Spending freeze signals Obama is trying to give Krugman an aneurysm

[I AM NOT THAT GUY 5,715]

Oh boy, here we go. Late last night, news of Obama’s proposed non-military discretionary spending freeze was shooting around the Liberal Internet, but Paul Krugman — who has been at a full-throated yell to avoid the mistakes of 1937, namely an ill-timed spending freeze – had yet to weigh in. Krugman has been warning for months now that premature worrying about the deficit is unnecessary, and the worst thing for the economy would be to slow down government spending before we are actually out of this crisis.

Well, this morning Paul gave us his two cents.

A spending freeze? That’s the brilliant response of the Obama team to their first serious political setback?

It’s appalling on every level.

Yikes. He continues:

And it’s a betrayal of everything Obama’s supporters thought they were working for. Just like that, Obama has embraced and validated the Republican world-view — and more specifically, he has embraced the policy ideas of the man he defeated in 2008. A correspondent writes, “I feel like an idiot for supporting this guy.”

Reactions through the Liberal Internet have echoed this level of despair. Nate Silver, at 538, writes:

First reactions aren’t always the best ones, but my first reaction to tonight’s news is that it’s a mistake on par with John McCain’s “suspending my campaign” gaffe.

Andrew Leonard, who writes the econo-blog over at Salon, gets historical:

If ever there was a time to pull out the old Karl Marx chestnut, “History repeats itself, first as tragedy, second as farce,” that moment is now. Prominent members of Obama’s own administration have warned against repeating the errors of 1937, namely, Franklin Roosevelt’s decision to cut spending and balance the budget too quickly, thus strangling a nascent recovery from the Great Depression. But with the U.S. economy far from healthy, the president has decided, once again, to bow to the political winds and make the deficit priority number one.

Matt Yglesias got a bit dour last night, but this morning he seems to be cautiously optimistic:

[Obama is] aiming for what you might call a “cut and invest” strategy—slashing certain programs and boosting others. And I think anyone who looks at it would have to admit that there is, in fact, a lot of discretionary spending on programs of little value.

It’s worth remembering that “defense” spending in the United States, which will not be affected, accounts for approximately 42% of military spending worldwide.

http://trueslant.com/johnknefel/2010/01/26...an-an-aneurysm/

[scandal 951]

It’s worth remembering that “defense” spending in the United States, which will not be affected, accounts for approximately 42% of military spending worldwide.

He's also excluded all entitlement spending: Medicare, Medicaid, Social Security from their growth through cost of living increases and newly qualified applicants.

To Krugman's point- yes, he has a point. Killing the economy by shortsighted pullback in government action would be regretful.

But Obama did call for specifically stimulative new measures as well: (a) a new jobs bill [aka stimulus part 2] (b ) using $30B of returned TARP payments to fund new community bank lending to small businesses.

Moreover, there is a key difference between 1937 and 2010: the size of the debt compared to GDP.

In the late 1930s this ratio stood at about 40%. In the immediate postwar era 1945-46 it peaked well north of 100% (about 120% in fact).

Today it's hovering just shy of 100%.

In 1937 you could make an argument that deficit reduction was not pressing, since a 40% debt/GDP ratio was manageable.

Our situation today is more like that of 1946, when we've borrowed way beyond any comfort level and simply must begin reducing.

[mawilson 2,133]

The "spending freeze" is a joke. The amount of money he wants to freeze ($25 billion)

is a rounding error in a 3.5 trillion dollar budget.

[Ban Hammer 13,342]

The "spending freeze" is a joke. The amount of money he wants to freeze ($25 billion)

is a rounding error in a 3.5 trillion dollar budget.

too bad he couldn't have thought of a spending freeze before the bailout.

[scandal 951]

The "spending freeze" is a joke. The amount of money he wants to freeze ($25 billion)

is a rounding error in a 3.5 trillion dollar budget.

Where do you get your $25 billion figure? Cite please?

The freeze is largely eye candy, I agree about that. But the amount is nowhere near as pathetic as you make out.

http://www.cnn.com/2010/POLITICS/01/26/spe...tion/index.html

Under Obama's plan, all federal discretionary spending would be frozen at its current level of $447 billion per year. Individual federal agencies would have the power to give some programs increases, while cutting money elsewhere.

[mawilson 2,133]

Where do you get your $25 billion figure? Cite please?

The 2010 budget allocated $447 billion to non-security discretionary spending, or about

one-eighth of the overall budget. Keeping the budget for the affected agencies at or

below the $447 billion mark will save $250 billion over 10 years relative to what spending

on those programs would have been otherwise.

$250 billion over 10 years = $25 billion per year

[I AM NOT THAT GUY 5,715]

Where do you get your $25 billion figure? Cite please?

The freeze is largely eye candy, I agree about that. But the amount is nowhere near as pathetic as you make out.

http://www.cnn.com/2010/POLITICS/01/26/spe...tion/index.html

The problem lies in that using baseline budgeting, the budget for FY2009 increased 87% over the budget for FY2008. The effect of the freeze, would be to include the onetime "emergency spending" as part of the baseline. Hardly a cut at all, when the current administration has more than doubled the on budget deficit originally projected for FY2009, by an additional half trillion dollars.