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More Leaks That Obama Will Turn Deficit Hawk In 2010

Politico follows on several reports yesterday about the White House moving deficit-reduction plans with their own story:

President Barack Obama plans to announce in next year’s State of the Union address that he wants to focus extensively on cutting the federal deficit in 2010 – and will downplay other new domestic spending beyond jobs programs, according to top aides involved in the planning.

The president’s plan, which the officials said was under discussion before this month’s Democratic election setbacks, represents both a practical and a political calculation by this White House.

On the practical side, Obama has spent more money on new programs in nine months than Bill Clinton did in eight years, pushing the annual deficit to $1.4 trillion. This leaves little room for big spending initiatives.

On the political side, Obama can help moderate Democrats avoid some tough votes in an election year and, perhaps more importantly, calm the nerves of independent voters who are voicing big concerns with the big spending and deficits. Even if Obama succeeds – and that’s a big if – it will be tough for many Democrats to sell themselves as deeply concerned about spending after voting for the stimulus, the bailouts, the health care legislation and a plan to address global warming, four enormous government programs.

On the practical side, all of that spending was temporary thus far, as part of the stimulus package. And practically every economist in the world recognized its necessity. And it worked, even though it was too small. Which is why everyone looking seriously at the problem recognizes that more public investment is required. Including President Obama, who announced that jobs summit yesterday. Even in this reporting, jobs programs is exempted from this proposed freeze on new domestic spending. That strongly suggests there will be a jobs bill coming.

On the political side, see above. If unemployment is at double digits on November 2010 the Democrats will take big losses. Everybody knows this. Pleasing some imagined middle with spending cuts in the midst of a job-loss recovery, when such cuts would clearly increase joblessness, is a form of political suicide.

Voters tend to “voice concern” about deficits every time there’s a Democratic President – even when the President in question is cutting the deficit. That’s because there’s a well-funded cottage industry designed to ramp up fears about deficits and block a progressive domestic agenda. Obama was in a decent position to reject that because of the recession, but he’s reportedly ceding to it now.

To be clear, there is a progressive case to be made for deficit reduction. But that’s not what the fiscal scold industry is pushing. They mean to slash entitlements and return seniors to living on cat food because “we can’t afford it.” There’s no talk of tax fairness or restraining the military budget here. They link deficit mania directly to Medicare, Medicaid and Social Security. In the case of Medicare and Medicaid, health reform is the only way to get that under control. In the case of Social Security, there simply is no crisis that cannot be fixed with exceedingly minor tweaks.

The worst part of all this is that Congress is acting like an innocent bystander, demanding that the President focus on jobs and the deficit (two competing goals at this point) without proposing anything solid of their own. They don’t want to be held responsible for any hard choices that would have to be made or that would crowd out the well-manicured boondoggles they’ve set up for their contributors over the years, so suddenly legislating is a Presidential problem.

The cult of the presidency has obscured the fact that Congress is the biggest obstacle to new job-creating policy. Do Congressional leaders think that the president would veto a jobs tax credit if they passed one, or refuse to sign a package of fiscal aid to states? It’s a sad day when Congress is apparently sitting around and fretting until the White House comes to do the legislating for them. Of course, I understand the value of having the White House publicly pulling for a piece of legislation, and importance of coordinating with the executive branch, but it is still crazy to suggest that Obama is the one gumming up the process here.

It’s all comes down to our dilettante congress, happy to punt the hard decisions on almost everything to almost anyone — Medicare Commissions for Medicare! Budget Commissions for the Budget! — and then complain about the deficit while trying to lift the estate tax or refusing to cut agricultural subsidies, much less considering sensible ideas about reforming the charitable deduction so it applies fairly to all citizens. People joke about Obama’s summits, but that is apparently the new requirement for Congress to do anything these days, so direct your scorn down Pennsylvania Ave a few more blocks.

That said, as long as Congress abdicates its responsibility there’s a lot that Obama could be doing. And moving into the fiscal hawk phase this soon out of a recovery that hasn’t yet created one new job would be a severe mistake. There’s a role for deficit reduction – really, the price of borrowed money could strangle us down the line – but not until employment numbers return to a robust point. Jim Horney of the CBPP is right:

“If we try to reduce the deficit much below what’s been projected, we really run the risk of undercutting the recovery,” said Jim Horney, director of fiscal policy at the Center on Budget and Policy Priorities, a liberal think tank.

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David Dayen

David Dayen