If President Obama is re-elected, as seems likely today, he will face a loud chorus from establishment Washington calling for a "grand bargain" on entitlements and the debt. Mr. Obama has indicated a willingness to negotiate such a bargain. But if he fails to make economic stimulus part of the equation he will have squandered his political capital and betrayed those who voted for him.
When it comes to deficit reduction, economic growth is an essential part of the solution.
The much poo-pooed stimulus showed us that government spending does beget jobs and growth through public sector investments in infrastructure, education and public safety.
Well-respected figures like Ben Bernanke and Christine Lagarde of the IMF have very clearly endorsed a two pronged approach, where short term stimulus is combined with credible steps toward medium and long term deficit reduction. The post-election period offers the President a perfect opportunity to articulate this common sense approach, and rally public opinion behind something like the jobs plan he put forward in late 2011.
He will most likely run into opposition from the Republican Majority in the House, at which point the President should indicate his firm willingness to go over the so-called fiscal cliff in January if that's what it takes to get a deal. Either way, the dimensions of said deal will likely include temporary extensions of most of the Bush-era tax cuts, short term spending (ie. stimulus) and a framework for reducing entitlement costs. I happen to believe it will be much easier to convince Republicans to vote in favor of tax cuts after January as opposed to voting to raise some taxes during the lame duck session. The President can use the enticement of long term deficit reduction as bait for supporting short term stimulus. Having said all this, I would not endorse stimulus at the expense of higher retirement ages or cuts to benefits. The entitlement changes should focus on reforming our health care system which is the main driver of long term deficits.