Obama’s Bud Lite Budget Freeze

[SharonRB]

From Nancy Skinner's blog at http://www.nancyskinner.live.com (with permission to post in whole)



The news that President Obama will announce a three-year spending freeze has set off the usual fire storms on both the right and the left.

It’s like the beer commercial for Bud Lite. Too light. Too heavy. Just right.

It’s Too Lite Crowd

Boehner and the boys are screaming that it’s not enough, a measly $250 billion over the decade and they should really be manly men and do something about the entitlement costs exploding the deficit. Uhhmm you mean like healthcare? Even the meek Senate bill was scored by CBO as reducing the deficit by $127 billion over the first decade and $650 over the second and the GOP went ape-do do over that. A more muscular bill with a public option would have dramatically lowered healthcare spending by both the public and private sectors. To my friends and deficit hawks on the right, the only way to stabilize debt to GDP to 60-70% over the next decade is through healthcare spending reductions. Your favorite “do-nothing” iTune will result in long-term mayhem – like seriously freaky fiscal territory of debt to GDP by 300% of GDP by 2050. (The highest was 110% during WWII). So, Dick, deficits do matter. Robert Greenstein, of the Center on Budget and Policy Priorities testified in very simple terms (it was for congress) so you can get a primer on our history and future on debts and deficits if you care to face the facts. http://www.cbpp.org/cms/index.cfm?fa=view&id=3053


But here’s some simpler math: Deficits = Revenues – Expenses

If you don’t think President Obama’s spending freeze of $250 billion is enough, then we have a way bigger hammer on the deficit called the Bush tax cuts. Even the Heritage Foundation concurred that the 2001 and 2003 Bush tax cuts resulted in about $1.8 TRILLION dollars in revenues. Letting them expire would mean that revenues would increase by $4.4 TRILLION dollars over the next decade and now we’re talking serious deficit reduction. (For beginners: The right wingers always say that letting tax cuts sunset, which was their idea in the first place just in case we had a big deficit, is really raising taxes, even if you had to borrow from the taxpayers (because we were running deficits at the time) to pay for it and add lots more interest to the debt. I know it’s kooky logic but you need to know this stuff.


It’s Too Heavy

Many on the left are screaming that it’s stupid Hooverism to cut spending in a time of high unemployment and a very fragile recovery. What my friends here are missing is that not all spending is good spending, even when a big fiscal steroid is needed to recover. Obama’s team is actually being quite clever here. Since it’s an aggregate cut in spending as opposed to an across-the-board cut, money can be moved from bad spending (pork spending with a low economic multiplier) to good spending (green jobs and increased manufacturing with big ripples). It’ll be really hard for the opposition, which has its Scott Brown trump card now, to argue against fiscal discipline. It will be fun watching them filibuster fiscal discipline, in fact. Just think of the endless hours of entertainment of loopy rhetorical gymnastics on the Senate floor.

And I have to be honest, my friends (I just scared myself because that was so McCain)…but deficits do matter. The analogy to 1937 when FDR let off the gas pedal is a whole nother ball of wax. He ceased the heart and soul of his recovery WPA and much of the stimulating spending. Obama isn’t scaling back on the stimulus plan.

Also, in the modern international currency markets, we can’t run crazy Debt-to-GDP ratios like we did during WWII. We’re competing for cash with other currencies now – The Euro, Yen and many others. China and India are starting to tighten monetary policy and actually raise interest rates. Why? Because they can. We buy all their cheap crap so they have not been hit as hard as we have. Get the picture? Money moves to higher returns. Less money means we have to pay higher interests to finance all this debt. This hurts Main Street, as well as making capital even less available.

So to all my friends who think this was a big plot or panic attack by Obama – chill. He has thought through all this. Although I agree he should have used his political capital more robustly, shall we say with the Republican opposition party of “no” and the Democratic opposition party of “me,” he didn’t.

He now faces an angry electorate. Both because they are scared about their economic situations and it’s really hard to tell someone that you prevented the plane from crashing; if it’s late they’re still mad. And because they have a lot of angry voices telling them to be angry about “Obama’s big government” while the guy who doubled the national debt has cleared half the brush in Texas by now.

I can imagine him laughing to himself sometimes: Let me get this right, I inherit the wreckage of right wing policies for ten years and in one year, I get the wrath of everyone for not turning it around – quick enough! He deserves that Bud Lite.

[FrenchieCat]

1. Aye.....

Xactly!