Wednesday, January 27, 2010

Why Obama Is Making A Mistake Of Herbert Hoover Proportions And Will Be A One-Term President

Every instinct the President has honed, every voice he hears in Washington, every inclination of our political culture urges incrementalism, urges deliberation, and an abundance of caution, particularly in regard to our “unsustainable government spending.” And for all of his apparent newfound populist vigour, it now appears that the President is about to heed these voices of caution. The moves against the banks, coupled with yesterday’s announcement of a spending freeze and previously voiced support for a bipartisan commission on the deficit, all point to Clinton-style triangulation.

The Wall Street Journal reports that President Obama intends to propose a three-year freeze in spending that accounts for one-sixth of the federal budget. The move is designed “to attack the $1.4 trillion deficit” and would “propose limits on discretionary spending unrelated to the military, veterans, homeland security and international affairs, according to senior administration officials. Also untouched are big entitlement programs such as Social Security and Medicare.”

As with so much else with this president, the effect, then, is likely to be cosmetic, but it sends out an awful statement about Obama’s increasingly “Hoover-esque” governing philosophy, and the future likely direction of fiscal policy. The cuts will apparently be supplemented with some “middle class friendly” proposals to be introduced in the State of the Union Address. But the words of the Who’s Pete Townsend spring to mind from the song “Won’t Get Fooled Again”:

“Meet the new boss / Same as the old boss.”

Any kind of spending cuts in the middle of the worst recession since the Great Depression is insane. What we are beginning to see is the return of Herbert Hoover and the “liquidationists.”

As my friend Mike Norman reminded me, Obama opposed the idea of a spending freeze during the campaign, when it was proposed by McCain. McCain lost the presidency. Now Obama supports it???

What’s next? Raising taxes as the Japanese did in the middle of their recession in the mid-1990s?

Those who rant about the runaway size of government in the US should just go to the BEA statistics page. Bill Mitchell points out that government spending as a percentage of real GDP has actually DECLINED over the past year: “In March 2003 it was 9.4 per cent (and it wasn’t much less than about 10 years earlier as well). It peaked at 12.4 per cent in September 2008 at the height of the crisis when investment was heading south and consumption was still in decline. A year later it was at 11.4 per cent.”

It’s certainly not the image of an out of control, wildly spending, “socialist” government.

If Barack Obama continues to listen to the siren songs of the deficit terrorists, he will almost certainly be a one-term president.

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