Obama’s Budget: What About Winning the Present?
The President spoke about his budget release at a Baltimore middle school earlier today, again highlighting his balance between investing in areas like innovation, infrastructure and education while cutting overall budgets and “taking responsibility for our deficits.” He again bragged about reducing domestic discretionary spending as a share of the economy to the level of the Eisenhower Administration, reducing waste and increasing efficiency. And he set the stage for larger reductions in the future.
I’m also looking forward to working with members of both parties to take steps beyond this budget freeze -– because cutting annual domestic spending won’t be enough to meet our long-term fiscal challenges. As the bipartisan fiscal commission concluded, the only way to truly tackle our deficit is to cut excessive spending wherever we find it -– in domestic spending, defense spending, health care spending, and spending through tax breaks and loopholes. So what we’ve done here is make a down payment, but there’s going to be more work that needs to be done, and it’s going to require Democrats and Republicans coming together to make it happen.
You wouldn’t know that from the actual budget, because the President basically confines his trims to that tiny slice of the budget around domestic non-security spending. Even the $78 billion in cuts to the defense budget (most of them in the out years of 2014 and 2015) merely slow growth, and in fact the defense spending request is the largest in history. On the rest the budget makes no real commitment, preferring to tease out a response from Republicans.
As Robert Reich says, there’s no context to this debate. It could be happening in 1997 at a time when the economy was humming, or 2003 when we faced an uncertain jobless recovery, or 1963, or 1978, or today. There’s no real application in this budget of a solution to our near-term problems.
To official Washington it seems like 1995 all over again, when Bill Clinton and Newt Gingrich played a game of chicken over cutting the budget deficit, the hawks warned about the perils of giant deficits, and the 1996 general election loomed over all. Washington politicians and the media know this playbook by heart, so it’s natural for them to take on the same roles, make the same arguments, and build up to the same showdown over a government shutdown and a climactic presidential election.
But the 1995 playbook is irrelevant. In 1995 the economy was roaring back to life. The recession of 1991 had been caused (as are most recessions) by the Fed raising interest rates too high to ward off inflation. So reversing course was relatively simple. Alan Greenspan and the Fed cut interest rates.
In 2011 most Americans are still in the throes of the Great Recession, which was caused by the bursting of a giant debt bubble. The Fed can’t reverse course by cutting interest rates; rates have been near zero for two years.
Big American companies are sitting on almost $2 trillion of cash because there aren’t enough customers to buy additional goods and services. The only people with money are the richest 10 percent whose stock portfolios have been roaring back to life, but their spending isn’t enough to spur much additional hiring.
The budget has basically nothing to say about this. It looks to the future because the present is inconvenient. Budget cuts in the near term – and this budget plan foresees them as soon as October – simply reduce aggregate demand. You may be able to target those efficiently in one way or the other, you may be able to align the budget more intelligently, and wring out the unnecessary corporate welfare and duplicative programs. It’s worth it to fix our crumbling infrastructure and prioritize that in the budget. It’s worth it to advance clean energy projects and increase that area of the budget. Maybe it’s even worth it to get Republicans tongue-tied and force them into an intra-party split. But one man’s waste is another man’s annual salary. In the most general terms, focusing on the deficit now reduces demand in the economy.
Giving up on the present also has major impacts on the future. It reduces the earning potential of the millions who have given up on looking for work in this job market. It keeps the economy in a crucial imbalance. It keeps revenues unsustainably low. There’s no way to reduce the deficit, assuming that’s something you wanted to do, if you have 9% unemployment. That’s not a message being told right now.
At the end of his address, the President told a story about a special ed teacher in Missouri named Brenda Breece. She’s managing her family budget through sacrifice, but also through looking for a second job to help put her daughter through college. That there’s an acknowledgement that a budget is composed of spending and revenues is practically a revelation these days. But Brenda is only looking for that second job. You’ll note that she hasn’t found it yet. The unremarked-upon implication here is that, without more jobs, you can forget planning for the future.