“President Barack Obama will call in his State of the Union address for a three-year freeze on spending for many domestic programs as part of his strategy to rein in the federal budget deficit.” (Bloomberg, January 26, 2010)
Sounds great in theory, right? Freeze spending at current levels. But, sadly this does little to solve the current situation of parabolic national debt. It is political posturing and a cheap method of trying to save face with voters. In reality, however, he is alienating his base, and he has already spent most of his political capital with independents with the health care fiasco.
What is included in the freeze and not included in the freeze?
The freeze covers non-security discretionary spending, which amounted to about $447 billion this year out of a $3.5 trillion federal budget. Spending on programs such as Medicare, Medicaid and Social Security, along with interest on the national debt, are set by law and make up the biggest portion of the budget.
The freeze in effect represents a cut in spending, after inflation is taken into account. Still, administration officials said that limit won’t be imposed across the board. Some departments and agencies would actually see their budget increase, suggesting others will be cut. (Bloomberg, January 26, 2010)
Also set by law are most agriculture programs that are commodity based. What is left to be cut that isn’t a fix formula by law? Education, Conservation, and Transportation. Good luck cutting any of those budgets!
Plus, Obama is actually asking for an increase in spending for several programs including:
· A $154 billion jobs bill which passed the House last month
· An increase of $1.35 billion to the education budget to be used for improving test scores (buying more sample tests so that teachers can teach to the test, no doubt)
· An increase in child tax credits from 20% to 35% for families making less than $85,000 per year.
· The White House also is backing a $154 billion jobs bill that passed the House last month. In addition,
· $102.5 million for helping families care for elderly relatives.
(Bloomberg, January 26, 2010)
Thus making the cuts deeper in other areas to offset these increases – or maybe these are considered exempt too.
During the 2008 Presidential Election, Obama was opposed to budget freezes.
“I think that’s a way of punting responsibility, ” Obama said of an across-the-board “non-security” spending freeze on Sept. 28, 2008. “The president has to make choices. And those choices mean that when you deal with the budget, you don’t take an ax to it; you use a scalpel.
“I disagree with Senator McCain about an across-the- board freeze,” Obama said during the Oct. 7, 2008 presidential debate with GOP nominee John McCain, who had suggested a spending freeze on spending outside of entitlements and defense spending. “That’s an example of an unfair burden sharing. That’s using a hatchet to cut the federal budget.”
On Oct. 15, 2008, Obama said this: “An across-the-board spending freeze is a hatchet, and we do need a scalpel,” Obama said on Oct. 15, 2008.
(Fox News, January 26, 2010)
Paul Krugman, who up until now would drool whenever Obama’s name was mentioned, is not happy with Obama’s about face on this matter. He even states he won’t watch the State of the Union speech because it will be “deeply depressing.” Welcome to our world Paul where living with the unintended consequences of Keynesian economics in a debt cycle vs a business cycle is deeply depressing.
He writes on his blog today.
Obama Liquidates Himself
A spending freeze? That’s the brilliant response of the Obama team to their first serious political setback?
It’s appalling on every level.
It’s bad economics, depressing demand when the economy is still suffering from mass unemployment. Jonathan Zasloff writes that Obama seems to have decided to fire Tim Geithner and replace him with “the rotting corpse of Andrew Mellon” (Mellon was Herbert Hoover’s Treasury Secretary, who according to Hoover told him to “liquidate the workers, liquidate the farmers, purge the rottenness”.)
It’s bad long-run fiscal policy, shifting attention away from the essential need to reform health care and focusing on small change instead.
And it’s a betrayal of everything Obama’s supporters thought they were working for. Just like that, Obama has embraced and validated the Republican world-view — and more specifically, he has embraced the policy ideas of the man he defeated in 2008. A correspondent writes, “I feel like an idiot for supporting this guy.”
Now, I still cling to a fantasy: maybe, just possibly, Obama is going to tie his spending freeze to something that would actually help the economy, like an employment tax credit. (No, trivial tax breaks don’t count). There has, however, been no hint of anything like that in the reports so far. Right now, this looks like pure disaster.
If anyone thinks this spending freeze will actually freeze the deficit at today’s level, you may want to think about taking Prozac. (I will even give you a 3% wiggle factor for “inflation”.) You will need it to insulate yourself from the shock factor next year.
