Tuesday, February 15, 2011

Two approaches to Democratic budgeting

President Obama has proposed his try hopelessly to appease the Republicans austerity budget for FY 20011-12, as reported in Obama Budget Reflects a Cut-and-Invest Agenda by Jackie Calmes New York Times 02/14/2011. Despite the Administration-friendly headline:

Among the losers are some "things that I care deeply about," Mr. Obama added, including programs that he had expanded in the past: Home-heating aid to poor families and community-service block grants would be cut in half, and a multistate Great Lakes cleanup project would lose one-quarter of its money, compared with 2010.

Pell grants for needy college students would be eliminated for summer classes, and federal loans to graduate students would start accruing interest immediately, rather than when the students graduate, though they would not have to begin paying them off until graduation. Those changes are intended to help save $100 billion over 10 years to offset the costs of maintaining Pell grants for 9 million students, according to administration officials. ...

"The debate in Washington is not whether to cut or to spend," said a senior administration official on Sunday, speaking on condition of anonymity to brief reporters on the budget in advance of Mr. Obama's announcement on Monday. "We both agree we should cut. The question is how we cut and what we cut." [my emphasis]
Joseph Stiglitz in his account of the Great Recession, including the early months of the Obama Administration, Freefall: America, Free Markets, and the Sinking of the World Economy (2010), characterized the President's initial approach to recovery as a conservative one, focused on bailing out banks and their executives from the consequences of their own greed, irresponsibility and bad judgment and mainly hoping that what Paul Krugman mockingly calls the "confidence fairy" to get the economy going again when businesspeople felt confident to invest more domestically.

Obama's new budget embraces a conservative approach even more explicitly, applying Herbert Hoover economics to a still-stagnant economy with high unemployment and no new boom or bubble in sight to quickly reduce it. Sure, the Republicans ideas - to the extent they are coherent at all - are worse. But that doesn't mean that Obama's approach is the right one for him to be taking, either economically or politically.

The economics are bad. The deficit is not a problem. And, with a few very eccentric exceptions, the Republicans don't care at all about deficits. As Dick Cheney expressed the near-universal wisdom in the Republican Party, "deficits don't matter." They showed this again in the Republicans' support for the tax subsidies for billionaires to which Obama unfortunately agreed in December. But the Republicans will happily use their non-existent worries about deficits to batter Democratic Presidents and programs. Robert Reich explains the awful politics of Obama's budget at his blog in The Obama Budget: And Why the Coming Debate Over Spending Cuts Has Nothing to Do With Reviving the Economy 02/13/2011

President Obama has chosen to fight fire with gasoline.

Republicans want America to believe the economy is still lousy because government is too big, and the way to revive the economy is to cut federal spending. Today (Sunday) Republican Speaker John Boehner even refused to rule out a government shut-down if Republicans don’t get the spending cuts they want.

Today (Monday) Obama pours gas on the Republican flame by proposing a 2012 federal budget that cuts the federal deficit by $1.1 trillion over 10 years. About $400 billion of this will come from a five-year freeze on non-security discretionary spending – including all sorts of programs for poor and working-class Americans, such as heating assistance to low-income people and community-service block grants. Most of the rest from additional spending cuts, such as grants to states for water treatment plants and other environmental projects and higher interest charges on federal loans to graduate students.

That means the Great Debate starting this week will be set by Republicans: Does Obama cut enough spending? How much more will he have cut in order to appease Republicans? If they don’t get the spending cuts they want, will Tea-Party Republicans demand a shut-down? [my emphasis]

Krugman makes a similar point at his blog (The Great Abdication 02/14/2011) looking at the political message of Obama's budget:

What is Obama saying here?

The important thing, I think, is that he has effectively given up on the idea that the government can do anything to create jobs in a depressed economy. In effect, although without saying so explicitly, the Obama administration has accepted the Republican claim that stimulus failed, and should never be tried again.

State budgets operate in a very different context than the federal budgets. States basically have to balance their budgets every year.

But Jerry Brown's approach to the California budget crisis illustrates how an austerity budget - one forced by actual circumstances in California's case - can also be used to define the budget debate on progressive Democratic terms. As I've discussed here before, what Jerry Brown is trying to achieve this year in California is a process that not only cuts through the kinds of short-term gimmicks that Republican Gov. Arnold Schwarzenegger used and puts the state finances on a reasonably sustainable basis. In the process of doing so, beginning to delegitimize the scam the Republicans have been running here since 1978 of telling voters: "You can cut your taxes and restrict government spending and not suffer any bad consequences yourself."

Jerry Brown is using the budget fight to address real issues and also to challenge the Republican narrative on the role of government.

Barack Obama is reinforcing the Republican narrative on the role of government. It doesn't mean his approach is as bad as the Republicans'. It does mean he's not doing what a Democratic President should be doing. Especially with economic conditions for most people like they are.

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