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The Deficit-Attention Disorder

Given all the other crises President Obama is juggling right now, the federal deficit is -- as it should be -- among the least of his worries.

What the economy needs at this point is more government spending, not less.To the extent that there are some things that can be done now to reduce the deficit in the long run -- most notably, taming health care costs -- Obama is very much on the case.

Yet as Manu Raju noted for Politico last week, Republicans think Obama's biggest political vulnerability is on the issue of government spending -- and they intend to make Obama "own" the deficit by the time the 2010 elections come around.

New York Times business columnist David Leonhardt put all this in its proper context last week, explaining that most of the blame for the projected deficits in the next 10 years belongs to George W. Bush, and that only 10 percent can be traced to Obama -- mostly from the stimulus package required to revive the moribund economy he inherited.

But in Saturday's Washington Post, Scott Wilson wrote:

the White House has become increasingly concerned that President Obama's spending plans, which would require $9 trillion in government borrowing over the next decade, could become a political liability that defines the 2010 midterm elections.

The concern was reflected in the aggressive response from administration officials to criticism that money from Obama's stimulus plan is arriving too slowly to help the languishing economy, as well as in the president's public endorsement of "pay as you go" legislation, which would require Congress to make room for new non-discretionary spending with equivalent cuts to other parts of the budget. Yesterday, Obama also outlined billions of dollars in savings that would be used to pay for his health-care reform proposal.

But there is evidence of growing public concern over his fiscal policies. As he traveled Thursday in Green Bay, Wis., Obama was greeted by demonstrators holding signs that said, "No socialism" and "Taxed Enough Yet?"

And, Wilson, writes:

even some leaders in his own party are calling on the president to soon begin making those difficult choices, despite a fragile economy that remains in recession.

But I don't think any of this is really new. Obama has been defending the stimulus ever since he proposed it. He always intended to propose cuts to pay for his health-care overhaul. A couple protest signs don't signify much to me. And there have been Democratic deficit hawks around for a long time.

Wilson noted that:

During a town hall forum in New Mexico last month, Obama acknowledged that the "long-term deficit and debt that we have accumulated is unsustainable."

But that was hardly the first time Obama or his team had expressed that concern -- in those words. Fully three months ago, Obama budget chief Peter Orszag talked about how the nation was "on an unsustainable fiscal course," and in April, Obama declared: "Without significant change to steer away from ever-expanding deficits and debt, we are on an unsustainable course."

For good measure, New York Times opinion columnist Paul Krugman warns that this is no time to reconsider government spending. While acknowledging that "unconventional measures make the conventionally minded uncomfortable," he writes:

A few months ago the U.S. economy was in danger of falling into depression. Aggressive monetary policy and deficit spending have, for the time being, averted that danger. And suddenly critics are demanding that we call the whole thing off, and revert to business as usual.

Those demands should be ignored. It's much too soon to give up on policies that have, at most, pulled us a few inches back from the edge of the abyss.

Meanwhile, in other economic news, Damian Paletta writes in the Wall Street Journal:

President Barack Obama is expected Wednesday to propose the most sweeping reorganization of financial-market supervision since the 1930s, a revamp that would touch almost every corner of banking from how mortgages are underwritten to the way exotic financial instruments are traded.

At the center of the plan, which administration officials are referring to as a "white paper," is a move to remake powers of the Federal Reserve to oversee the biggest financial players, give the government the power to unwind and break up systemically important companies -- much like the Federal Deposit Insurance Corp. does with failed banks -- and create a new regulator for consumer-oriented financial products, according to people involved in the process.

Treasury Secretary Timothy Geithner and Lawrence Summers, Obama's chief economic adviser, outline their plan in a Washington Post op-ed:

The goal is to create a more stable regulatory regime that is flexible and effective; that is able to secure the benefits of financial innovation while guarding the system against its own excess.

They conclude:

Some people will say that this is not the time to debate the future of financial regulation, that this debate should wait until the crisis is fully behind us. Such critics misunderstand the nature of the challenges we face. Like all financial crises, the current crisis is a crisis of confidence and trust. Reassuring the American people that our financial system will be better controlled is critical to our economic recovery.

By Dan Froomkin  |  June 15, 2009; 1:09 PM ET
 
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Comments

Multi trillion dollar deficits are “no biggie”? Tell that to homebuyers when in a few years mortgage rates are in the low 20%’s. Tell that to the commuters who will have to pay $7 a gallon for gas because the dollar is so weak, or worse oil is no longer prices in dollars. Tell that to the retirees who have to choose between food and rent when inflation hits double digits.

After a few more years of two trillion dollar deficits being "no biggie" the American people will prep a special place in the electoral dustbin for the Dear Leader.

What else would I expect from White House Worship.

Posted by: SharpshootingPugilist | June 15, 2009 1:43 PM | Report abuse

I realize the nature of government, and a multi-party system, is debate, but I'm disappointed in how simplistic the Republicans are being in this economic debate. I suppose their bottom line is always the same: the first goal is to regain power, by any means, and then worry about policy. Their anti-deficit screeds are all ignoring that we're in a major recession now, which could still become a depression. As Krugman noted, borrowing in general is down. Money is not moving in the economy. Banks still aren't lending (giving back TARP funds is cosmetic). The government isn't crowding out private borrowing, because there aren't any big private borrowers. Without the feds borrowing and spending now, the economy would freeze.

The self-professed party of business can't understand this? Or they pretend not to, and scream nonsense in order to win the day. That's politics, but it's especially disappointing now when the nation's economy is in a really desperate state and bad policy could do catastrophic damage.

Posted by: whizbang9a | June 15, 2009 1:51 PM | Report abuse

By the way, pugilist, you might want to learn a little bit about economics. We're in pretty much no danger of major inflation. The danger we're in is of deflation: prices falling dramatically (look into the Great Depression, or Japan during the 90's for examples), destroying business' profit margins, such as they are even now. Prices fall because demand continues to drop, and because the economy in general is depressed (which gets back to the insolvent banks and next-to-zero interest rates). Maybe it's too complicated to be worth paying attention to. On second thought, pugilist, maybe you should just go ahead with what you think you know already.

Gas prices could spike, and they're starting to, though that has nothing to do with drill-baby-drill, which would take about 10 years to bring any new production to market (though I do support limited exploration and drilling along the coastline, but more as a stimulus measure).

Posted by: whizbang9a | June 15, 2009 2:11 PM | Report abuse

The same deficit spending purposely built up by Republicans since Reagan in 1980 (except when it was more important to screw around with Bill Clinton)for a multiple purpose of destroying Medicare and Social Security and benefiting weapons makers.

Now, in a brilliant move, Republicans begin swiftboating the Democrat.

Come on, guys, think of something new for a change instead of reruns.

Posted by: Patriot3 | June 15, 2009 2:49 PM | Report abuse

I don't take seriously any warnings about dire economic possibilities coming from people who go after Obama's popularity. That indicates the writer is a GOP supporter, and anyone still loyal to the GOP pretty much has to be nuts.

Posted by: chrisfox8 | June 15, 2009 2:50 PM | Report abuse

Neoconservative trolls like Sharpie will never admit that they were misled by the Bush administration and the right wing propaganda machine, even though that's exactly what happened, and what will continue to happen as long as they rely on one extremely biased source of information.

While Bush was busy pumping up the deficit with war spending, his eager enablers in the right wing media looked past the blatantly obvious accounting tricks being used to mask the profligate spending.

Now in this recession, when profligate spending is actually the short term solution to the liquidity trap problem, those same enablers are shouting from the rooftops about the "Obama deficit". When asked, most don't even realize that the majority of the deficit is due to decreased tax receipts and NOT due to increased spending.

Tellingly they advocate taking the exact same course of action that plunged economies into deep recession twice in the last century. When all you have is a hammer, everything looks like a nail. Republicans are living up to their historical expectations - there is no crisis too great or problem too complex to be solved by decreased spending and tax cuts. The question will be: have we learned to take their gyrations with a grain of salt yet, or will we yield to their partisan inflation hysteria, cut spending, and plunge ourselves into the next depression?

Posted by: BigTunaTim | June 15, 2009 3:30 PM | Report abuse

Let me get this straight. The party that presided over a doubling of the federal deficit to ten trillion dollars, is now going to lecture us on the critical importance of fiscal restraint?

The hypocrisy meter has smoke coming out of it.

Posted by: jpk1 | June 15, 2009 3:43 PM | Report abuse

If it is true that deficit spending is saving our economy, why is the Obama administration giving the credit to Bush? You'd think they'd take ownership and say they own 100% of the deficit and they're taking 100% of the credit with Leonhardt being wrong for trying to remove credit from Obama.

Posted by: SpanishInquisition | June 15, 2009 3:50 PM | Report abuse

bigtunatim--I love the hammer & nail phrase.

Posted by: whizbang9a | June 15, 2009 3:57 PM | Report abuse

inquisition--federal deficit spending is good sometimes, and not at others. During the Clinton years, when the economy was in fine shape, the time was right for the government to trim spending, run a surplus and pay down debt, which it began to do. The good economy continued into the Bush years, who squandered it with huge tax give-aways to the richest, and the government began running huge deficits. And keep in mind: the economy was still pretty strong, so it was still better for the government to tax more, spend less, and reduce the deficit.

Now that the economy's largely stopped working, the federal government needs to step in and keep capital--i.e., money--moving, by spending it, paying it back out into the national marketplace, even if it runs a deficit by doing so. The banks are all insolvent. Many of our major manufacturers are insolvent or nearly so. And most people have limited or no discretionary income to buy things. The federal government is the only entity left which is large enough to help get money moving again on any widespread scale. And when tax receipts are down, but expenditures must rise--that means deficits.

Hopefully, next time the economy recovers, we won't have an oblivious conservative spendaholic in office again.

Posted by: whizbang9a | June 15, 2009 4:05 PM | Report abuse

@SpanishInquisition: high deficit spending is like chemotherapy - usually very toxic, but also helpful in dire situations. In other words, it's a specific tactic for specific situations and *this* is the time to employ it, not 2 years ago. Bad then, good now. It's not partisan politics, it's sound economic theory.

Posted by: BigTunaTim | June 15, 2009 4:05 PM | Report abuse

@whizbang9a: that phrase runs through my head at least once a week, sometimes even daily depending on the news cycle. It seems to perfectly sum up the brain rot that has occurred in the GOP.

Posted by: BigTunaTim | June 15, 2009 4:09 PM | Report abuse

Continuing deficits approaching these are going to be a big problem -- inflation, increased interest rates across the board, possibly foreigners demanding that our new debt not be denominated in $, which would be the real killer. As stated, the actual disbursement of the stimulus $ has lagged significantly. This was somewhat to be expected and they will still be spent at a time when they are needed. But, if new spending has the same lag, it will arrive after the stimulus is no longer needed and will simply stoke inflation. Time to seriously plan for government spending to trend down seriously starting about 6 months from now. There should be a net plus from no new stimulus, money coming in vs out on the bank bailouts, and soon thereafter getting mainly out of Iraq. Afghan spending also needs to crest sooner than later, preferably in about 12 months. Finish shattering the AQ leadership and go home. We are not going to remake Afghanistan or Pakistan. They are not going to have honest or democratic governments or give equal rights to women. We were there to defeat AQ. Within a year, AQ will be stronger and have more of its leadership elsewhere. It is already moving to Somalia and Yemen.

Posted by: allentown1 | June 15, 2009 5:41 PM | Report abuse

the US dollar will NOT survive 2009

http://www.truthdig.com/report/item/20090614_the_american_empire_is_bankrupt/

America will become a permanent third world debtor nation

America will thus try to maintain its empire with arms (look at obama-pelosi exponentially exploding military budgets)... thus becoming the new black and evil empire against which the whole world will be forced to gang up.

And it will.

leaving nothing but rubbles behind.

the writing is on the wall, open your eyes.

Posted by: 0re0bama | June 15, 2009 6:17 PM | Report abuse

Anyone here able to state the Federal debt increase under Bush?
.......
......
....
$5 TRILLION.

Who would have guessed?

Posted by: boscobobb | June 16, 2009 3:15 AM | Report abuse

0re0bama ,
.
If we have "Exponentially exploding military budgets" why do Republicans blame Obama for slashing military spending?

FreeRepublic is over there behind that bush. We'll look the other direction while you leave.

Posted by: boscobobb | June 16, 2009 3:31 AM | Report abuse

So many wanna-be economists that think Obama can do no wrong. The economy is voting no on the hige deficits, which are already driving increases in bond rates, interest rates, import prices (like oil) and generally increasing inflation.

Having Froomkin "watching" the Obama white house is like having Rush Limbaugh "watching" Trett Lott.

Posted by: dhartmanva | June 16, 2009 7:05 AM | Report abuse

Even as every economist becomes a Keynesian (who else but the Federal government will spend to jump-start the economy?)The opposition to stimulus spending still pours from the partisans on the right.

Having swallowed whole the lies of the "trickle-down", voodoo economics where everything is solved with another tax cut, they act like gamblers who have a "system". They keep trying to win because the thought of their "system" being wrong is just too terrifying - it is, after all, the core of their ideology.

Where we would be without a "big government" capable of bailing us out of this mess?

Sadly, we might have no good options at all. Then it could surely be World Depression 2.0, with damage to entire generations of the world's people.

Posted by: rowens1 | June 16, 2009 8:52 AM | Report abuse

dhartmanva, inflation is -0.7%. That is, prices are going down: we are in a DEFLATIONARY cycle. That's the opposite of inflation. Your understanding is perfectly backwards. The nation's economy is, if you haven't noticed, in a horrendous recession, which could still become a depression. The rules of a healthy economy don't apply. Since you plainly don't understand this, you need to read up on it. There's nothing else to tell you.

Posted by: whizbang9a | June 16, 2009 9:59 AM | Report abuse

Cheney wants America to be attacked again and conservatives declare we're on the verge of extinction.

Have any of you read the story of Chicken Little? You might actually find it quite educational. At the very least know this: if you cannot be trusted with upholding and abiding by the laws of the United States and the treaties we enter into, and if you cannot be trusted when you're in power to employ the fiscal responsibility you demand from others when you're out of power, do not be surprised to find that no one takes you seriously when you think others are doing the same thing.

Posted by: BigTunaTim | June 16, 2009 10:38 AM | Report abuse

dhartman,
Have you been running a business for the past year, or ten? I think not from your comments. Do some reading. There are some excellent easy to comprehend books about the collapse of the mortgage market (author Paul Muolo), collapse in literally days of Bear Stearns, that all took place well before Obama was elected.

There are also magazine articles about the existential fear for the global economy as capital and credit markets seized in the early fall of 2008.

It's not a question of Obama's policies being perfect, but I'll take, as the Marines say, a 70% solution now over a perfect solution sometime in the future.

Posted by: boscobobb | June 16, 2009 12:43 PM | Report abuse

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