The Obama Budget Proposal: Credit Where It’s Due, Criticism Where It’s Necessary

-- Posted by Neil H. Buchanan

The Obama Administration announced its budget proposal earlier this week, to the usual round of insults from the other side. Because the budget has no chance of passing in the Republican-controlled House, the proposal is rightly being analyzed as a political statement -- an opportunity for President Obama to clarify for voters the vast differences between his priorities and those of his opponents.

Here, I will take a moment to assess the broad message of the budget, before offering a few thoughts on the political impact that it might have. Finally, I will consider what this budget tells us about missed opportunities and political “realism.”

In its broadest terms, the new Obama budget represents a return to solidly Keynesian economics. There is no reliance on the Confidence Fairy, or any other stealthy moves to undermine the importance of government in directly trying to solve important problems. Deficit reduction is finally -- FINALLY! -- described as a long-term goal only, rather than the be-all and end-all of fiscal policy at all times. They are actually proposing spending increases to deal with ongoing joblessness. (I still await a statement from the administration that expressly describes long-term deficit challenges as being addressable only through serious health care cost containment, along with some progressive tax reform. But at least they are pushing the latter half of that combination.)

Moreover, those spending increases would come in the areas where we need it most education, infrastructure, science and basic research, environmental and energy innovations, and so on. They are not talking about my “growth budget” idea, but the elements are there. Our current situation is so dire that we do not need to “bury tubes of money,” in Keynes’s fanciful description of how wasteful endeavors can stimulate an economy. There are so many unmet real needs that we could put people back to work on projects with long-term payoffs.

Therefore, even though it would be completely sensible to engage immediately in some make-work programs that would end when the unemployment rate dropped back into the 4 to 5 percent range, we are now in a situation where the long-term trend in national debt to GDP can be brought down with spending that has short-term stimulative effects -- much of which should continue even when stimulus is no longer the point. (At that time, of course, the cost-benefit calculations would change, with government spending projects being approved only if they provided a long-term rate of return greater than competing private projects.)

Qualitatively, therefore, this is the kind of budget that one would want from a President -- and certainly from any President who allowed voters to believe that he represented forward-looking, progressive change. (I say “allowed voters to believe” as a way of acknowledging that Obama the candidate was relatively cagey about his possible liberalism. I personally think that he was pretty explicitly running as a liberal/progressive, making his subsequent right-centrism truly a betrayal. I understand, however, how others could view the evidence differently.)

Bottom line: Obama has proposed short-term stimulus, spent on projects with long-term payoffs, along with progressive tax changes. What could I possibly complain about?

Quantitatively, of course, there are serious concerns. Four years ago, a national group of civil engineers estimated that there was about two trillion dollars worth of infrastructure repair projects that had been deferred. In the time since then, with the inadequate 2009-10 federal stimulus money only partially offsetting state and local budget slashing, the problem has only gotten worse. Even so, the amounts being proposed in the Obama budget are in the range of $35 billion per year. Granted, one could never expect (even setting aside political constraints) to address all of these needs right away, but this is peanuts.

Moreover, the Administration continues to rely on private/public partnerships, especially the proposed “infrastructure bank.” That is a genuinely good (though limited) idea as a long-term financing mechanism for infrastructure repair and expansion, but is not a short-term solution to an unemployment rate that remains above 8 percent, more than three years after the economy began to melt down. Although the budget is Keynesian in kind, it is New Democrat in degree.

Which brings us to the politics. News reports indicate that last summer’s standoff over the debt ceiling finally turned around the Administration’s thinking about confronting the Republicans. Whatever else one might say about Obama’s strategy (or lack thereof), the Republicans definitely crashed and burned with their extremism.

Obama and the Democrats are now in position to run against that craziness, and they are off to a good start. Joe Biden’s attempt at a slogan -- “Bin Laden is dead, and General Motors is Alive” -- does not capture the Keynesian part of Obama’s limited success very well, but it points toward the difference between believing in an affirmative view of government and blind faith in “laissez-mother-f#©kin’-faire economics.”

Even an idealist like me understands that politicians should not overplay their hands. Just because Obama and the Democrats are benefiting from the public’s growing recognition that the Republicans offer no positive vision of government -- other than the vision that the Occupy movement so effectively ridiculed and decried -- that does not mean that they can now sound like FDR on steroids.

Would it be too much, however, to ask them to sound like Ford or Eisenhower? Even in the face of a continuing economic crisis, and even with the evidence that expansionary austerity does not work, must we still err so completely on the side of super-hyper caution -- especially when this is being viewed as an aspirational statement, and not something that might one day require Blue Dog Democrats actually to vote to rebuild the safety net?

Looking back over the last few years, the attacks by members of the Obama Administration on progressives -- whom his former press secretary said needed to be “drug tested,” because of our disappointment with him -- can best be viewed as an argument that we should be patient and wait until we reach precisely the point where we are today. That is, we were supposed to give Obama space to play the grown-up, without pushing things too far, to keep the middle of the country on board. When the Democrats controlled both Houses of Congress, that strategy was designed to prevent the voters from turning on the Democrats; and when the House turned Republican, that strategy was designed to make Obama seem the rational alternative.

At the time, many of us argued strongly that it was possible to achieve what Obama wanted without giving so much ground on policy. The Republicans were making it abundantly clear from election day 2008 onward that they were willing to destroy the country to take down Obama, so why should we be afraid of being more bold? Anyone who cared to notice who the extremists were could see it with their own eyes.

Having prevailed in that debate, the Administration could now point to the polls and say, “See, we told you this would work. The public is angry, but they are angriest at House Republicans.” The President can argue that his strategy built up a huge amount of political capital -- capital that might not have been available to a President who seemed too Keynesian in a Tea Party era.

While I continue to disagree with that view of history, I have to wonder what the point of political capital is if it is not to be spent. Obama’s budget represents a statement of principles and aspirations. If this is all we are willing to hope for, then it is difficult not to see the last three years as an even bigger waste than it already seemed to be.