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No Spending Cuts Until Unemployment Falls Below 6.5 Percent

David Callahan

Now is not the time to cut government spending, with the economy still limping along. This fact may not be obvious to Washington, but it's obvious to the American public, which has consistently said that fixing the economy and creating jobs should be a higher priority than cutting the deficit.

For example, exit polls in November found that 59 percent of voters named the economy as the most important issue facing the country. Just 15 percent said the deficit. 


If elected leaders actually listened to voters, they would be charging into Washington this month with urgent plans to jumpstart economic growth. Instead, the GOP is again threatening to take the budget ceiling hostage to enact spending cuts that would unavoidably depress growth. And, of course, a government default would spell disaster for the economy. 

Even President Obama, sadly, seems to talk as much about deficit reduction as job growth. So much for representative democracy. 

One upside is that the sequestration cuts were cancelled as part of the fiscal cliff deal. 

Ultimately, it is true that the deficit matters and needs to be tamed. As I wrote here last week, the United States is now on track to spend twice as much on interest payments to our debt than all non-defense discretionary spending combined by 2022 -- with such payments doubling as a percentage of GDP. That's crazy. 

So the question on the deficit is not whether it should be reduced, but when and how. Leaving aside the all-important question of revenue, perhaps progress would be possible if both sides agreed to spending cuts but made those cuts contingent on certain milestones for economic growth. 

One good idea, suggested by EPI, is that no spending cuts take place until unemployment falls below 6.5 percent. That is similar to the Fed's recent statement that interest rates would not rise until the jobless rate was under 6.5 percent. 

This approach would give something to everyone. Republicans would get assurances on spending cuts, and Democrats would be reassured that such cuts would not derail the economic recovery. And those people and sectors affected by cuts would get more certainty as to when the cuts would take affect.