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To Spend Or Not To Spend?

Today a NY Times story, Spend or Scrimp? Two Sides in White House Debate,

Not since the first years of the Clinton administration has a White House had to debate whether to give precedence to stimulating the economy or reducing budget deficits.

After the Reagan years there a massive deficit and debt had built up, combined with a widespread loss of faith in the ability of government to serve regular people. Now, once again, another administration is faced with a vast cleanup effort. But the Obama administration is skittish about strongly advocating for helping the unemployed and spending on infrastructure because they perceive that “the public mood” is against this.

Mr. Obama’s antideficit talk has stoked a skittishness among Democratic lawmakers about adding to the deficit, the critics say, while his failure to campaign consistently for the stimulus measures he proposed in his State of the Union address and in the subsequent budget have allowed those proposals to languish in Congress.

The president and his advisers “want economic stimulus but they fear the politics, especially in the Senate, are working against them,” said Roger Hickey, co-director of the liberal group Campaign for America’s Future. “But I think they’ve contributed to that climate of fear about deficits.”

The “battle” between “deficit hawks” and pro-government forces continues. The deficit hawks – Republicans and “Blue Dog” Democrats, contend that “the markets” want the government to cut back spending on services for citizens which they claim will start bringing down the deficits from the levels left behind by Bush. However they contend that addressing the primary causes of the deficit — tax cuts for the rich and massive increases in military spending — cannot be part of the current deficit-reduction equation. They instead insist that government job creation, relief for the unemployed, assistance to keep states from laying off teachers, firefighters, police and other personnel, health care for working people and the poor, infrastructure projects and Social Security be cut back.

Pro-government advocates say that we need to invest now in infrastructure and education, and to make up for the slack in demand (see chart below) caused by cutbacks in business and consumer spending. They say that this will improve the conditions for businesses which will lead to economic growth that will result in increased revenue to pay off the massive Reagan/Bush debt. They also point out that if “the markets” were really concerned about US debt interest rates for US Treasury Notes would not be at a near-all-time-low.


So the battle between the two sides continues. One side, the “deficit hawks” claim (but, curiously, only since President Obama took office) that deficits like the one that Bush left behind are dangerous, so we must cut back government services for citizens. But they also claim that taxing the wealthy or reducing spending on military or subsidies to large corporations will harm the economy. Progressives claim that government is We, the People, that our economy is supposed to be for all of us and not just for a wealthy few, and that growth and prosperity come from contributing to the conditions that enable prosperity: infrastructure, public education, and solid public structures like courts and the legal system, an open and transparent financial system…., and an honest and truly representative legislature. And dog parks.

Disclaimer, I am a Fellow with Campaign for America’s Future, mentioned in the NY Times story.

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Dave Johnson

Dave Johnson

Principal author at Seeing the Forest.