This chart, put together by Michael Linden at the Center for American Progress, shows the Obama Administration’s performance on fiscal policy over his term in office. It shows that spending, taxes and the deficit are all lower, relative to the CBO projections from when the President took office in January 2009.
If you’re an economist, you look at this chart, and given the fact that the United States still suffers from elevated unemployment and needs more fiscal stimulus to increase aggregate demand, you shake your head in frustration. If you’re the President of the United States, you tweet out this chart to your millions of followers on Twitter, proud of the fact that you’ve been a President who has cut taxes, cut spending and cut the deficit.
I talked to Michael Linden today about this chart, and why any progressive Democrat should look at it and think that it’s a good thing. First, let’s make clear what the chart shows. It compares CBO projections from January 2009, the month Obama took office, to the most recent CBO projections for spending, revenue and the deficit. And it finds that all three measures are lower today than from three-plus years ago.
I asked Linden why any progressive should look at this information with anything approaching pride or pleasure. “If your argument is that we shouldn’t be having a fiscal consolidation during a recovery, that’s a fair criticism of it,” Linden said. He claimed that his chart was more of a myth-busting document, merely showing the facts of the situation. It attempts to rebut criticism from the right of Obama as a tax-and-spend liberal Democrat exploding the deficit.
But what about the criticism that the economy needs more, and not less, fiscal support? What we’re seeing over the last year is the institution of austerity measures not just in Europe, but right here in the United States. Jared Bernstein looked at current data year-over-year and showed that the budget deficit has reduced $150 billion this October-April compared to the last fiscal year, a consolidation that projects annually to a 0.5% rise in unemployment. The data for the first quarter of 2012 show that increased fiscal spending is highly correlated with economic growth. Given our fragile recovery, cutting the deficit creates a fiscal drag that slows GDP growth and employment figures. Even the Federal Reserve is worried about the impact of spending cuts on the US economy.
Linden didn’t really contest the argument. “You can argue (the information on the chart) was the wrong direction, given our economic issues, given the fragility of our recovery,” he said. Linden did add that “it’s worth remembering that the President proposed a substantial jobs package last year and the Republicans blocked it.” That is true, although the payroll tax cut and an extension of unemployment insurance, a substantial part of the American Jobs Act, did pass. [cont’d.]
But this gets to the point of who should take credit for that chart. Republicans in Congress demanded less spending, lower taxes and cuts to the deficit when they took power in the House in 2011. The chart shows that this happened. They blocked higher fiscal spending. They got a debt limit deal that constrains spending for the next ten years. They put forward the measures that will reduce the deficit by trillions, if the trigger remains in place. Republican House members should be just as comfortable tweeting out this chart as the President. It falls in line with virtually every one of their professed favorite policies.
“Both things are true,” Linden said. “One, that it is a myth that the President has been a great big spender… but you can also say, if you’re looking for a partial reason why our recovery hasn’t been faster, that may be one of the answers, that the President is pursuing the preferred policy path of his conservative critics.”
Here you have the difference between a tactical argument and a policy argument. On tactics, the President obviously finds it worthwhile to bust this myth of him as a big spender. But that has consequences for economic policy. And given how the state of the economy affects elections, you could make a very compelling argument that it would have been worth it to push to rehire the hundreds of thousands of public workers who have been laid off in the Great Recession, among other expansionary policies.
Of course, the President is not a dictator and once Republicans took the House, some of these efforts (not all, certainly not in the housing arena) were closed off. “House Republicans have put a lot of pressure on, and been successful on cutting a whole bunch of spending,” Linden said. “Some of that is reflected in the chart.” He added that the larger factor is that the President inherited “an incredible mess of a balance sheet,” and that the mess has proven difficult to clean up in the midst of a recession.
Linden added that he didn’t agree with a good bit of the policies that have been forwarded. “I’m not so sure it’s a good thing that taxes have gone down, that’s not where we need to go long-term.” Of course, these have been virtually the only policies able to pass that have any amount of stimulative benefit, on the tax side. But over time, this drains the ability of government to provide services, especially if those taxes are skewed toward rich people who will save the money rather than putting it into the economy. “I don’t think a dollar of expansion should be treated equally,” Linden said. In addition, Linden acknowledged that “the economy would benefit from additional recovery measures, like re-hiring those 600,000 public sector employees who have lost their jobs in the recession.”
“It’s a mythbusting piece more than anything else,” Linden concluded. “These are the numbers. Spending, taxes and the deficit have gone down. You can say fairly that this is not the economic policy we should be pursuing. If you want to criticize the President because he’s not been Keynesian enough, that’s OK with me. If you’re saying that he’s been too much of an austerity President, fine. But especially on a day when Mitt Romney is out there talking about the President running up massive debt and spending wildly, you have to say this is just not true.”
The problem is that the policy that would be best for the economy is the policy that would feed this myth, and when I look at what’s more important, the myth or millions of people suffering needlessly, I know where I come down.