Marketplace Scratch Pad

The unfrozen spending freeze

Scott Jagow Jan 26, 2010

I’ve spent most of the day trying to figure out what the Obama administration means by calling for a spending freeze that isn’t a spending freeze. Is that like showing up for a pond hockey game in skates, only to find out you’ll be swimming for the puck instead?

Read more about the plan here, but this is the gist: The president will propose a three-year freeze on domestic discretionary spending. The freeze would begin this October, affecting agencies such as Commerce, Interior, Justice, Labor and the EPA.

The military and Homeland Security budgets would go untouched and so would non-discretionary spending like Medicare and Social Security. However, in last year’s budget, those items accounted for about 85% of the spending, so the freeze would only affect 12-15% of the budget.

Still, every quarter of a trillion counts when the deficit is $1.3 trillion, right?

Except that it’s not a freeze. According to administration economist Jared Bernstein, some programs will be cut or reduced while others will be increased. The net result of that is supposed to be $250 billion in savings by 2020. Nothing is being frozen in this freeze.

But that’s not the most ridiculous part. Bernstein says the only spending that will be cut is wasteful spending. I swear it. Watch the video below. He says Good Spending — the kind that benefits the middle class and creates jobs — will be increased. He says it over and over. Bad Spending — the kind that only benefits politicians and the rich — will be cut.

Oh, how I do love fairy tales!

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The reaction from Obama’s supporters has been brutal so far. At Salon, Joan Walsh writes:

Bernstein said it would let Obama cut “wasteful spending” and thwart the lobbyists who defend every imaginable government program. Really? If everyone knows the freeze isn’t real, and it’s just about proving your program is important to the recovery or health care or some other protected priority, it will be a lobbyists’ free for all anyway.

This charade is almost worse than if Obama was dead serious about an across the board freeze.

Robert Reich says:

(Obama’s) three-year freeze on a large portion of discretionary spending will make it impossible for him to do much of anything for the middle class that’s important. Chalk up another win for Wall Street, another loss for Main.

I waited all morning for this headline from the king of all Keynesian economists, Paul Krugman… Obama Liquidates Himself:

It’s bad economics, depressing demand when the economy is still suffering from mass unemployment…

It’s bad long-run fiscal policy, shifting attention away from the essential need to reform health care and focusing on small change instead…

And it’s a betrayal of everything Obama’s supporters thought they were working for. Just like that, Obama has embraced and validated the Republican world-view — and more specifically, he has embraced the policy ideas of the man he defeated in 2008. A correspondent writes, “I feel like an idiot for supporting this guy.”

Conventional Folly writes:

The only conclusion I can come up with is this: Obama’s panicking. This is a pure panic move, something focus tested within the bowels of the West Wing, a policy that he and his handlers think will shore up the president’s economic bona fides while appealing to the middle. For a smooth operator like Obama, it is a perplexing — perhaps even troubling — play.

I’ll wait to hear how President Obama explains his proposal in the State of the Union address tomorrow night, but Bernstein did the president no favors with his description.

Krugman and Reich both want the president to reverse direction and call for a second stimulus. I find that idea difficult to support, but equally as difficult to swallow is the notion that the president can get Congress to cut a little here and a little there (while only cutting the Bad Spending), and that this plan would make a dent in the budget deficit.

I have a better chance of playing for the US hockey team in Vancouver next month.

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