Obama budget, Stimulus vs. Austerity, Friday’s unemployment #s and more

Posted on April 8, 2013 by


Rather than a single subject today, I’d like to offer some quick thoughts on several recent economic events and get your feedback on what you’d like to hear more about.  Post in the comments if you’d like more details.

First up, we are told we will finally have a budget submitted by the President this week, which is over two months late.  Mr. Obama will propose a “fiscally responsible” budget, which will

 ‘My budget will reduce our deficits – not with aimless, reckless spending cuts that hurt students and seniors and middle-class families but through the balanced approach that the American people prefer, and the investments that a growing economy demands.’……‘But deficit reduction cannot come at the cost of economic growth or middle-class security. And it doesn’t have to. My budget will make critical investments to grow the economy, create jobs, and strengthen the middle class,’

Mr. Obama reportedly will raise taxes yet again by limiting tax deductions for the rich, while offering as entitlement reform only the use of chained-CPI (which will slow the growth rate of entitlements).  So no true structural change will be offered, although obviously this is his opening offering.  One can harp on the tardiness of the budget–as Senator Corker does here

“It does give new meaning to leading from behind,” said Sen. Bob Corker (R-Tenn.).

It does beg the question, what is in this plan that needed to wait two months?  Why would the President not want to lead the debate rather than react to it?  Does it speak to his priorities?

Over on the Stimulus vs. Austerity discussion (implicit throughout Mr. Obama’s budget discussion above as well), Portugal is rejecting austerity measures needed for continuing access to debt markets.  As Luciano Jannelli, chief economist at MIG Bank, told CNBC on Monday.

 “Increasing taxes is extremely painful, and the government has said they will not do it, but it seems to me that this is the only thing that they can do,”

This is illustrative of the problems we face economically–failing to understand stimulus vs. austerity.  Almost all the discussion of the problem is, do we have stimulus in the public sector to make up for austerity in the private sector?  The basic public finance problem throughout the world today is government is too large relative to the private sector; the current (and projected) level of spending cannot be sustained under plausible (both politically and economically) revenue scenarios.  So I’m in favor of stimulus.  And I’m in favor of austerity.  But key to the solution is for austerity to fall on the public sector side and stimulus to fall on the private sector side.  I’m not for austerity if it is to further shrink the private sector.  And I’m not for growth if it is to grow the government.  Note that while I do have a personal preference for smaller government, my economic recommendation comes from the reality of the budget difficulties.  As a commentator said on CNBC earlier this year (I forget who), this is not an ideological issue–its an accounting issue.

Nevertheless, as seen in Mr. Obama’s comments above, he and others still feel like the public sector is the engine of growth.  Which brings us to the unemployment results released last week.  Abysmal is not too strong; job growth of only 88,000, unemployment applications up to  385,000 and the labor force participation rate dropped to its lowest level since 1979 (63.3%) as nearly half a million people stopped looking for work.  This despite all the previous and continuing economic stimulus.  Will there ever come a point when politicians will question whether they are the cause of the continuing stagnation?  When–if ever–will President Obama take ownership of the problem?  Yes he inherited a tremendously negative financial crisis.  But when Dan Plieffer says on Fox News that just means we need to do more, don’t we have an obligation to first find out if what we are doing is not part of the problem?

Finally, I will echo the many laments at Margaret Thatcher’s passing.  As Mark Smith’s post suggests, the biggest loss to us is not Mrs. Thatcher herself, but that there is no effective advocate for the courageous vision she put forward.  I leave with a quote from her from the Washington Post’s eulogy,

“I can’t bear Britain in decline, I just can’t,’

The entire world is seemingly in decline, and it is difficult to bear.  But Margaret Thatcher said this before changing the world–and so can we!Image