Monday, January 02, 2012

Obama through the looking glass(es)

Obama is a radical socialist who vastly increased government spending, saddled our grandchildren with debt and expanded government control of every aspect of Americans' lives.

Obama is a naive weakling who let Republicans frame the agenda in 2011, was seduced by a siren song of compromise, and capitulated to the Tea Party hostage-takers, agreeing to massive spending cuts without winning any revenue increases. 

I'd like to accuse Republicans of the doublethink required to embrace both narratives, but they never really bought into the second -- at best, they projected "weak Obama" onto the foreign policy stage (a bit of a stretch in light of Obama's apparent 'got the sucker' lethality, whatever you think of the wisdom of his various covert and low-key military operations). The capitulator-in-chief narrative belongs to disappointed progressives.

Still, given the Rube Goldberg two-stroke spending cut apparatus that Obama signed onto on August 1 this year, I have a hard time wrapping my head around the Wall Street Journal editorialists' lump-of-coal lament today:

As for the White House, Mr. Obama joined the assault on Mr. Ryan, but he also claimed to favor some fiscal discipline and he invited GOP leaders to work out a compromise behind closed doors. This let him posture as a spending cutter without having to make a decision on any specific budget cuts or reforms. He gulled Speaker John Boehner in particular with promises of sincerity, only to demand $1 trillion in tax increases that House Republicans could never pass without violating their own campaign promises.

This was the big GOP mistake. Mr. Boehner and Majority Leader Mitch McConnell both fell for Mr. Obama's backroom political trap. Mr. Boehner privately insisted that Mr. Obama really wanted a deal, while Mr. McConnell, who never liked the House budget, was looking for political cover on Medicare. But whatever their motives, their strategy failed by letting Mr. Obama set the terms of debate. They failed to make Senate Democrats and the White House declare themselves in public where voters would notice.
That is nuts. No one, but no one, thought that Obama and his allies would enter into deficit reduction negotiations without seeking some new revenues as part of the package.  Throughout the summer, as Obama embraced the debt-ceiling-deadline negotiations as "a unique opportunity to do something big," no one thought that Boehner was being hoodwinked merely by virtue of fielding proposals for some revenue increases. In fact progressives and conservatives alike, outside the extremist Tea Party bubble, were in agreement that Obama was willing to give away the store. accepting a paltry $800 billion in new revenue over ten years as the price for extending the vast bulk of the Bush tax cuts, cutting Medicare benefits, raising the retirement age, and agreeing to at least a 3-to-1 spending cuts-to-tax increases ratio. On the Democratic side, Jonathan Chait called the busted grand bargain a terrible deal; conservative David Brooks marveled that Republicans were turning down the deal of the century.  But in the bubble narrative, that deal was an elaborate trap set by a wily Obama -- despite the fact that Boehner came away with over $2 trillion in legislated cuts over ten years with no revenue increases (as yet: the Bush tax cut expiration looms). And far from setting the terms of debate, Obama spent three quarters of a year of sputtering-to-expiring recovery riveted on deficit reduction.

Apparently the WSJ editorialists, like many observers on both sides, regard the cuts legislated from 2013 forward as notional, or rather, up for grabs depending the outcome of 2012 and future elections.  More interesting in a way is their take on the budgets agreed for 2011 and 2012:
The news is that after accounting for last-minute unemployment insurance extensions, "emergency" spending and higher Medicare physician payments, total federal outlays are estimated to be $3.65 trillion in fiscal 2012, up slightly from $3.6 trillion in 2011. The last year has seen no major reforms in any of the big entitlement programs—Medicare, Medicaid or Social Security. Spending on food stamps alone is scheduled to reach $80 billion in 2012, more than double the amount as recently as 2007.

Republicans had promised to roll back discretionary spending to 2008 levels, to save $100 billion. But the August debt deal lowered the savings to $7 billion—or a 2012 target for appropriations of $1.043 trillion. Even that target was missed because appropriators tacked on roughly $10 billion in disaster relief—hurricanes this summer—and so the new total is $1.054 trillion. That's $4 billion more than the 2011 baseline of $1.050 trillion, although savings from troop withdrawals in Iraq may reduce that.
While acknowledging that "a flat overall budget is a vast improvement over the years 2007 to 2011," the authors still profess to see a glass half empty (or rather, a budget still overflowing with wasteful spending).  But those who acknowledge that cutting spending at a time of anemic growth and high unemployment will have a counter-stimulative effect see the relatively modest cuts enacted for 2011 and 2012 as a significant drag on the economy. According to Merrill Goozner of the Fiscal Times:
Government spending on discretionary programs has been cut substantially. According to an analysis by Bipartisan Policy Center budget experts, the 2012 budget, in inflation-adjusted dollars, will have eliminated all residues from the 2009 stimulus package and reduce spending to slightly below 2008 levels – the year before the recession and the target put in the pledge..

The GOP's biggest “win” came in early August after the debt-ceiling standoff. The Budget Control Act included a ten-year reduction in spending of nearly $1 trillion starting in the current fiscal year with the prospect that there will be another $1.3 trillion in cuts starting in 2013. It’s already having an immediate impact on next year’s employment picture, which led Bernanke in September to tell a Minneapolis audience that “a substantial fiscal consolidation in the shorter term could add to the headwinds facing economic growth and hiring.”

The 2.1 million federal workforce, three-quarters of whom work outside the Washington, D.C. area, is now in its third year of a wage freeze with a hiring freeze in place at many agencies. That will lead to sharp drops in employment in the coming year due to the escalating number of federal employees opting for retirement. If employment levels return to 2008 levels, that could be a loss of 173,000 jobs, which would wipe out a month or two of private sector job gains at present rates.
David Dayan, who cites Goozner, references a Center for American Progress study that details "how Congresssional budget decisions are putting Americans out of work," specifically government employees in law enforcement, environmental cleanup and construction." While Dayan acknowledges in an update that report author Scott Lilly may have taken GOP boasts about the extent of cuts too literally and that the estimate of 370,000 jobs killed by the 2011 cuts may represent an "outer bound," he maintains that the report details many cuts in progress that are all too real.  He also pushes back against the widespread dismissal of cuts mandated for out-years:
Talking about the specific 2011 outlays neglects that the FY2011 deal set the baseline on discretionary spending for the next ten years. Those lowered baselines became the starting point for the discretionary cuts in the debt limit deal. That deal initiated a spending cap on discretionary spending to last the next ten years, for a total of $900 billion in cuts. That will roll back fiscal policy in a very real way; though not as high-profile as, say, cuts to Social Security or Medicare, it constrains discretionary spending at an extremely low level, a lower percentage of GDP than the Eisenhower era. That’s a major policy loss for liberals who favor a more activist government. Now, many will say that the spending cap can simply be ignored by future Congresses. So far, we know that the FY2012 budget adhered to the spending cap. And the President certainly supports it. If he’s re-elected, you can expect this spending cap to dominate through Fiscal Year 2017. If he isn’t, the spending cap is probably the best-case scenario.
From a progressive point of view, the Budget Control Act establishes a blueprint for keeping discretionary spending at inadequate levels -- at a lower percentage of GDP than in the Eisenhower era as we're often reminded, e.g., by Dayan.  That's mainly because Bush succeeded in starving the beast, and the Democrats can't get feed levels back to anything close to Clinton-era levels -- coupled with bloat in the defense budget and in healthcare spending. 

Dayan, a tough administration critic, pushing back against an Ezra Klein year-end bouquet for Obama, concludes, "If you thought the nation was doomed at the beginning of 2011, maybe you think that the Administration made out all right. If you think that they still held the Senate and the White House and should have been able to hold the line, your opinion is either mixed or disappointed."  For the Journal Jacobins, on the other hand, "The real failure of GOP leaders is that Senate Democrats and the White House foiled Republican attempts to cut spending further."  And so the war of attrition continues for the foreseeable future.

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