Tuesday, January 26, 2010

Economic Confidence

I have not seen what Obama’s spending freeze entails, but I am surprised by the general conclusion that it is:

  1. Inconsistent with his “hatchet vs scalpel” comment during the debate
  2. Designed to appease Congressional Republicans or conservadems
  3. Going to kill the economy

First point: In response to McCain’s call for an across the board spending freeze (with limited exceptions) during their debate, Obama said that McCain’s plan was a hatchet when what was needed was a scalpel. Obama never said McCain was taking a hatchet to a healthy patient, which would be the expected analogy if Obama believed no cuts were necessary. Instead, he talked about using a scalpel, which means he believed and stated that some cuts were necessary. Now he’s making some cuts--and in a fairly passive way.

Second point: Consider the timing and the form of this news. Brown just won Massachusetts. Voter exit polls showed that among other things, voters wanted the federal government to be much tougher on the financial industry. Shortly thereafter, Obama proposed tougher-than-expected regulations on the financial industry. This was widely recognized as seeding the ground for the 2010 midterm elections.

The next news major we heard was about the spending freeze. This was widely recognized as capitulation to conservatives.


What else did Massachusetts voters say? They are worried that government spending is out of control. They are not the only ones. Citizens of all political stripes across the country are worried about what it means when the government issues $2.1 trillion in debt in one year (2009), double the next-biggest year, and China owns a substantial portion of our debt—of us.

Voters are also worried about inflation. Yes, with over 10% unemployment and a real estate market that is still falling, people are worried about inflation—again, because of government spending. They may not know all the factors that go into inflation, but they understand that printing more money dilutes the value of every dollar in circulation, and they understand the relationship between currency dilution and inflation.

Now notice how the news of the spending cuts came out. It was floated out there Monday that Obama would announce it Wednesday; it was put out as a teaser.

There is no reason to tease Congressional Republicans about a spending cut. On the other hand, putting out a teaser to voters about something they dearly want to hear is a great idea. Notice how quickly Bayh and McCain called for even bigger spending cuts. And yet they got drowned out (except on Fox, I suppose) because everyone is all abuzz about Obama’s proposal.

In one move, Obama said something voters have been waiting to hear, claimed fiscal responsibility for the Democrats in the fall elections, and generated some buzz that drowned out Republicans. That’s some pretty good politicking. In short, I think it’s more likely that this teaser was for voters, not politicians, just like the announcement of financial regulation that came just before it.

Third point: No one, not even a fool, is going to claim that there is no waste in the budget. Just because the government needs to continue to put money into the economy doesn’t mean it needs to throw money at anything that moves. It’s not a bad thing to show some discretion, even in a bad economy. I say this having no idea what he plans to cut—nor does anyone else, I believe.

I think Obama is doing pretty well at walking the tightrope he stepped onto a year ago, at least regarding the economy. He inherited an economy that could have turned into a black hole, sucking everything into its maw. Instead, Obama boldly put a big stimulus plan out there to fill the hole, and it’s done very well. It could have done even better if the banks had done what they were supposed to and passed their money along as loans.

Considering that Obama has a track record of success with the economy, why do liberals assume he now wants to undo that success and take the economy back down? Is that the first thing that comes to mind, really? Has he not earned at least the benefit of the doubt?

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