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Obama's budget is better than Obama says
Nearly everyone, including the White House, has dismissed the president's plan. Nearly everyone is wrong
 
Brad DeLong
Brad DeLong

The standard Washington insider line on the Obama budget is that it "punts on all the tough choices" — because it proposes no cuts in entitlements, because it fails to embrace the recommendations of the Simpson-Bowles fiscal commission, and because its proposed spending cuts are restricted to that very narrow slice of the budget – 12 percent — that is non-security discretionary spending.

Bizarrely, the Obama administration seems to buy this line of argument: It claims that its budget is only a "down payment" on future tough choices.

But the budget is no mere accounting appetizer. Combine it with the Affordable Care Act and it is pretty much the whole meal — about all that is absent is the fortune cookie that comes at the end.

Why, then, is the Obama administration saying that it is only a "down payment"? They think, for some reason I cannot quite follow, that it is good politics to say so. I, however, am more interested in what is true. And to call the long-term deficit-reduction measures that the Obama administration has undertaken to date a mere "down payment" on our long-term problems is simply not true.

If enacted as proposed, the Obama budget would get the United States to "primary balance" — that state in which government spending is no higher than tax revenue. And the budget plus the Affordable Care Act then keeps us in primary balance even with rapid expected growth in medical care costs. As long as the United States remains the center of the world economy and as long as the dollar remains the world's reserve currency, "primary balance" is a perfectly sustainable place to be, for the debt-to-GDP ratio is then stable. At primary balance we’ll still have trillions in debt, but we’ll also be steadily paying it down; there is no longer a crisis even in the long run.

In addition, the Obama budget picks a number of worthy fights with powerful interest groups: those who currently receive money from oil and gas loopholes; those who benefit from the full income-tax deductibility of itemized deductions; those banks that would pay the Obama bank fee, et cetera.

Now simply passing the Obama budget and maintaining the Affordable Care Act should not be the end of the story. We would like to have a debt/GDP ratio less than the 75 percent at which the Obama budget would stabilize things — future challenges will require government responses, and some of them will be expensive. It would be very desirable to have headroom so that we could easily fund a Marshall Plan or fight a World War, borrowing on a large scale to do so.

Moreover, our economy is changing in ways that may well lead government to become larger as a share of the economy than it has been in the past. An older population requires more of a whole bunch of government programs, from public transit (for those who can no longer drive) to income support to, obviously, medical care. As we shift our economy away from bricks-and-mortar and toward information goods, there will be more and more places where markets will need a helping hand to function well. And there is the fact that for a generation we have, relative to other countries, neglected their inventory.

Thus the federal government's appropriate infrastructure, research and development, and health care missions are unlikely to shrink and likely to grow.

It would be a shame to restrict the government’s ability to buy things we want cheaply — like the ability to broker some future Middle East peace accord with foreign aid (as we did for Camp David) or to fund the next wave of biomedical advances here in our country or to properly explore the solar system or, indeed, to have an infrastructure second only to South Korea's and Japan's — because we have put the federal budget in a straitjacket.

Of course, the Republicans in the House are not going to pass the Obama budget.

But if they did, they could then rightly claim to be real deficit hawks. So far, they’ve given no reason for anyone to believe that they are — or ever want to be.

 

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