Thursday, January 28, 2010

Obama and the Deficit

I have posted some quick thoughts on the State of the Union speech over at the Guardian, in which Barack Obama spoke about deficits, past and future. Apparently some Republicans didn't like his reference to past policies that led to the current budget shortfall. I make it clear that I think criticism of his proposed freeze on discretionary spending is misplaced:
When it came to the deficit, Obama was blunt. He stated that eight years of tax cuts, unfunded wars and recession drove the deficit past a trillion dollars, "before I walked in the door". His proposed freeze on some discretionary spending starting in 2011 is not in itself exceptional; funding will go down for some programmes and up for others. But it has generated considerable opposition from liberals afraid that spending controls will prematurely snuff out the recovery. These critics fail to distinguish between temporary stimulative spending and permanent government spending, which cannot be sustained if it isn't in line with revenue.
The stimulus package has boosted the economy for now, but the federal government will have to start cutting the deficit as the economy recovers and the threat of inflation re-emerges. It's a question of timing. Obama's freeze would not take hold until next the next fiscal year, which hopefully won't be too soon.
The president will get a few points for bipartisanship by announcing his own budget commission, a day after the
Senate failed to establish one. Of course bipartisanship doesn't get you very far in Washington these days, but at least Obama will be able to say he's working on it – with or without the Republicans.
Those who argued that the stimulus spending adopted last year reflected particular circumstances (an argument I agree with) should recognize that those circumstances will not last forever. There should never be one fixed economic policy, established in perpetuity, now and ever, amen.

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