic think tank, Steny Hoyer -- who is the second highest ranking Democrat in the House as Whip -- said that a big deficit reduction agreement would "provide the biggest single stimulus to the economy we could achieve. Setting our economy back on a sustainable, predictable fiscal path will help us create jobs by restoring certainty for businesses and enabling them to plan for a future without the brinksmanship that has characterized this Congress."

You heard that right: Hoyer believes that a comprehensive deficit reduction agreement, including deep budget cuts and tax hikes -- which would suck money out of the economy in the short term -- would somehow magically have a huge stimulus effect.

Hoyer also wants to push for such an agreement between now and the election, making it a centerpiece of the Democratic message.

If Hoyer's logic on austerity sounds familiar, it's because it is the same argument that the GOP has been using for two years to clobber the Democratic Party -- minus the part about accepting tax hikes. It's also the same argument that European conservatives have embraced.

And the problem with the argument, of course, is that it's wrong: austerity is proving to be a growth killer in Europe and austerity here, as practiced by states and localities that have laid off nearly 700,000 public workers, has helped to delay economic recovery.

Yes, we eventually need to tackle the deficit in a big way. And yes, both spending cuts and tax hikes will have to be part of that equation. But now is not the time to be making this a priority, with the economy still fragile. That's why Congress just extended the payroll tax cut and unemployment insurance, piling up on more debt in an effort to keep growth going. President Obama made a huge mistake when he embraced the Republican austerity frame and, to his credit, has now moved away from talking about the deficit -- an issue that voters have traditionally not cared much about in presidential election years.

The Obama White House finally has the message right: Invest to create jobs and raise taxes on the rich. So why is one of the top Democrats in Congress putting forth a different message, one that dovetails with what the GOP nominee is likely to be saying all this fall?

Welcome to the Democratic Party, which remains -- as ever -- two parties. One made up of progressives and another of moderates.

In the perennial debate about whether Obama has had the political leeway to be a more resolute progressive (assuming he wanted to be), I have tended to side with the President's defenders. And my particular take on this matter is that it's hard to be a strong progressive when rank-and-file voters in your own party aren't very progressive -- never mind the electorate at large.

Just how divided is the Democratic Party? Well, according to an interesting analysis by Nate Silver last summer, just 41 percent of Democratic voters (in congressional elections) identified themselves as liberal in 2010, compared to 47 percent who said they were moderate. (Twelve percent identified as "conservative.") While Silver's analysis showed that the Democratic electorate has been getting more liberal since the 1990s, the fact remains that in the past two elections, between 59 and 65 percent of Democratic voters self-identified as either moderate or conservative.

Now, compare that to the Republican electorate. According to Silver, 67 percent of Republicans voting in 2010 said they were conservative and just 30 percent said they were moderate. (A mere 3 percent said they were liberal.)

Today's Congressional Republican leaders behave like a cabal of hard-core ideologues because they answer to a very conservative party electorate. In contrast, Democratic leaders are often running in opposite directions because they speak for a very divided and fragmented party electorate.

Is this such a bad thing? I tend to think it is, but I'm also aware of the upside: the Democratic Party still is in touch with what moderates want, whereas Republicans are now having a circular conversation that is putting them more and more on the extreme right-wing fringe.