Monday, January 25, 2010

So what about this spending freeze?

The White House has announced a spending freeze of non-discretionary portions of the budget for 2011-2013. The portions of the budget potentially subject to the cuts are quite numerous (basically everything but Defense, Veterans, and MedicareMedicaidSocialSecurity) and the total dollar amount of cuts is not that great in the big picture - about $15 billion next year (and $250 billion over the next 10 years).

Don't be fooled though, the number may not be that large in the aggregate but the impact on some individual programs could be calamitous. Cuts to workforce training or to unemployment insurance would be utterly misguided in these economic times. What are the chances of extending the COBRA health insurance subsidy for the recently unemployed beyond the end of February? What happens in HHS? Enforcement at OSHA and MSHA? How about at the SEC? We'll have to wait and see what sort of hash Congress makes of this proposal but the impact on the deficit is minimal while the potential real world impact on ordinary citizens is great.

What about the politics? Here's an interesting quotation from the New York Times,
“A lot of our caucus won’t like it but I don’t think we have any choice,” said an adviser to Congressional Democratic leaders, who would only speak on condition of anonymity about internal party deliberations. “After Massachusetts and all the polls about independents’ abandoning us for being fiscally irresponsible, we can’t afford to be spending more than Obama.”

I hope that this unnamed adviser is not representative of the collective Id of the Congressional Democratic Caucus or the administration, if he/she is then they are more hopelessly out of touch than I realized. Go look at the poll numbers, in every poll people's concerns about jobs and the economy register at double or even triple the number of people who are concerned about budget deficits. Polls specific to the Massachusetts race are trickling out (there were no exit polls) but the message is nowhere near as clear as the above anonymous adviser would have you believe. It's not clear what impact the deficit had on those voters but does anyone believe that Massachusetts voters were radically more concerned about the deficit than the national averages?

We're going to freeze discretionary domestic spending at a time of great economic consternation in the hopes of placating entirely imaginary public concerns about the budget. To say that this effort seems misguided is a bit generous. In fact it seems entirely wrong-headed. Paul Krugman writing in November, 2008 points to the perils of such adopting such a policy,

And F.D.R. wasn’t just reluctant to pursue an all-out fiscal expansion — he was eager to return to conservative budget principles. That eagerness almost destroyed his legacy. After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections.

What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy’s needs.

This history offers important lessons for the incoming administration.

We're at a crucial time where a new jobs bill is being discussed on the Hill in a last ditch attempt to pull our economy out of the gutter and Congressional Democratic hopes in 2010 as well. I'd say that this spending freeze has effectively put the kibosh on any hopes of a jobs package.

In addition this seems to be buying into conservative arguments about the size of government and the effectiveness of the stimulus package. The administration is ceding this argument instead of forcefully defending their stimulus efforts much less advocating for a jobs package.

The more I think about this the less sense it makes.


gabbahey said...

I take my little girl to the Pueblo Zoo to relax some weekends. This community asset is made up almost entirely of WPA buildings/artwork and ironwork. It is beautiful. Ever seen an industrial age/art deco monkey cage? These assets, created by workers that may otherwise have been idle, continue to provide an economic benefit to my community each time I drop 7 bucks to get in. I guess I will let my hopes for a jobs program R.I.P.

T.R. Donoghue said...

Art Deco monkey cages? I need to stop by the Pueblo Zoo some time.

The Mrs said...

just steer clear of the hippos...