» President Obama’s appeal to fiscal conservatives is likely to result in little substantial change, but it’s exactly the wrong message.
On Wednesday, President Obama will give his State of the Union address to the Congress, and next Monday he will release his proposed budget for fiscal year 2011. Late yesterday, staff aids leaked the news that the speech would include a pledge to veto any budget that didn’t freeze non-defense and non-security discretionary spending at $447 billion. The freeze would be set for three years, followed by spending increases limited by inflation. The goal would be to reduce federal spending by around $250 billion over ten years.
Discretionary spending does not affect mandatory programs like Social Security, Medicare, or Medicaid, which are financed through other funds.
Mr. Obama has no direct control over the budget; final decisions about the funding of federal agencies are made after months of negotiations between the two houses of Congress. As a result, the President’s proposals are unlikely to see the light, since Democrats on the left will balk at the idea of cuts in departmental financing and Republicans have proven themselves unwilling to compromise on almost anything.
But the message the President is planning to send on Wednesday with his proposed spending freeze — a policy close to that advocated by John McCain during the campaign — makes very clear the kind of government he wants to lead; one can’t help but note a similarity with President Clinton’s 1996 announcement that “the era of big government is over.” Mr. Obama seems willing to compromise the political ideals he may have held at the beginning of his Presidency and replace them with an appeal for conservative support. Any hope for an American political realignment following the 2008 election has been firmly put to rest here.
For those who would suggest that the U.S. has done too little to support its flailing economy, specifically through major investments in infrastructure, the President’s statements will be a major let-down. His, and his party’s, unwillingness to force through tax increases for the purposes of financing important social legislation this year foreshadowed this new move. If the best this “progressive” president can do is call for a spending freeze in the middle of a recession — exactly the opposite policy from what economists suggest creates jobs — what can be expected from the conservatives who will inevitably follow him?
In the short term, what’s most depressing about Mr. Obama’s efforts to regain financial accountability — the U.S. debt is exploding as I write — is that even if the Congress does agree to budget cuts, they will likely be aimed towards policies that affect the most vulnerable. The House and the Senate have had decades to lower Washington’s commitment to expensive and wasteful spending on things like agriculture subsidies, but, if anything, politicians on both sides of the aisle have only worked to increase them. Mr. Obama may suggest reasonable reductions, but the Congress will pick programs that have little electoral support, and that usually means aid for the poor. The Senate is likely to reject a non-partisan deficit task force this week, solidifying the sense that elected officials are likely to work for projects that “objectively” might be considered wasteful.
It is possible that the Administration chooses to increase funding for the DOT in this budget, with corresponding cuts elsewhere; we’ll have to wait for the budget release on Monday to find out more.
The negative effects of Mr. Obama’s spending freeze on the transportation sector may not be immediately apparent, but they will be important nonetheless. As the chart at the top of this piece shows, total U.S. discretionary spending as a percentage of gross domestic product has been decreasing basically uniformly since the 1960s. Spending on non-defense programs peaked at around 5.5% of GDP in the late 1970s and now represents around 3.5% of the economy. The consequences of this long-term reduction in financing social and infrastructure programs is obvious: increasing economic inequality and huge deficits in the maintenance and upgrade of transportation and other public utilities.
In other words, the spending freeze solidifies the current problems with the government: it does nothing to reduce massive defense and security expenditures and it makes no attempt to tackle the much larger financial problems related to “mandatory” spending on commitments like Medicare. It’s a blatant attempt to calm populist fears of too much government, while doing nothing to actually address the structural issues relating to long-term financial obligations to social programs. Meanwhile, the agencies that are to be sacrificed, including likely the Department of Transportation, contribute little to the deficit and, even better, are best suited to creating jobs — exactly the policy for which the Administration is claiming to be working.
Investments in projects like new transit or high-speed rail can be efficient in creating jobs and reorienting the society towards a sustainable lifestyle — but they require large government allocations. The President must demonstrate confidence in the ability of these programs to be effective, but his “spending freeze” will encourage the idea that federal spending is wasteful. How can transportation advocates push for more financing of such projects when Mr. Obama is solidifying their opponents’ claims that they are pork?
This announcement makes it difficult to believe the Administration is going to take adequate steps towards developing new revenue sources for the transportation program. Over the past year, it has proven itself increasingly susceptible to compromising its initial aims by diluting policy objectives to the benefit of conservatives — despite the fact that Democrats hold major majorities in Washington and Republicans are simply not interested in working with the President.
Update: Note Paul Krugman’s post this morning.
Image above: Discretionary spending as a percentage of gross domestic product since 1962, from Congressional Budget Office, with minor edits.