Sunday, March 20, 2011

Spending Cuts Alluring

On March 11, the day of President Obama's last press conference (transcript here), Robert Reich posted (on his own site, here cross-posted on The Huffington Post) "Why Obama Isn't Fighting the Budget Battle." It turns, as you would expect, on presidential politics:

Shortly after the Democrats' "shellacking" last November, I phoned a friend in the White House who had served in the Clinton administration. "It's 1994 all over again," he said. "Now we move to the center."

As Reich points out, President Clinton won re-election in 1996 less because of a pivot to the center than from recovery of the economy. Obama, however, is not likely to be as lucky. Profits of American corporations are up but primarily from sales of their foreign operations. Consumer spending, except among the wealthy, remains very sluggish. Sales are insufficient to convince businesses to resume hiring and productivity is soaring, enabling the private sector to maintain or increase profits with fewer employees. With interest rates near record lows, there is little margin to increase the money supply to spur growth. Consequently, Reich recognizes

Obama's challenge in 2012 has nothing to do with Bill Clinton's in 1996. He must fight the Republican plans to cut the budget deficit this year and next, and explain to the public why he's doing so. And he must convince Americans that public spending during the next few years is necessary to get the economy moving, reduce the long-term debt as a portion of the total economy, and get jobs back.

Unfortunately, it appears that President Obama doesn't understand this (though Senator Obama probably would have). One cannot be certain, given Obama's understandable concern with the political impact of policy and his obsession with being, as Joe Romm, puts it, the "converser in chief," always ready for a conversation with his antagonists. Consider, though, this President's comments during the aforementioned press conference:

I think one of the messages that the American people have clearly sent is get serious about living within our means and managing our budget in a responsible way, and stop with the political bickering. And if we have that view in mind, then I think that not only can we get this short-term issue resolved, but I think we can actually solve the long-term budget issues as well.

The GOP, trying to eliminate the niggling subsidies for NPR/Corporation for Public Broaddcasting and family planning/Planned Parenthood, wants to cut primarily for ideological reasons. Not so President Obama, who speaks of "winning the future" and asserted during the press conference "we’re going to make sure that we hold the line when it comes to some critical programs that are either going to help us out-educate, out-innovate, or out-build other countries."

If more than rhetorical flourish, that suggests the President's policies are as misguided as his ("out-") grammar. Notwithstanding the Republican/Obama fetish with spending, the American people are still anxious about job loss, there being five or more job seekers for every available job (graph below, from Economic Policy Institute). Cutting spending not only will not create jobs or spur economic growth, it is a political loser. And if, in the unlikely event inflation takes hold with unemployment no less than 8%, the President who failed to stand for anything but "winning the future" will be riding out that future in Hawaii or Illinois.

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