On Tuesday, White House Chief of Staff Rahm Emanuel said that deficit reduction was "foremost" on the minds of the president and his economic team. On Wednesday, Obama took the new theme one step further; he told Fox News that more government debt could actually cause a double-dip recession.
"It is important, though, to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession," he said.
People will lose confidence in the U.S. economy? People have no confidence in the current economy, and not because of their concerns about mounting debt. Mounting unemployment and a tsunami of home foreclosures have everyone feeling fragile, and today's disappointing housing start numbers (they fell sharply, by 10 percent compared to the previous month) only serve to reinforce a generalized sense of insecurity.
It is also just as likely that attempting to subtract from the debt right now would precipitate the double-dip recession. Obama is trying to solve a political problem -- successful GOP attacks on government spending -- with rhetoric that signals the direct opposite action of what is necessary to solve a much more fundamental problem: An economy this sick needs more government action, not less.
The usual suspects are sinking into a deeper gloom than ever. Brad DeLong puts the chances of a new Great Depression at five percent, "and it now looks very much as if if such a shock hits the U.S. government will be unable to do a d----- thing about it." Paul Krugman is offering "roughly even odds" on a "Japanese-style lost decade."
Democratic leaders in the House of Representatives are talking up a new jobs bill. Good luck getting the Senate to go along! In the game of chess, the word "zugzwang" describes a situation in which any move made by a player weakens his position. Obama is rapidly nearing that dead-end. If he pushes for more spending, he feeds his political opponents. If he pushes for debt reduction, he runs the risk of disemboweling the recovery. But if he does nothing, we all probably lose.