Saturday, April 13, 2013

Why Obama's budget is a mistake

By Frank Moraes

Jonathan Chait wrote an interesting article today about how conservative pundits are now attacking Obama from the left, Conservatives Decide Obama Is Too Conservative. It had a particularly good catch from Matthew Continetti of the Washington Free Beacon who now says that Obama shouldn't be trying to cut the deficit, but rather be pushing his jobs program. As Chait pointed out, this is a total reversal from what he said when Obama first proposed his jobs program. At that point, Continetti was pushing the same old conservative canard that the government can't create jobs. It's fun to read.

But Chait also pointed out something that is important about the mistake which Obama's budget is: in his column today, Charles Krauthammer wrote that Obama should offer that the tax increases in his budget go half to reducing the deficit and half to reducing marginal tax rates. Jonathan Chait rightly notes that this is (yet another) conservative attack from the left. But here's the thing: he and the others are only able to make this attack from the left because Obama has moved so far to the right. Just like I (and oh so many others) predicted!

I understand. There is not going to be a budget deal. This isn't just because the Republicans refuse to do anything. The truth is that the Sequester is just starting to affect the economy. It will keep economic growth slow for the next two years. A Grand Bargain, as much as I am against it, would be good for the economy in the short term. The Republicans do not want that. They are hoping for a replay of 2010 in 2014. And they have a good chance of getting it.

For all of my adult life, I have watched the Democratic Party compromise in the name of being "competitive" with the Republicans. This was always a mistake. Reagan barely won in 1980 and only did win because Paul Volcker created a recession just in time for the election. And then, he lowered interest rates and created a boom, just in time for the 1984 election. Democrats learned the wrong lesson from those losses, just as Republicans learned the wrong lessons from Bush Sr's loss. But whereas the Republicans obtuseness has only made them more conservative, the Democratic obtuseness has also made them more conservative. And that leaves us with President Obama.

Regardless of what the president thinks, offering compromises like entitlement cuts just moves the political debate further to the right. What he ought to have done is act like cutting Social Security would be as painful for him as sacrificing Natasha and Malia to the gods. But he didn't do that—because he continues to hold on to the wrong lessons of the 1980s. And in the end, it might be good for his "legacy" (whatever the fuck that is). But it is not good for the liberal cause and it is not good for the Democratic Party.

Just ask Charles Krauthammer.


People sometimes complain that I take too much knowledge for granted, so let me clarify my Paul Volcker comment. Paul Volcker was the Federal Reserve chairman appointed by President Carter. Inflation was very high, so Volcker made money less available (by raising interest rates). This threw the economy into recession. After inflation was under control (1982-83), he made moneymore available (by lowering interest rates). This caused businesses to invest and started an economic boom that we call "morning in America." That was all Volcker's doing; it wasn't Reagan. In case you were wondering.

In gratitude, Reagan replaced Volcker with Alan Greenspan the first chance he got, which was 1987. (Note: the last two Fed chairmen were appointed by Republicans and kept on by Democrats.)

(Cross-posted at Frankly Curious.)

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  • Reagan reappointed Volcker in 1983. Fed Chairman serve 4 year terms.

    By Anonymous Rob Kulak, at 2:08 PM  

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