Posted by: Jeff | January 26, 2010

Spending Freeze, Jeff’s Take

The key part of Joe’s post is this: “Who cares about the budget deficit getting too big? Independents. Which is who the Dems need to stay in power.” This is a cover-your-ass political move on the part of the Obama Administration in the wake of the populist anger signaled by Brown’s win in Massachusetts.

On policy grounds, I’m moderately opposed. As Ezra Klein points out in another post, if the freeze pans out the way the Administration wants, it would arguably be good for the country. But once the idea of the freeze hits the messy realities of Congress, that’s unlikely to happen.

The way this works is simple: 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. You think Blanche Lincoln, who chairs the Senate Agricultural Committee and is behind in the polls for her 2010 reelection, is going to let her state’s subsidies get gored?

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.

The danger of proposing a freeze is that the focus is on the freeze, not the precise mix of policies that leads to it. And so it’s a lot easier for Congress to change the mix than reject the overall freeze. But a freeze is very hard to do right, particularly in tough economic times. Doing it wrong would be a catastrophe.

I haven’t checked out Rachel Maddow’s take on the freeze yet, but the argument against deficit reduction during a recession is on the mark. Most Americans tend to think “when families are tightening their belts, government should too.” But this metaphor gets it entirely backwards. During a recession like ours, when demand has collapsed, it falls to the government to step in as the spender of last resort. It seems counter-intuitive, but what you want is bigger deficits during a recession, not smaller ones. Deficit reduction is the kind of thing we should be contemplating three years hence, not right now when we’re still in the pit.

However, is Maddow correct that the proposed freeze will actually exacerbate the recession? Possible, and I’m no expert, but off the top of my head that seems hyperbolic. The proposed freeze is just too modest. As Joe points out, most of the programs that drive our spending will actually be exempted: Medicare, Medicaid, Social Security and the military. Of course, that’s also what makes the proposal so conceptually perverse. It’s the Administration saying, “Because we’re concerned about the deficit, we’re going to enact a spending freeze on those portions of the budget which don’t really add to the deficit.”

As Klein laments in his post on the McCain vs. Obama video, the really depressing thing here is that the Administration is giving up, for the time being, on improving the economic literacy of the American people. They’re abandoning the fight for sound policy in favor of acquiescing to the irrational demands of the American voters’ collective id.

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