Obama, be­ing a fis­cal hawk is just talk

The Washington Times Weekly - - Commentary -

in the best-case, laugh­ably un­re­al­is­tic sce­nario — it’s a pit­tance com­pared with the $1 tril­lion drop in ag­gre­gate de­mand in the econ­omy that it is sup­posed to fill.

In 2010, it spends more, $220 bil­lion. This is still not nearly enough to make up for a drop in de­mand dur­ing the next two years that Obama bud­get di­rec­tor Peter Orszag says will reach $2 tril­lion. The stim­u­lus has an­other $140 bil­lion in new tax re­lief — mostly re­bates — dur­ing the next two years, but Key­ne­sians ar­gue that this re­lief won’t stim­u­late de­mand be­cause it will mostly be saved. The ex­pe­ri­ence of last year’s $168 bil­lion stim­u­lus-in­spired re­bate sug­gests they are right.

Mr. Obama has run into the prob­lem that usu­ally plagues big fis­cal-stim­u­lus plans: It’s im­pos­si­ble to spend “enough” money quickly, so the head­line num­ber is in­flated to sug­gest a much big­ger short-term bang than ac­tu­ally ex­ists. (This is why Key­ne­sians can in­sist their the­ory has never failed, just never been truly tried.) The price for the at­ten­tion-grab­bing head­line num­ber is still sub­stan­tial in the long term, one rea­son we are looking at $1 tril­lion deficits — to bor­row a phrase from the Clin­ton years — “as far as the eye can see.”

Why talk about cut­ting the deficit while in­creas­ing it un­der the the­ory that it’s the best pos­si­ble medicine for a weak econ­omy that will — if past fi­nan­cial crises are a guide — un­der­per­form for a long time to come? Be­cause we can’t con­tinue to run deficits larger than any we’ve seen since World War II without court­ing dire con­se­quences. Con­sider this alarm­ing sen­tence from a re­cent Brook­ings In­sti­tu­tion pa­per: “Re­cent trends in credit de­fault swap mar­kets show a clearly dis­cern­able uptick in the per­ceived like­li­hood of de­fault on 5-year U.S. se­nior Trea­sury debt, a no­tion that was vir­tu­ally un­think­able in the past.”

So Mr. Obama must in­sist he is go­ing to get the deficit un­der con­trol, al­though by con­ve­niently do­ing all the things he al­ready wanted to do: scal­ing back the Iraq War, rais­ing taxes on the rich and fur­ther na­tion­al­iz­ing (“re­form­ing”) health care. The first two at least re­duce the deficit; the lat­ter is a poorly dis­guised bud­get-buster. When has gov­ern­ment ever ex­panded its health-care pro­grams and achieved a cost sav­ings? Only a sys­tem of de facto ra­tioning and price con­trols might do it, two things Mr. Obama never men­tions when he talks of all the health-care sav­ings that will be achieved by pre­ven­tive care and bet­ter tech­nol­ogy.

What of mea­sures that a lib­eral Demo­crat wouldn’t or­di­nar­ily un­der­take, that speak to Mr. Obama’s post-par­ti­san prag­ma­tism? Mr. Obama has said re­peat­edly that he wants to con­trol en­ti­tle­ments. “So­cial Se­cu­rity, we can solve,” he told The Wash­ing­ton Post, with a dis­mis­sive wave of his hand be­fore tak­ing of­fice. His plan was to form a com­mis­sion to study the pro­gram, the typ­i­cal Belt­way ex­pe­di­ent in such tick­lish cases. But he has shelved even the com­mis­sion idea for now un­der pres­sure from Nancy Pelosi and Harry Reid.

It’s much eas­ier to host a “sum­mit” on fis­cal re­spon­si­bil­ity, as Mr. Obama did on Feb. 23, play­ing to his strength of earnest, high-minded gab. He wants to make tough, po­lit­i­cally dif­fi­cult choices — just not yet.

Rich Lowry is a na­tion­ally syndicated colum­nist.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.