Obama Is Turning! Turning! Turning! To the Blue Dogs

Posted May 11, 2009 at 1:16pm

The lyrics are from the Bible, the music was written by Pete Seeger, and “Turn! Turn! Turn!— was a huge hit for the Byrds in 1965.

[IMGCAP(1)]At the time it was popular, the song was considered to be an anti-Vietnam War anthem. But it was really more about there being a proper time for everything: a time to be born and a time to die, a time to plant and a time to reap, a time to gain and a time to lose, etc.

Although neither the Bible nor the song says so, there is also an appropriate time to decrease as well as a time to increase the federal budget deficit. The former is not always right, and if you assume the latter is always wrong, you are not heeding what the good book says and not understanding the role the budget plays in the U.S. economy.

As last week’s reaction to the detailed version of the Obama administration’s fiscal 2010 proposal indicates, this concept — reducing the deficit isn’t always appropriate — hasn’t yet become part of the budget debate. In addition to the inevitable complaints about the White House’s proposed spending cuts by Representatives and Senators who have to demonstrate to their constituents that they’re on their side, much of the criticism was from those who said the president hadn’t proposed to cut spending by enough.

Left almost completely unsaid was whether this was the time for any deficit reductions at all.

Until recently, whether the deficit should be reduced each year wasn’t a question. Even if it didn’t always happen, reducing the deficit simply was assumed to be the correct fiscal policy and anyone who disagreed was called irresponsible. Since Gramm-Rudman-Hollings made deficit reduction the ultimate goal of the budget process in the 1980s, budget politics has also made reducing the deficit the assumed always-appropriate policy.

But the world in which the Obama 2010 budget was submitted is vastly different than what existed when Gramm-Rudman-Hollings was in effect. In fact, it has turned, turned, turned completely.

Unlike what was true earlier this decade, the economy is not growing and consumers and businesses are not spending. In addition, despite some public pronouncements to the contrary, there seems to be real limits on what can be accomplished at the moment with monetary policy.

That means that, unless you think doing nothing is an acceptable choice, using fiscal policy to heighten economic activity becomes the only viable option. Which means that, to paraphrase the song, now is the wrong season for the large spending cuts some were demanding last week.

Much of the criticism that President Barack Obama wasn’t cutting spending by enough came from the same people who complained earlier in the year that we shouldn’t be increasing taxes in a recession. But from a bottom-line perspective, reducing the deficit through spending cuts right now would be the macroeconomic equivalent of increasing taxes. That makes the criticism from those people disingenuous and hypocritical in the extreme.

Therefore, the most appropriate question immediately after the budget was released last week was not, “Why didn’t the president propose more spending cuts?— It was: “Why did he propose any?— Given the economy, the White House would have been justified proposing none.

The $17 billion in 2010 spending cuts could have been saved for next year’s budget, when the president’s forecast indicates that the economy will be growing and that substantial deficit reductions will be justified. The administration also could have eviscerated its budget critics by saying that by demanding big spending cuts in a recession, they were following in the economic footsteps of Herbert Hoover. What they were recommending, the White House could have continued, will have the same disastrous consequences as Hoover’s efforts to balance the budget while dealing with a depression.

The $17 billion in spending reductions were the Obama administration’s latest big political hug of the Blue Dog Democrats. These deficit hawk Democrats have supported the president’s budget efforts despite the fact that the bottom line almost certainly is not to their liking. Why? Because at almost every step along the way, the White House has done something that has convinced them that deficit reduction will be the administration’s preferred policy when the budget season turns.

This courtship started with behind-the-scenes meetings between the president and Blue Dog leaders in the earliest days of the administration and continued with a fiscal responsibility summit at the White House three days before the top-line budget was released in late February. It then continued with the president publicly supporting a new pay-as-you-go process that would limit legislated increases in the deficit.

The $17 billion in spending cuts included in the budget was used to offset some of the deficit increases that were also proposed. In other words, this was a limited version of PAYGO and something the Blue Dogs had to appreciate. That will make it much easier for them to support what the president wants to do and makes it far more likely that the White House will have the Democratic votes it needs later in the year to do other things, like health care reform.

That makes the $17 billion in spending cuts appropriate and understandable. They were not so large as to endanger the economic recovery plan the administration is undertaking, but important enough to buy political support for what is ahead. They also provide an indication that the president sees the Blue Dogs as an extremely important faction that has to be dealt with. That should give a great deal of hope for all those who want spending to be looked at more closely when the budget season turns yet again.

Stan Collender is a partner at Qorvis Communications and author of “The Guide to the Federal Budget.— His blog is Capital Gains and Games.