Mountain Sun

Mountain Sun

Tuesday, April 12, 2011

The Next Disappointment: Obama to Back Simpson-Bowles as Budget Debate Starter

Booman: "I don't get disappointed by a whole lot because my expectations are so low."
And when the president makes budget cuts at a time when increased federal spending is one of the only ways to reduce unemployment, of course it is frustrating. But I think it shows a degree of political immaturity to not understand that the president is going to take credit for brokering a deal that both lowers the deficit and keeps the government open. The alternative wouldn't have helped unemployment either. The alternative wouldn't have prevented a lot of people from being hurt or inconvenienced. 
Part of what is annoying me is that everything is being put through this prism where government spending goes in and a rainbow of awesome stuff comes out. Yes, in the particular situation we finds [sic] ourselves in, more government spending makes sense. But, as a general matter, our government spends way too much fucking money, which is why we are trillions of dollars in debt with no end in sight to the bleeding. When I hear people moaning that the president is legitimizing budget cuts, it just rubs me the wrong way.
Well yeah, if you view Obama as nothing more than "a broker"--a disinterested neutral party who's sole task is to establish an agreement between two competing sides, then he did everything he should have done.  But we didn't elect Obama to be a neutral broker.  And liberals didn't expect that Obama would be using the other side's talking points.  We didn't expect that he'd simply abandon our own arguments and inhabit theirs.  If calling out Obama and most other Democratic leaders on that point rubs Booman the wrong way, I'm very sorry about that.  Get used to it.

While Booman does see the need for deficit spending now, his belief that government spends too much generally is both unsubstantiated (at least by Booman)  and untimely.  Now is not the time to worry about deficits.  One reason liberals are angry, I think, is that there are a bunch of economists out there who strongly disagree with all the deficit kool-aid being drunk by people who should know better--including Obama and most of the current Democratic leadership. Liberal economists tend to see the deficit scam, including efforts like the Simpson-Bowles Deficit Commission, as economically harmful.  Premature deficit-reduction measures, they argue, are highly damaging to an economy in which true unemployment is hanging in the vicinity of 16% or so (I haven't seen the latest U6 unemployment number but it is somewhere in that area).  Instead, they see the entire deficit argument as an attack on vital socioeconomic institutions that huge numbers of Americans depend on.  But such economists, like this one, either can't or won't be heard by Obama:
The Simpson-Bowles Commission, just established by the president, will no doubt deliver an attack on Social Security and Medicare dressed up in the sanctimonious rhetoric of deficit reduction. (Back in his salad days, former Senator Alan Simpson was a regular schemer to cut Social Security.) The Obama spending freeze is another symbolic sacrifice to the deficit gods. Most observers believe neither will amount to much, and one can hope that they are right. But what would be the economic consequences if they did? The answer is that a big deficit-reduction program would destroy the economy, or what remains of it, two years into the Great Crisis.
For this reason, the deficit phobia of Wall Street, the press, some economists and practically all politicians is one of the deepest dangers that we face. It's not just the old and the sick who are threatened; we all are. To cut current deficits without first rebuilding the economic engine of the private credit system is a sure path to stagnation, to a double-dip recession--even to a second Great Depression. To focus obsessively on cutting future deficits is also a path that will obstruct, not assist, what we need to do to re-establish strong growth and high employment. 
With government, the risk of nonpayment does not exist. Government spends money (and pays interest) simply by typing numbers into a computer. Unlike private debtors, government does not need to have cash on hand. As the inspired amateur economist Warren Mosler likes to say, the person who writes Social Security checks at the Treasury does not have the phone number of the tax collector at the IRS. If you choose to pay taxes in cash, the government will give you a receipt--and shred the bills. Since it is the source of money, government can't run out.
It's true that government can spend imprudently. Too much spending, net of taxes, may lead to inflation, often via currency depreciation--though with the world in recession, that's not an immediate risk. Wasteful spending--on unnecessary military adventures, say--burns real resources. But no government can ever be forced to default on debts in a currency it controls. Public defaults happen only when governments don't control the currency in which they owe debts--as Argentina owed dollars or as Greece now (it hasn't defaulted yet) owes euros. But for true sovereigns, bankruptcy is an irrelevant concept. When Obama says, even offhand, that the United States is "out of money," he's talking nonsense--dangerous nonsense. One wonders if he believes it.
We're just hearing this morning that Obama's Wednesday economic address will be used to endorse Simpson-Bowles as a starting point in the coming budget battle.

Post-Speech UPDATE 4/13/11

Obama gave a good speech, particularly in refuting the horrid Ryan Budget non-plan.  I'm not able to post, but highly recommend this excellent response to Obama's remarks.

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