Unbalanced Approach: a conservative apostate sees more clearly

Congressional Republicans have refused to raise the debt limit unless the Obama Administration agrees to large and immediate spending cuts. They have their finger on the nuclear button and are threatening to detonate unless they get their way. It seems crazy that they would actually do it, but congressional Republicans have done a pretty good job of convincing the Administration (if not yet the financial markets) that they just might do it.[I think the administration knows very well that the Republicans won't do it, but ymmv -- ed.]

Obama has responded by entering into negotiations with the congressional Republicans. These negotiations have not gone well, largely because Republicans are united upon an all-spending-cuts, no-tax-increases approach to deficit reduction.

So what does Obama have to say to that? At his press conference:

Mr. Obama repeatedly mocked tax breaks that he said were for “millionaires and billionaires, oil companies and corporate jet owners,” saying that voters would not look kindly on Republican lawmakers who defended such breaks at the cost of cuts in popular programs like health care, education and food safety.

But he did not explicitly say that he would reject a deal that did not eliminate such breaks, saying that he believed his adversaries would eventually agree to what Democrats have called a “balanced approach” that included trillions of dollars in spending cuts along with tax increases.

“If you are a wealthy C.E.O. or hedge fund manager in America right now, your taxes are lower than they have ever been. They are lower than they have been since the 1950s. And they can afford it,” Mr. Obama said. “You can still ride on your corporate jet. You’re just going to have to pay a little more.”

How lame is this answer?

Let’s count the ways.

1) The stuff about corporate jets is just … crapola really. It’s the Democratic equivalent of Republicans pretending that the deficit can be closed by cutting PBS and the National Endowment for the Arts. If Obama, the supposed grownup in the room, wants to make the case for revenue measures, let him make the case for relevant revenue measures.

2) 30 or so days before a forced default on the financial obligations of the United States seems a poor choice of a time for negotiations over budget measures. Why is Obama allowing himself to be engaged in this way?

3) Why for that matter is Obama surrendering to the demand to change the subject from jobs to deficits? Surely Obama believes that rapid budget-cutting will be deflationary? And therefore irresponsible in the context of 10% unemployment, near-zero inflation, and 1% interest rates on federal debt? Why has he allowed himself to be pushed into measures he regards as irresponsible?

What’s important here is that the tax issues Republicans would have to swallow are trivial. We’re talking about a 5:1 ratio of spending to taxes or worse. Heck, because deficit reduction should not be a priority now, even a 1:1 ratio, seen as some kind of big liberal tentpole, is disreputable. It’s actually a net tax cut from the current baseline; $2 trillion in revenue increases versus $4 trillion in increases if the Bush tax cuts simply expire. What Republicans will have to “accept” is petty compared to what they would get.

Worse than all this, because we don’t know the details yet, is that the President stated a clear belief in the confidence fairy, the idea that if businesses are confident in the fiscal matters of the United States, they will invest in the country and create jobs. This is a completely ahistorical statement that’s impervious to logic. But there we are. Obama said that deficit reduction is part of an overall strategy of job growth. He mentioned a couple job-creating strategies as well, but mainly that was just extending the current payroll tax cut (not a net stimulus if it extends current law) and some mumbling about infrastructure. The infrastructure mumbling was actually one of the better moments, but if that’s offset by deficit reduction, it doesn’t really amount to much.

We, the undersigned economists, urge Congress to raise the federal debt limit immediately and without attaching drastic and potentially dangerous reductions in federal spending. Not doing so promptly could have a substantial negative impact on economic growth at a time when the economy looks a bit shaky. In a worst case, it could push the United States back into recession.

What we heard from the president was sort of the "campaign talking points" that we've heard from the Democrats on Capitol Hill which is, "you don't want to end oil subsidies and the corporate titans are still going to get their corporate jets" which, by the way if you took back that tax break would save you three billion dollars over ten years, so that's not going to solve our fiscal crisis.

So, I think in a way Nancy Pelosi was thrilled with the president's said today but the people who really want to get a deal done, and by the way that includes people on both sides of the aisle, were kind of scratching their heads and said "well, you know, this makes the job that much more difficult."