Mr. President, please ignore the deficit hawks

Barack Obama’s job approval in Iowa fell to 49 percent according to the latest statewide poll by Selzer and Co. for the Des Moines Register. His lowest marks were for his handling of the budget deficit (30 percent approve, 61 percent disapprove), leading Kathie Obradovich to suggest that “Cut spending and balance the budget” should be at the top of Obama’s to-do list.

No matter what today’s polls say about the deficit, it would be poor economic policy and foolish politics to make deficit reduction a priority now.

Many factors contributed to the Great Depression, but Herbert Hoover’s insistence on balancing the budget certainly made a bad economy worse. Most economists also agree that Franklin Delano Roosevelt’s spending cuts in 1937 led to an economic downturn as well.

Obradovich writes,

Iowans are looking at the federal red ink at the same time the state is slashing local school budgets, laying off employees and warning more pain is ahead for next year. Iowa, by law, has to balance its budget. The federal government doesn’t – and that chaps those of us who are doing without luxuries to stretch our paychecks.

But when millions of Americans have lost jobs and millions more are cutting back on their spending, it’s imperative for the federal government to help generate additional economic activity. That’s why George W. Bush and the Republican-controlled Congress cranked up federal spending during the last recession. We didn’t hear any GOP calls for a federal budget freeze in 2002 and 2003.

Many economists agree with Nouriel Roubini, who says job losses are likely to continue for some time. Roubini advocates another round of federal spending for shovel-ready infrastructure projects, help for “fiscally strapped state and local governments,” and “a temporary tax credit to the private sector to hire more workers.”  

Obama erred earlier this year by making too many concessions to Republicans while Congress debated the federal stimulus bill. The stimulus helped reduce monthly job losses considerably (recall that a net 600,000 jobs were lost in February alone), and it cushioned the blow for many states, but it wasn’t big enough or targeted enough.

Obama has called for a jobs summit in December, and Congressional Democrats plan to start working on a new jobs bill around then. A Siegel listed quite a few good ideas for creating green jobs here.

But, you may ask, how can Obama justify spending more money on a jobs bill when so many Americans are worried about the deficit? As I mentioned above, making deficit reduction a priority now would probably lead to a double-dip recession and higher unemployment.

I would support drastic spending cuts in the form of bringing our troops home from Iraq and Afghanistan. But that’s not what deficit hawks are advocating. They want to keep increasing our military budget while slashing the domestic spending that our economy desperately needs now.

As for polls showing people aren’t happy with how Obama is handling the budget deficit, that’s nothing compared to the numbers we’ll see for him if unemployment keeps rising throughout 2010 and 2011. Obama’s already getting not-so-great marks for handling the economy. “We cut the deficit” won’t make a good bumper sticker if unemployment is nearing 12 percent by 2012.

In fact, Bill Clinton’s experience indicates that presidents don’t get much of a political lift from cutting the deficit. Clinton pursued an aggressive deficit reduction policy and made tremendous progress during his first term. Yet a 1996 poll showed that a plurality of voters actually thought the deficit had increased since Clinton took office.

The economist Paul Krugman is right:

So if I were a politician, I’d focus on providing real improvements in peoples’ lives, rather than seeking deficit reductions the public won’t even hear about.

Note: I am not saying Clinton was wrong to rein in the deficit. Remember, he pursued this policy while the economy was growing, not after unemployment hit a 26-year high. Also, Clinton’s deficit-reduction strategy wasn’t solely focused on spending cuts; it also raised taxes on the wealthiest Americans.

I hope Obama is smart enough not to stake his political future on spending cuts that could become a drag on a weak economy. We’ll find out soon.

  • Obviously

    liberal and conservative economists will differ on what should be done.

    Unfortunately, it’s most likely lose-lose.

    Address the deficit (which may not work), and jobs may continue to be lost.

    Address the jobs with a stimulus (which may not work), and the deficit will most likely go up.

    Either way, people will have less money because the dollar will continue to weaken.  

    Kinda sucks.

    • but note that those conservative economists

      weren’t pounding the table complaining about deficit spending when George W. Bush did it from 2001 onwards.

      If there is a jobs bill or a stimulus bill, it has to be written correctly–nothing extraneous thrown in there to appease Republicans who will vote against the bill anyway.

      • A fine point

        It’s just unfortunate that lots of folks (myself) included find it difficult to believe that Congress can ever produce a clean bill.

        As for those conservative economists, they certainly enabled George W. Bush by going along with Republicans’ spend-happy budgets of 2001-2007.  Which is unfortunate, because our debt nearly doubled during his time in office.

        While Clinton probably didn’t get as much political credit as he should have for the quality budget years of 1995-2000, he certainly got more than the GOP who actually controlled the budget in Congress.  Probably because Bill Clinton was more likable than Newt Gingrich, and Congress was overly focused on Monica in the eyes of the public.

        However, I’ve always felt that budgetary bipartisanship is possible, and when it works, it works well.  1995-2000 were some of the best years the U.S. economy has ever seen, in regards to strength of the dollar, jobs created, deficit reduced, and confidence in the American economy worldwide.

        Did Clinton and Newt despise each other with an utter passion?  Absolutely.  Did they work together?  On fiscal matters, they made it work (with loathing to boot).  As for the budget and economy during those years, they sure improved dramatically.

        • but the most important deficit reduction bill

          was Clinton’s 1993 budget, which passed without a single Republican vote (not even Jim Leach). That cost us a lot of House seats in 1994, but it put us on track to reduce the deficit way before Newt was in power.

          • Indeed...the Omnibus of 93

            helped us move in the right direction for budget balancing during the late 90s.

            Bill Clinton in several regards is under-appreciated…by both sides of the spectrum.

  • facts.......

    1. Federal Aid is the #1 source of revenue for ALL 50 states. (shocking!!!)

    2. 2009 % of GDP deficit is highest by WWII by more than double.

    3. By 2019, entitlement costs plus interest payments eats up 90% of federal revenue.

    4. Medicare went negative in 2008, and will be insolvent by 2017

    5. Social security goes negative in 2016.

    (Source, Blackrock Capital Managment)

    The bell is ringing…we have taxed ourselves and spent ourselves into oblivion.  Do we really have the right to borrow against our great great grandchildren?  Let’s get real here and not do a Biden “we must spend more so we don’t go bankrupt”.

    • Medicare Part D

      greatly accelerated the fiscal problems of Medicare. Why did Bush and the Republican-controlled Congress pass such an expensive bill? Because they gave big Pharma everything they wanted (no “public option”, no ability for the government to negotiate for lower prices on drugs, no reimportation from Canada).

      Social Security will be solvent for much longer than Medicare. We are fortunate that Democrats stopped Bush and Congressional Republicans from privatizing the system just before the stock market tanked.

      When the economy starts moving, we will certainly need to address the budget deficit. Letting the tax cuts for the wealthiest 1 percent expire will help a little, but we will need to do other things to. We should reinstate the estate tax for the top 1 or 2 percent of estates; that would bring in $50 billion to $60 billion a year.

      I am with members of Congress who want to block new money for troops in Afghanistan unless taxes are raised to cover the cost.

  • More Facts

    It took from 1776 to when Jimmy Carter left office for the Federal debt to reach one trillion dollars.  In eight years Ronnie Reagan and company tripled the federal debt.  The debt went from 940 billion to 2.6 trillion.  Lill Bush doubled the federal debt in his eight years.  Sorry Mirage.  The republicans have a far worse record on defecits than the Democratic party.

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