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By James Kwak

On the one hand, last week’s Volcker-fest signaled that the Obama administration wants to get tough on Wall Street. Given that they almost certainly don’t have the votes in the Senate (and probably not the House, either), this may have been a purely political calculation, and it remains to be seen how much substance lies behind the marketing. But even so it was probably smart politics, since it forces Republicans to either go along (which ain’t gonna happen) or come out in favor of hedge funds and proprietary trading.

On the other hand, what the —-? The New York Times reports that Obama is planning to call for a three-year freeze on non-security discretionary spending, which means everything except Medicare, Medicaid, Social Security, the Defense Department, Homeland Security, and the VA–that is, everything except the vast majority of the budget. This at a time when the unemployment rate is at 10%.

Ezra Klein describes what is likely to go wrong here.

“The administration will target worthless programs, like agricultural subsidies, in order to preserve good programs. But the reason worthless programs live in budget after budget is they have powerful backers. And those backers will rush to Congress to protect their profits. . . .

“Now you’ve removed some of the cuts, but you still want to hit the overall target. So the cuts could get reapportioned to hit programs that lack powerful constituencies. Many of those programs help the poor.”

Brad DeLong, who is usually more sympathetic to the administration than I, calls it “Dingbat Kabuki,” and then he really gets going:

“This is a perfect example of fundamental unseriousness: rather than make proposals that will actually tackle the long-term deficit–either through future tax increases triggered by excessive deficits or through future entitlement spending caps triggered by excessive deficits–come up with a proposal that does short-term harm to the economy without tackling the deficit in any serious and significant way.”

To me, it sounds like Obama has decided to imitate Bill Clinton, except that he’s going to skip 1994 and jump right to 1995-1996–the years that gave us welfare reform and the Anti-terrorism and Effective Death Penalty Act, among other things. Deficit reduction is a classic “Third Way” policy, but by doing it this way Obama is ceding ground to the government-haters (who just want to cut spending) without getting anything (future tax increases, or votes for health care reform) in return. As DeLong says, “it would be one thing to offer a short-term discretionary spending freeze (or long-run entitlement caps) in return for fifteen Republican senators signing on to revenue enhancement triggers. It’s quite another to negotiate against yourself and in addition attack employment in the short term.”

Presumably Volckerama was about attracting the base, and this is about appealing to independents who care about the deficit because . . . well, because they always care about the deficit. I’ve said before that the Obama administration hasn’t gotten the credit it deserves for being serious about our long-term debt problem, and I’m sure they’re frustrated about what happened to the right solution (health care reform). But this feels like they’ve given up on real solutions and are just trying to score points.

Update: The usually understated Mark Thoma thinks along similar lines (in uncharacteristically not understated tones):

“We get cheap political tricks that are likely to backfire. How will this look, for example, if there’s a double dip recession, or if unemployment follows the dismal path that the administration itself has forecast?

“This seems to be a case of the former Clinton people in the administration trying to relive their glory days instead of realizing that those days are gone, the world is different now and it calls for different solutions.

“I wasn’t in favor of having so many Clinton administration people in this administration, and nothing so far has caused me to change that assessment. They’re nothing but trouble.”

Update 2: I really meant it when I said that the administration hasn’t gotten enough credit for the deficit-reducing efforts it put into health care reform. Peter Orszag is trying to make that case publicly: “The bottom line is the bill that is currently on the Senate floor contains more cost containment and delivery system reforms in its current form than any bill that has ever been considered on the Senate floor period.”

Brad DeLong’s post linking to that article is titled, “Why Aren’t Deficit Hawks Telling the House to Pass the Senate Health Care Bill?

Source: Spending Freeze: Too Clintonesque