The official rollout is tomorrow, but a couple stories have come out today about President Obama’s budget, where we’ll see the newfound emphasis on fiscal discipline turned into actual policy. It didn’t get much pub, but Obama’s first budget from last year was actually pretty progressive, and got through Congress without much trouble. What’s in store for this year?

The first thing that leaps out is that the fiscal aid to states is getting baked into the budget rather than in a separate jobs bill or appropriation.

President Obama will send a $3.8 trillion budget to Congress on Monday for the coming fiscal year that would increase financing for education and for civilian research programs by more than 6 percent and provide $25 billion for cash-starved states, even as he seeks to freeze much domestic spending for the rest of his term.

The budget for the 2011 fiscal year, which begins in October, will identify the winners and losers behind Mr. Obama’s proposal for a three-year freeze of a portion of the budget. Many programs at the National Institutes of Health, the National Science Foundation and the Energy Department are in line for increases, along with the Census Bureau.

Among the losers would be some public works projects of the Army Corps of Engineers, two historic preservation programs and NASA’s mission to return to the Moon, which would be ended as the administration seeks to reorient the space program to use private companies for launchings. Mr. Obama is recycling some proposals from last year, including one to end redundant payments for land restoration at abandoned coal mines; Western lawmakers blocked it in 2009. Mr. Obama will propose a total of $20 billion in such savings for the coming fiscal year.

The freeze is a bad idea rhetorically, giving ground to the conservative worldview of a federal budget as akin to a family budget, and during this employment crisis, it’s bad policy, because it constrains aggregate demand when the private market isn’t creating it. But if you’re going to do an overall spending cap, this is at least a plausible way to do it. That $25 billion for state aid is badly needed and will save a lot of jobs. Education and civilian research are both areas in line for increases. The Army Corps of Engineers doesn’t exactly have a great track record with the projects they’ve managed to complete. And while some may disagree, manned spaceflight doesn’t really seem like a crucial investment at this point in time.

This does seem to be a “cut and invest” strategy, and the celebrated freeze is more of a rhetorical device. But the expected $20 billion in savings in programs eliminated or cut has the disadvantage of being both infinitesimal from the standpoint of the deficit and harmful in terms of overall demand. The original sin here was the depths of the situation into which this White House was flung – millions unemployed and a huge run-up in the deficit at the same time, and an opposition that, despite all reason, used the latter as a reason for the former. But I don’t see how an obvious gimmick solves the problem, even if it was accomplished as well as could be expected.

Many of the programs marked for declines or elimination were elucidated here.

…This is a good point. If the same programs marked for elimination last year are blocked from elimination again, do the laudable increases in state fiscal aid and civilian research and education go away, since Obama has promised an overall freeze, with a veto threat to boot?

David Dayen

David Dayen

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