Wednesday, January 27, 2010

Obama a Surgeon with a Scalpel?

I love consistency. I love politician whose word is his bond. I love intellectual honesty...

Now... all Obama needs is a little warpaint and a war dance to go with his new hatchet.

Here is Brad DeLong's viewpoint on this Obama proposal to freeze spending:
There are two ways to look at this. The first is that this is simply another game of Dingbat Kabuki. Non-security discretionary spending is some $500 billion a year. It ought to be growing at 5% per year in nominal terms (more because we are in a deep recession and should be pulling discretionary spending forward from the future as fast as we can)--that's only $25 billion a year in a $3 trillion budget and a $15 trillion economy.

But in a country as big as this one even this is large stakes. What we are talking about is $25 billion of fiscal drag in 2011, $50 billion in 2012, and $75 billion in 2013. By 2013 things will hopefully be better enough that the Federal Reserve will be raising interest rates and will be able to offset the damage to employment and output. But in 2011 GDP will be lower by $35 billion--employment lower by 350,000 or so--and in 2012 GDP will be lower by $70 billion--employment lower by 700,000 or so--than it would have been had non-defense discretionary grown at its normal rate. (And if you think, as I do, that the federal government really ought to be filling state budget deficit gaps over the next two years to the tune of $200 billion per year...)

And what do we get for these larger output gaps and higher unemployment rates in 2011 and 2012? Obama "signal[s] his seriousness about cutting the budget deficit," Jackie Calmes reports.
After more digging to fully comprehend this new policy direction from Obama, DeLong has managed to pin down the particulars:
It seems that it is not a freeze in non-security discretionary outlays, but rather an overall cap on non-security discretionary--which is a diffrent animal. And it seems that it is not an overall cap on non-security discretionary outlays, but instead an overall cap on non-security discretionary authority--which is a different animal. And it seems that it is not a binding cap on overall non-security discretionary: that ARRA extensions and other job-boosting deficit-spending measures, plus other "emergencies", are exempt...
That should clear things up for everybody and reassure those "nervous Nellies" out there who think this is just political Kabuki theatre.

Personally, I think DeLong got it right when he started his post with:
For some time I have been worried about fifty little Herbert Hoovers at the state level. Right now it looks like I have to worry about one big one.
Obama's "spending freeze" will have all the benefits of Herbert Hoover's economic policies: bankruptcies, unemployment, soup kitchens, homelessness, and the mobilization of a generation of hobos left to "ride the rails" because there are no jobs. Now there's "change you can believe in" in spades!

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