The Budget and Other Fiction

Rule one of US budget watching: the President’s budget is never, never, worth the paper it is printed on. It is more of a suggestion. It is a helpful guideline to lay down the boundaries within which the President tries to negotiate with Congress. If that Congress is intransigent, as it is an a big way right now, then even that limited goal becomes futile.

So, with that grim preamble, what do we make of the Obama budget released this morning?

Well it’s full of austerity moves. It has a few fairly lightweight and unnecessary so-called investments. And it will be forgotten as soon as the Republicans resume their attempt to use the debt limit as a bargaining chip with which to attack social programs.

And therein, as the bard once said, lies the tale.

From my perspective the Obama budget is lamentable simply because he has decided, once again, to play on the Republican party’s home turf. Rather than make the case for prolonging support for the economy, he has acquiesced to the idea that the economy is now sufficiently buoyant that we can start to set the government in reverse. We can, he argues, begin the retreat from the emergency measures and allow the market to dictate the next few years.

I have no idea what statistics he is using in this calculation, for I don’t see one strong enough to justify the shift.

Moreover, given that this budget document is useless, my suspicion is that the administration will now get down and dirty with the Republicans as they argue over precisely which domestic spending programs should be cut. Inevitably this implies hammering away at the sick, the young, or the poor. Call me cynical, but I doubt the Tea Party extremists who now boss the Republicans will settle for big cuts in offense spending, security, or anything else affecting guns.

And we already know that they are looking for a show down over that debt ceiling. For those who missed what this means: the US Treasury issues and maintains the US national debt within an upper bound set by Congressional vote. Normally raising this limit is not controversial. As the economy grows it is no surprise that the amount of debt also grows, so the debt ceiling has crept up over time. Add in the enormous jolt given to the debt by the recent crisis, and we have nearly reached that limit. This, of course, offers the Republicans a great opportunity to express their new found fiscal conservatism. New found because at no time during the Bush era when we were plunged into red ink by those infamous tax cuts, did anyone of any prominence on the right whisper a word about the debt ceiling.

That was then this is now. Right wing leopards do chan ge their spots.

Debt panic is a good vote catcher, and the Tea Party has rolled into town along with its ragtag mix of libertarians and general trouble makers. They smell blood. They hope to force the US government to shut down. That this would be a disaster for the economy – imagine the spike in interest rates – is apparently of no consequence. After all as their tactical mentor, Lenin, argued more than once: sometimes you have to burn the village to save the village.

Yes we are at that point.

And, no, I am not making this up.

We have now entered the first of what promises to be many confrontations that will extend all the way to the next presidential election. We are playing with fire. We might well muck up the recovery.

It is in this context that I evaluate Obama. He fails any test I can come up with.

His decision to move the game onto enemy territory and away from a defense of the weak is a shameful signal of his inability to conceive of an alternative economic strategy. His emphasis on investment in such things as alternative energy and so on is laudable. Or rather it would be were it not so business oriented. Yes he wants to cut out some goodies now flowing into the oil and gas industries – who patently don’t need our help – but the outcome from his approach is a long way off. He does little to produce help immediately for anyone who might have been called within his constituency.

Having muffed bank reform he is, essentially, punting on making headway on the real causes of our structural deficits: those Bush tax cuts, our over extended military, and health care.

So today’s kick off is not benign, it is malign. It gives away much of the game before the bargaining has begun.

Add in the almost complete lack of public support for substantial cuts in domestic spending and we are forced to conclude that all this huffing and puffing over the impending debt disaster only exists within the minds of our elite. It is their wealth under attack. They are, after all, the primary creditors of the nation. They are also the very group who rode the economy over the cliff. That they are now clamoring for cuts to the programs that don’t affect them is shameful, and would be inflammatory were the public more informed about where the budget money really goes. But, alas, the public is terribly ill-informed. A majority think that foreign aid is a major program. It isn’t. In fact the US is a derisory aid giver. A near majority don’t even know that Medicare is a government program. In survey after survey the voters respond that they would tolerate higher taxes in exchange for the protection of the major social programs, especially Social Security. In no survey I am aware of has there been a hint of support fro austerity.

So austerity is being forced on us all by the “experts”. Those in the know. Those who thought bank deregulation and a vast derivatives business would grease the wheels of commerce.

Yes those experts.

Worse: there is little or no evidence that the credit markets are running for the hills. Inflation fears are supposed to be a harbinger of credit market dangers.Much is being made of the rising spreads between inflation proofed and non-inflation proofed bond rates. That spread gives us a clear indication of inflationary expectations. And, yes, they’ve gone up over their low points of last year. In fact they have shot all the way back … to normal levels. For the US that spread was 2.4% a year ago, and is now 2.3%. Where in that trend is a panic over debt? Nowhere. But that doesn’t stop the hawks from banging the austerity drum.

So, instead of initiating a debate about our budget priorities, and instead of preparing us to have an adult discussion about why we continue to spend seven times anyone else on military stuff – is our military so bad that twice as much couldn’t do? -Obama has hurled us into a debate about which particular disadvantaged group should bear the brunt of the cuts.

Take your pick: children? The sick? The poor?

One of those has to carry the can for the banks.

Which one would you go after?

The Republicans say all three.