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Obama's deficit problem

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In his column today, Paul Krugman wonders why short-term deficits have roared onto the political agenda with such force and fury. The answer, he says, is that "deficit fear-mongering has become a key part of Republican political strategy."

I'm not so sure. In particular, I think Krugman gives the Republicans too much credit. This story is more about the people than the politicians.

Deficit fear-mongering was a core part of the Democrats' strategy against Bush, too. It just didn't work very well. The reason is that the public didn't care very much about deficits. Why? Well, they weren't very worried about the economy. But now they're terrified about the economy. And deficits -- which signify irresponsible money management to voters who think of things in terms of household finances rather than Keynesian counter-cyclical spending -- are evidence, to them, that the government isn't handling the economy correctly. The fact that deficits rise sharply during recessions simply confirms to voters that there's a connection.

Republicans are taking advantage of this misguided analysis, just as Democrats would happily have latched onto the sentiment if it had presented itself in the Bush years. But the driver here isn't Republican messaging but, on the one hand, anger over the economy, and on the other hand, the fact that the troubled economy needed a vast expansion in the short-term deficit. A bad economy isn't popular and big deficits aren't popular, and combining the two is seriously unpopular, even if it's necessary.

This is why it was important for Obama to do more to explain the role of deficits in an economic crisis rather than just hoping the stimulus would work and things would improve quickly enough that no explanation would be needed.

Photo credit: By Chip Somodevilla/Getty Images

By Ezra Klein  |  February 5, 2010; 12:01 PM ET
Categories:  Budget  
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Comments

Uncertainty is a major factor - uncertainty over the long term effect of reform on health care costs, uncertainty about the effectiveness of a large stimulus. The GOP plays up this uncertainty, which is based on a kernel of truth, and gives the sense that policymakers don't really know anything. People don't like uncertainty, and when they associate it with their leaders, they consider it incompetence.

Posted by: jduptonma | February 5, 2010 12:18 PM | Report abuse

For 8 years of Bush, I heard "Where's the surplus? What happened to our surplus?"

You don't think that's deficit fear-mongering?

Posted by: whoisjohngaltcom | February 5, 2010 12:31 PM | Report abuse

I don't disagree with Ezra's analysis. But I think he overlooks the anger that has been fueled by the unimaginable waste, fraud and abuse that has very publicly resulted from the massive deficit spending of this administration. Deficits incurred and invested in the future may be scary, but a consensus can be built around their value and necessity. Without going into a litany of the spectacles of all of the billions that have been flushed down the toilet, I would humbly suggest that that is at least as much the reason for public revulsion as is their ignorance of Keynesian economics.

Posted by: bgmma50 | February 5, 2010 12:54 PM | Report abuse

It is not just Republican fearmongering. It is also DLC fearmongering. There is a "fifth column" within the Democratic party that agrees with the anti-Keynesian Republican frame. Also there are Wall Street types and others who are against Obama taking more steps towards greater protections of the population against the vagaries of the market.

Obama's problem (and sometimes you do this too Ezra...) is that he accepts the conservative Republican "frame" too easily. It is part of his political strategy which contradicts the sanest policy orientation for his administration.

Posted by: michaelterra | February 5, 2010 1:05 PM | Report abuse

Didn't Ezra explicitly say that the Dems used it against Bush but that people weren't worried about the economy, so it didn't work? Fear-mongering the deficits isn't a good or productive thing, but it's hardly a partisan problem and not nearly among the worst that the Republicans have done over the last several years.

Posted by: MosBen | February 5, 2010 1:11 PM | Report abuse

"But I think he overlooks the anger that has been fueled by the unimaginable waste, fraud and abuse that has very publicly resulted from the massive deficit spending of this administration."

Waste, fraud, and abuse? Massive deficit spending? In this current administration? I can't take this statement seriously. I've never seen an administration more careful about preventing misuse of funds. And the vast majority of the deficit spending conducted by this administration has been to prop up our flimsy economy in order to prevent a complete collapse left behind by the unchecked excesses of the previous administration.

But I digress...

As someone who has been very concerned about the deficit since the middle Bush years, I'm loathe to call raising those concerns "fear-mongering". However, I do agree with Ezra that the larger, more fundamental concern, is with the economy, in general. And I also agree that people don't understand the basics. But I'm not convinced that a national economics primer would change a whole lot about our current conversation.

I have economist friends who often explain the fundamentals of economics to me, and even I'm uncomfortable with the lack of understanding we all seem to have about the economy. Like a software program that has been developed over years by different programmers, nobody really truly knows how it works. And it seems pretty damn buggy and excessively vulnerable to user error and trojan horses. I feel about the economy like I feel about Windows Vista. Not very secure.

Consequently, I don't think there's much messaging to be done to counteract this situation. I'm not convinced that, even with an understanding of Keynesian economics (the basics of which I have), people would be less concerned about the obviously unstable economic situation. Really, the only thing Obama can do is help the economy improve.

But even if we get unemployment under control, we've still got to deal with 10 years in stagnant wages that have depleted confidence. And dealing with that problem requires substantial fundamental change. Better messaging simply ain't going to cut it. And it ain't going to get me to start using Microsoft products again either. It's the system, stupid.

Posted by: slag | February 5, 2010 1:39 PM | Report abuse

This isn't rocket science people.

There is clearly a cultural preference towards Republicans in the USA. I.e., there exists a double standard that allows the GOP to make bigger and more frequent mistakes. This is one reason why Democrats have no spine and are sensitive to real or perceived voter outrage on any given issue.

In essence, if Democrats are going to run up deficits or act like Republicans, then America would rather let the white guys do it instead.

Posted by: Lomillialor | February 5, 2010 1:40 PM | Report abuse

From the counter-cyclical point of view, running a deficit in relatively good economic times is a bad thing indeed, which is why Democrats complaining about the deficits during the Bush years wasn't dishonest or fear-mongering. It was an argument for good fiscal policy.

Posted by: ChrisCa | February 5, 2010 1:46 PM | Report abuse

Seems to me that we're conflating two issues. One is the short-term deficit, including the unpopular stimulus bill. The other is our long-term inability to control our spending, including entitlements (new and old). Even if you're right that Keynesian economics requires us to do crazy stimuli now (something on which not all economists agree), we still cannot stand CBO estimates of growing deficits off to the horizon.
Even though people tend to conflate the two, part of it is political and economic philosophy. Liberals _like_ spending lots of other people's money, so they are more likely to be Keynesians, and more likely to support entitlement programs. Conservatives have the opposite tendency on both issues.

Posted by: MikeR4 | February 5, 2010 1:57 PM | Report abuse

"Even though people tend to conflate the two, part of it is political and economic philosophy. Liberals _like_ spending lots of other people's money, so they are more likely to be Keynesians, and more likely to support entitlement programs. Conservatives have the opposite tendency on both issues."

The evidence does not support your argument.

Posted by: slag | February 5, 2010 2:09 PM | Report abuse

Slag: "The evidence does not support your argument." Could be - I was only making a suggestion. Which evidence did you have in mind?

Posted by: MikeR4 | February 5, 2010 3:10 PM | Report abuse

Obama, April 14, 2009:

To begin with, economists on both the left and right agree that the last thing a government should do in the middle of a recession is to cut back on spending. You see, when this recession began, many families sat around their kitchen table and tried to figure out where they could cut back. So do many businesses. That is a completely responsible and understandable reaction. But if every family in America cuts back, then no one is spending any money, which means there are more layoffs, and the economy gets even worse. That's why the government has to step in and temporarily boost spending in order to stimulate demand. And that's exactly what we're doing right now....


Just as a cash-strapped family may cut back on luxuries but will insist on spending money to get their children through college, so we as a country have to make current choices with an eye on the future. If we don't invest now in renewable energy or a skilled workforce or a more affordable health care system, this economy simply won't grow at the pace it needs to in two or five or ten years down the road.

Okay, maybe he hasn't done this often enough. But that's a tough balance to strike.

Posted by: sprung4 | February 5, 2010 3:31 PM | Report abuse

@Slag:

"Really, the only thing Obama can do is help the economy improve."

~~~~~~~~

But, how can he "do" that without explaining to the general public "how" and "why" his policies (proposals) will achieve the goal of helping the economy move?

If he (or a team of messagers -- sorely missing in this administration) cannot successfully explain, therefore win support for his policies, then Republican misinformation (puroseful lies)is all the public hears. It's no wonder the public believes their BS and supports their obstructionism.

Posted by: onewing1 | February 5, 2010 3:37 PM | Report abuse

I agree that people are generally less likely to worry about deficits when their own financial circumstances are better. It seems more of an abstract problem.

Krugman is right that it is a favorite strategy of Republicans to harp about the deficit when the Democrats are in power, and act oblivious to their own reckless budgeting. That it works is probably to do with bias against information that doesn't square with one's views. Also, their deficit was mainly caused by tax cuts (taxes are bad!!) and the war (not their fault that they had to defend the nation!!). Since most Americans accept those general premises they aren't going to make a fuss.

If Democrats want to change the dynamic, they need to prove that government programs/spending is genuinely helpful to the average person. Just gutting programs in order to balance the budget is going to reinforce the cycle.

Posted by: elainelinc | February 5, 2010 3:44 PM | Report abuse

http://www.rasmussenreports.com/public_content/business/general_business/february_2010/americans_reject_keynesian_economics
Most Americans are not Keynesians, by a big margin. You've got what to do to convince them.

Posted by: MikeR4 | February 5, 2010 4:29 PM | Report abuse

Paul Krugman is getting worse than a stopped clock.

Posted by: kingstu01 | February 5, 2010 6:10 PM | Report abuse

"Waste, fraud, and abuse? Massive deficit spending? In this current administration? I can't take this statement seriously. I've never seen an administration more careful about preventing misuse of funds."
posted by slag

Somehow I don't think that the fact that your head is stuck firmly and deeply in the sand does much to alleviate the public outrage which was the subject of my post.

Posted by: bgmma50 | February 6, 2010 12:20 PM | Report abuse

"The fact that deficits rise sharply during recessions simply confirms to voters that there's a connection"

According to the administration's "New Era of Responsibility" FY 2011 Budget proposal, here are deficit projections for fiscal years 2009 - 2020, in millions of dollars (so, 1413 = $1.413 trillion)

2009 1413
2010 1556
2011 1267
2012 828
2013 727
2014 706
2015 752
2016 778
2017 778
2018 785
2019 908
2020 1777

After 2020 these numbers are heading to the moon without a course correction.

According to the same document, here is the percentage of tax receipts for each year that will go to pay interest on the public debt:

2009 8.88%
2010 8.68%
2011 9.78%
2012 11.72%
2013 13.68%
2014 14.76%
2015 15.71%
2016 16.13%
2017 16.63%
2018 17.05%
2019 17.44%
2020 17.83%

These numbers are also heading to the moon, or at least until all other spending is crowded out, but we will have a major fiscal crisis before that happens.

Krugman, in his article, noted that interest on the debt in 2020 will be a mere 3.5% of GDP, not so bad historically. Look at the last column above and see if that observation even begins to capture the underlying story (a disingenuous piece of journalism by Mr. Krugman, incidentally).

And you're trying to assure us, Mr. Klein, that somehow the public doesn't get it? It's not the short-term picture that scares them, it's the long-term (and that's not so long-term). The problem, at least with your view, isn't the public, but math-challenged journalists.

Posted by: JamesSCameron | February 6, 2010 3:06 PM | Report abuse

Ezra Klein says "...but now they're terrified about the economy" referring to the current public demeanor.

I am SO sick of this. In all the public interviews, radio call-ins and (rare) TV coverage of tea-parties, I see consternation, confusion and defiance. But, never... NEVER... have I seen terror.

"Intellectuals" like Klein love (and need) to portray the public as irrational and emotionally out-of-control, i.e., terrified.

Nonsense. I see a cool and collective public, in general, who deal with government incompetence in much the same way as they deal with their own daily challenges and crises.

Posted by: CCPony1001 | February 6, 2010 7:26 PM | Report abuse

Look. It's very simple. Paul Krugman is a little man, who dreams of being a big man. All you had to see, was the look on his face, as GEORGE WILL (A BIG MAN) tore him a 'New One' on Stephanopolous' Show, last week. It seems that when President BUSH was running Deficits of 3-4 $BILLION, Krugman was beside himself. "IT'S THE END OF THE WORLD!" But now, with a fellow Nobel Prize winner in the White House, THESE DEFECITS aren't only, ALRIGHT, they're "NOT BIG ENOUGH". "We'll never SPEND OUR WAY OUT OF THIS, unless the Deficits are BIGGER."
And we have to listen, because he's a NOBEL PRIZE WINNER. As we have to listen to AL GORE, about Global Warming. And YASSAR ARAFATS' views on PEACE. And JIMMY CARTERS' thoughts on the JEWS. (That's what Carter got HIS prize for. Wasn't it? For BLAMING THE JEWS?) And, of course, the Great Peace Maker - BARAK OBAMA. A Nobel Prize for SHOWING UP. For WINNING AN ELECTION. For TELEPROMPTER READING, above and beyond mere mortal men.
And, Paul Krugman? I already told you. He won the Prize in Economics, for his Economic Theory that Deficits are only BAD, when Republicans are in the White House. aka - "It's Bush' Fault."

Posted by: GoomyGommy | February 7, 2010 8:16 AM | Report abuse

GWB infuriated a lot of sensible voters with his defecits and now we have jumped from the frying pan into the fire.

My fear isn't misguided. Obama isn't promoting spending as a way to end the recession. He's commited to piling on unsustainable debt for decades with no rational explanation of how we stay solvent. He and his party have been a DISASTER.

The fact that Bush was a bad leader does not make Obama less of a FAILURE.

Seems McCain would have also been a disaster. Mr. Glabol Warming moron.

My point is that we need to keep our pitch forks trained on ALL of them or we lose our country.

Cheers

Posted by: RealityChkr | February 7, 2010 10:44 AM | Report abuse

MikeR4 is right. It's the long term deficits and the unwillingness to even cap spending at current levels- giving up new, more expensive treatments, for example, until we can afford the ones we already paying for. This is what makes sensible Democrats angry.

We've been running a huge short term deficit for years. So has Japan. It doesn't make the economy better, it just pushes the problem down the road and makes the good times worse. Keynsian strategies simply don't work in the current environment.

Posted by: staticvars | February 7, 2010 1:26 PM | Report abuse

http://money.cnn.com/2010/02/04/news/economy/meltzer_keynes.fortune/index.htm
"How Obama Got Keynes Wrong"
It is amazing to me that people think that this stuff is well-understood. I don't have a clue who's right, but I sure don't trust those who think that (a) they do, and (b) it's so obvious that they should just push it down the throats of the rubes who never took Economics 101

Posted by: MikeR4 | February 7, 2010 7:31 PM | Report abuse

This is looney in the extreme. The long term budget outlook is driven by entitlement programs, not by Keynesian "counter-cyclical" spending. And Obama's solution, more and bigger entitlement spending.

Steve

Posted by: FatTriplet3 | February 8, 2010 10:33 AM | Report abuse

Is there a good metric that promotes a framework that government should be counter cyclical? Liberals get panned by wanting to increase spending in down cycles and rarely demonstrate a willingness to decrease spending in up cycles. Republicans always want to cut taxes and starve the beast.

It seems to me if those who favor the principal of counter-cyclical spending really want to see it work, then there should be some guideline for suggesting if a government is in a down or up cycle.

I imagine calculating a 10 or 15 rolling averages of income streams and expenses. Then if income is up, say 2-3 years in a row, budgeting would shift to bank for potential down cycles/clear up debt obligations or some such.

Posted by: steigen | February 11, 2010 11:01 AM | Report abuse

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