President Barack Obama's first budget was notable for its honesty -- it eliminated stale tricks designed to conceal the impact of expensive programs and forecast a progressive agenda in the midst of an economic downturn. His second budget, released Monday, marks a return to smoke and mirrors: Its relatively liberal goals are wrapped in conservative rhetoric.
"It's time to hold Washington to the same standards families and businesses hold themselves," Obama said when he announced the budget on Monday. Yet a key tenet of his economic policy thus far has been that the government should do the exact opposite of a family during a recession: take a larger role in the economy to make up for the dearth of consumer spending and private investment. His top budget official, Office of Management and Budget Director Peter Orszag, said as much on Monday.
"In 2010, private borrowing has collapsed. … The 10-year interest rate remains below 4 percent," Orszag told reporters. "The U.S. Treasury is basically the last borrower left standing. In the severe economic downturn that we have been experiencing, that is exactly what should happen, because it helps to bolster the economy in the short run."
That's the policy the administration has followed, more or less, since it launched a massive fiscal stimulus in February 2009, a program that has unequivocally benefited the economy. Indeed, the budget proposed this week includes some $300 billion in spending designed to reinforce the labor market -- and even then, White House economists expect the unemployment rate at the end of next year to be approximately 9.8 percent, virtually unchanged from the current rate of 10 percent. By the end of 2012, they expect it to drop to 7.9 percent, still higher than when the president was elected.
This has raised an obvious question among observers: Why isn't more being done to attack the problem of jobless recovery, especially with midterm elections right around the corner?
There are a couple of reasons why. In Congress, even Democrats have become leery of further spending and worry more about the attacks of Republicans than the results of their policies, despite recent polls suggesting Americans see job growth as a greater priority than cutting the deficit. And even if Congress is serious about creating the conditions for job growth, it's not clear that those policies would take effect by next fall, thanks to the slow-moving policy process. Bet Democrats are wishing they approved a bigger stimulus now.
Given these facts, the White House seems to have concluded that, with no way to get the job-growth results it wants, it might as well do what can be done on the progressive front and sell the whole thing as a politically palatable deficit-reducing measure. Hence the family talk, the non-security spending freeze (even though the administration is simply focused on cutting programs it feels are wasteful or redundant while increasing funding to its priorities), and Obama's announcement that he plans to create a new deficit-reduction commission.
But keep this in mind: The administration's goal of cutting the deficit from 10 percent of gross domestic product to a fiscally sustainable 3 percent by 2015 is based almost entirely on projected economic recovery, which should reduce the deficit by 5 percent. The $1.25 trillion in deficit reduction in this budget amounts to only 1 percent -- and that's if Congress passes all of the administration's proposals, which, Congress being Congress, it will not. An additional percentage point of deficit reduction will supposedly come from the aforementioned commission, which isn't exactly promising, either, since Congress must approve its deficit-reduction measures.
Planning for deficit reduction isn't a bad idea, as long as it doesn't impinge on smart policy now. Progressives have some very good ideas about how to balance the budget, especially in comparison with Republicans' fiscally insane focus on cutting taxes. Even the most reasonable conservative budget alternative, a proposal from Rep. Paul Ryan of Wisconsin, essentially demolishes Medicare as we know it.
This is Obama's opportunity to teach responsible economic policy to the American people -- heck, to teach responsible economic policy to the American Congress. No, it's not an easy lift, and it may not bear political fruit right away, but Obama's mandate is to advocate for greater progressive investment now, smarter deficit reduction in the midterm, and a health-care reform bill that would create jobs and reduce the deficit over the long term.
Instead of articulating these goals, Obama is telling Americans that a spending freeze that exempts the bloated defense budget will fix the deficit problem. And when the labor market doesn't improve and deficits remain high, it's unclear what the political benefits will be, especially with conservatives happy to attack whatever proposals the administration offers. (Republicans sat on their hands during the State of the Union when the president called for small-business tax cuts!) Without short-term results or an argument to differentiate Obama's approach from what Republicans are offering, the benefits of the administration's strategy are not apparent. The risks, however, are unambiguous.
As Rep. Marcy Kaptur told Orszag at a hearing on Tuesday, "Until people go back to work, nobody's budgets are balanced, not families' and not the government's."
