Stocks sank Aug. 26 as Fed  chairman Jerome Powell made it clear that...

Stocks sank Aug. 26 as Fed  chairman Jerome Powell made it clear that rates will stay high for some time. Credit: Bloomberg/Michael Nagle

With unemployment low, inflation high and interest rates on the rise, the time is right to bring back an old idea: bipartisan talks to reduce the federal budget deficit.

I know: Try to contain your excitement. But it wasn’t so long ago — about a decade — that the U.S. was consumed by a mania for deficit reduction. From the Simpson-Bowles Commission to the so-called Supercommittee, from sequestration to the fiscal cliff, the topic was unavoidable.

Republicans wanted sweeping cuts to government spending. Then-President Barack Obama was willing to meet them halfway, but only if they would join him in raising taxes on the wealthy. Ultimately, the grand bargain didn’t happen. But federal discretionary spending was restrained, the tax cuts enacted under President George W. Bush were partially reversed, and the deficit did fall.

Remarkably, this all happened at a time when the unemployment rate was high, inflation was low, and interest rates were at zero. The macroeconomic circumstances, in other words, were ideally suited for the reverse policy mix — a bipartisan deal to give Obama more spending and Republicans extended tax cuts.

Nowadays, perhaps scarred by the futility of the early teens deficit mania, nobody talks anymore about bipartisan deficit reduction, commissions or grand bargains. But a return to the political obsessions of a decade ago would suit the present moment. The deficit, as a share of GDP, is shrinking rapidly from its pandemic lows but projects to be about the same this year as it was a decade ago, and to expand in the future as the elderly share of the population grows.

Right now Americans are feeling good about a declining gasoline prices. But the Federal Reserve is convinced that it has fallen behind in fighting inflation, and last month Chair Jerome Powell made clear that the bank is willing to “bring some pain to households and businesses” in order to reduce prices.

That means higher interest rates to slow economywide spending, and it’s mostly the correct approach. But rate hikes come with a cost, even if they are executed perfectly: They are essentially a tax on investment. Under the circumstances, it would be ideal for fiscal policy to help slow spending, minimizing the need for rate increases.

That was the formula for deficit reduction during former President Bill Clinton’s first term, which unlike its Obama-era equivalent was motivated by real economics rather than hysteria. In an implicit deal with the Fed, Clinton and congressional Democrats raised taxes and cut spending in their 1993 budget, which allowed the central bank to be more restrained in monetary policy and contributed to an economic boom.

In today’s politics there are two groups that are fundamentally opposed this idea of balanced fiscal consolidation: conservatives and progressives.

Conservatives oppose it because, for all the change and tumult of the Trump era, the Republican Party remains fanatically committed to the idea of low taxes, especially on the wealthiest Americans. The left opposes it because they believe that the American economic model should be utterly transformed into something resembling the much higher-tax states of Northern Europe, so they’re loath to waste any hard-won tax increases on anything other than increased spending.

But that’s what’s made it such a political sweet spot for centrist Democrats like Clinton and Obama. By embracing deficit reduction now, President Joe Biden could send a clear signal to moderate voters: Supporting Democrats does not mean greenlighting two more years of big progressive policy change.

Progressives, of course, wouldn’t appreciate that message. But Biden would only be telling activists what they already know. They took big swings with Build Back Better and scored big wins on climate change and student debt. Now they just don’t have the votes to pass any more big partisan bills, even if every possible midterm break goes their way.

As I say, people who pay close attention to politics know all this. There’s no real downside — and plenty of upside — to making sure it’s communicated clearly to less-attentive voters.

A focus on the deficit would also help underscore a key truth about the GOP: While Republicans tend to be trusted on issues such as “the economy” and “federal spending,” any time they offer specific ideas to reduce the deficit without raising taxes, they come up with something hideously unpopular. This tension is even worse today, when the party largely dependent on the votes of older, economically downscale cultural conservatives who rely on the welfare state.

Forcing a national conversation on priorities — Should the U.S. limit tax deductions or raise the eligibility age for full Social Security benefits? Which should be reduced, military spending or Medicaid spending? Are “Buy America” rules and prevailing wage requirements worth the cost? — could help lance the boil of populism by moving politics out of the realm of pure symbolism. Yes, choices and trade-offs can be tedious and unpleasant to contemplate. But they are also the real work of government, and trying to put them back at the center of policy conversations is a useful strategy for restoring some sanity to public discourse.

It’s even possible that bipartisan overtures on deficit reduction would lead to actual policy. Some conservatives, such as my Bloomberg Opinion colleague Ramesh Ponnuru, are already calling for Republicans to engage more seriously on Social Security’s future. Senate Minority Leader Mitch McConnell has hinted around that he thinks Republicans erred tactically by spurning grand bargaineering during the Obama era. And unlike a decade ago, policy to reduce the deficit would be a genuine boon to U.S. homeowners and growth-oriented businesses.

Biden was a huge deficit hawk in the 1990s. Now that he’s brought '90s-style full employment back, the time is right for him to return to his roots.

Matthew Yglesias is a columnist for Bloomberg Opinion. A co-founder of and former columnist for Vox, he writes the Slow Boring blog and newsletter. He is author, most recently, of “One Billion Americans.”