President Barack Obama gave a speech on the federal budget last night that is being applauded by many who were once his most ardent supporters but who have been skeptical of him of late — and pilloried by those on the right who sense their power in just saying no to anything the White House proposes.
Many progressives heard in the President’s words hopes that he may be with them again, at least through the election, standing for those who need jobs, health care, and a better social contract all around — and standing against privileged wealthy and firms who don’t pay their fair share. This all may be illusory given that Obama’s selection of a new Chief of Staff, Bill Daley, was designed to signal to the business community that the President would be with them — and by implication, tending the interests of rich folks too.
I found Obama’s speech to be a return to the kind of vision that he articulated when running for the presidency. He offered us prescriptions for what a better economy, better budget, and better national investments could look like, at least to some degree.
What was missing though was an admission that the White House and its allies failed to rewire an economy with the resources, the stimulus, that they had in their hands. We are debating budgetary politics today while the household sector and significant portion of the private sector continues to deleverage their economic positions. Housing prices have not stabilized. Home foreclosures are still the norm. While there has been a slight float up of consumption, there is still a gap between the consumption levels of July 2009 and where we are today — and Americans who have paid down debt and are saving more, those who can anyway, are not likely to jump into spending patterns that will keep the country’s growth in healthy shape.
And thus, as Richard Koo explains in a brilliant presentation he recently offered at the Bretton Woods conference last weekend organized by the Institute for New Economic Thinking, it is very dangerous to an economy for a government to cut spending during a time when the private sector is still de-leveraging. This is what happened in 1937 in the United States when Congress believed that the US economy was through the worst parts of the depression — and pushed the Roosevelt White House to slash spending.
It is important to think about fiscal responsibility — but it is equally important to think about the array of deficits in the American economic portfolio right now. There remains an enormous trade deficit which itself is a significant part of the current account deficit, a jobs deficit of about 20 million positions, and a massive infrastructure deficit.
These deficits matter greatly — and while I would suggest that cutting back spending is important — one has to be careful of not creating more problems than one is trying to fix, and that the most important thing the US economy needs is a “competition budget” that will focus national dollars on restoring and reinvigorating America’s technological innovation capacity.
I think that it’s possible still to have a debate about cutting back entitlements and the like but simultaneously discuss strategies to deal with these other, as important, deficits.
In my view, President Obama has highlighted the importance of some of these investments, like a major push to get a million electric cars on the roads and the importance of restoring infrastructure, but he has not tied this investment and competition agenda into national budget discussions as much as I think he needs to. Obama should be forcing his political opposition to show its hand not just on the binary, up-down aggregate numbers on the budget but also to show where they are on strategies that would correct America’s other deficits.
— Steve Clemons