Articles and Analysis


Obama's misguided spending freeze

Topics: Budget , Health care , Health Care Reform , Obama , Spending

Since the beginning of the presidential campaign, Barack Obama and his advisers have repeatedly claimed that they don't listen to DC's conventional wisdom. But Obama's decision to propose a freeze of discretionary non-security spending suggests that the White House misunderstands the problem in the same way as most of the rest of Washington.

The problem, as I've argued, is that Obama's political fortunes are closely tied to the economy -- a variable over which he has relatively little control. With his first midterm election approaching and the economy in terrible shape, an anti-presidential backlash was a virtual certainty. Obama's approach to health care or the economy may have exacerbated this backlash -- the public tends to move in the opposite direction from public policy (though usually after some lag) -- but it's highly unlikely that Obama's policies or communication strategies were the primary cause of his declining approval ratings.

The decision to respond to this problem with a partial spending freeze is both bad politics and bad economics. From an economic perspective, Obama faces a serious risk of a long period of slow growth or even a double-dip recession. He has no politically feasible jobs agenda; his proposed tax credit is tiny relative to the scale of the problem. Imposing additional limits at government spending will only make the problem worse.

From a political perspective, Obama's gesture will have very little effect. The idea seems to be that it will appeal to independents and Republicans who are concerned about the deficit. However, most Republicans and Republican-leaning independents will not support Obama no matter what he does. They may say they are concerned about the deficit or government spending, but if those concerns are addressed they are likely to find other reasons to oppose the administration. (In addition, their perceptions are likely to be biased.) Deficits might hurt Obama on the margin, but in most cases I tend to think that they're a convenient reason to cite for opposing a president you wouldn't like anyway.

Just to underscore the magnitude of the political and economic problem Obama faces, the White House budget, which was released today, projects "8.9 percent unemployment at the end of 2011, and 7.9 unemployment percent by the end of 2012." While unemployment isn't as good a predictor of election outcomes as income growth, these figures underscores the difficult path to re-election that Obama currently faces. He can still win in 2012 -- seasonally adjusted unemployment in December 1983 was 8.3% and Reagan went on to beat Mondale in a landslide -- but he needs significant growth to do it (regression line excludes the outliers of 1952 and 1968):


Given the historical record, the downside risk of suboptimal economic policy vastly outweighs the symbolic appeal of spending freezes and other short-term deficit measures. Unfortunately for Obama, this is one issue where his administration appears to buy into the conventional wisdom.

Update 2/2 1:30 PM: Matthew Yglesias makes the point more eloquently in a post linking to this one:

Roughly speaking, people got it into their heads over the years that "deficits" are "bad" (which is usually true, but also pretty simplistic) and then the economic situation became very bad, so people have decided that large deficits must be the problem. This is a misunderstanding. An application of a crude, sorta-correct rule of thumb to an unusual situation. It also involves people confusing cause and effect. Steep economic downturns cause large deficits, which is bad. But the deficit is the symptom rather than the cause. Meanwhile, as Brendan Nyhan observes the Obama administration seems eager to pile bad political science on top of the mass public's bad economics. People are upset, and they say they want a smaller deficit. So Obama's proposing to give it to them, and seems to have no intention of doing anything about its own forecast of a years-long bleak economic situation.

In political terms, though, the actual performance of the economy in 2012 is going to be much more important to Obama's re-election than the budget deficit. In particular, by directing its policymaking more at the things that the public thinks are the cause of economic problems rather than the things that economists think are the cause of economic problems, the administration is making is running a huge risk of GOP takeover of the House in 2010. What's more, they've left themselves with almost no margin of error for their own re-election. And for double-irony, the very members of congress who are most endangered by poor short-term economic performance are the ones who are doing the most to urge the administration to adopt a fiscal retrenchment agenda. The faith in vox populi that this reflects ("the public will reward me for doing what they said they wanted me to do, even if it turns out not to work at all") is sort of touching, but really lacks any basis in the evidence. It's fascinating to me how few professional political operatives or reporters seem interested in systematic studies of US politics.

See also:
-Seth Masket on pundits misunderstanding Obama's problems
-John Sides on the overemphasis on process as the problem in the health care debate
-Jon Chait on Peter Wehner ridiculing "structural factors" as the primary reason for Obama's decline

[Cross-posted to brendan-nyhan.com]



I am a little confused about the spending freeze which Obama will have to make clearer to the public. America is the hardest country in the developed world to govern because, most Americans hate it when the government spends a lot of money in general but the previous administration spent a lot of money and unlike Obama, they kept their spending rather secret. Obama needs to prove to people that historically Democrats have had a great track record on reducing debt. Democratic presidents from Truman to Kennedy to Clinton have actually done their best job at controlling the debt when the opposition party had control of the House and/or the senate. The GOP continues to call Obama's budget reckless, but lets face it, Obama did not replace Ron Paul as president, he replaced the most wasteful spender ever. That is why the GOP needs to grow up and stop pointing the finger at Obama for spending when they okayed spending for 8 years under Bush.



Getting back to my signature issue which is the goal of universal coverage in America, our government wastes money on people who have long hospital stays and are not insured. They never get their money, and that is what costs so much. Our government spends millions on paying for hospital stays of the uninsured that would cost less if we did have some insurance reform, and poorer people could pay monthly premiums on a sliding scale if they don't qualify for medicaid. Preventive care is sometimes less costly than catastrophic care. If Obama were to leave everything as it is, and let the GOP run the show for 6 more years, the debt problem would increase. That is why there has to be a case made for practical spending rather than wasteful spending.



The public seens this gimmick of a "spending freeze" for exactly what it is: a gimmick. It's just like those used car dealers that have a sale where they have "slashed every price by 30%". Everyone knows they raise their posted prices by 50% before they have a 30% off sale.

Obama is just another slimy used car dealer. He wants a huge increase in spending and then claim he is saving money by freezing it. But only after he raises it first.

Then the freeze will only be on 17% of the spending. Unless it affects the unions. Or unless Ben Nelson and Mary Landrieu get more sweetheart deals. Or unless he needs more money to buy votes. Or unless he's just lying in the first place.

For someone who is supposed to be so smart, Obama is misreading the public worse and making some of the most stupid decisions of any president ever. He needs to fire his entire white house staff of advisers and hire some that actually know something.



Well, that previous comment is ridiculous because Obama has done more to meet with his opponents both foreign and domestic than any president in many years or ever. Obama didn't make those sweetheart deals in the senate. From a progressive stand point, the senate's bill sucked. The conservadems like Landreu and Nelson do not even belong in my party in my opinion. Reconciliation with a strong bill will be much better. I am tired of the anti-choice people who still think the abortion language doesn't go far enough. I honestly think the health care bill in the House, after voting for the Stupak language would even make the Pope happy. He would just be disgusted that countries in his part of the world solved their health care crisis 40-50 years ago.

Nobody could handle a luncheon with wing nuts from the right and stay so calm. That does not sound like a man who is a radical communist like some right wingers think. In my opinion he is trying to move to the ctr the way JFK did.

The public can crucify Obama by knocking off 10 US Democratic senate seats and 60 house seats, and all that will happen is that we will see in another 2 years the economy improve, and even the stimulus being somewhat of a success. I am taking the long-view here and keeping track of today's opinions from both sides. 5 years from now, I will look at both sides, and make my decision about the affectiveness of Obama's programs.



The Nelson and Landrieu deals are in there because Obama told congress that he didn't care what was in the bill. Just put something on his desk and he'll sign it. But if you want to blame congress for those - OK.

But, those deals only amount to hundreds of millions of dollars. Chicken feed compared to the $60 billion that he personally negotiated as a gift to the unions for their support.

He is talking about a "freeze" potentially saving $250 billion over 10 years. He has already given 10 times that much to the unions in kickbacks so far this year.

There is still $500 billion left in stimulus money. Since it has failed so miserably, he should apply that money back to the deficit instead of spending it on even more high speed trains to nowhere and turtle highway crossing bridges. There is also the hundreds of billions of TARP money that he was supposed to use for the banks but he didn't. Instead he plans to spend not only all of that (even though the law says it is supposed to pay down the deficit), he also plans to spend the other $400 billion that the banks pay back from the bailout loans.



Let me actually respond to the substance of Professor Nyhan's post...I think it contains the seeds of its own contradiction (quite apart from my own political preferences on the matter, which are similar to his).

He is right that Wlezien and Stimson have shown systematically that the public shifts in the opposite direction of recent policy (and the lag is not all that long ...t-1 will do). The Stimson graph of the public's "policy liberalism" is here (higher is more liberal):


Notice in particular the sharp swerve to the right after the debate over the Clinton health plan. Now, consider that at the moment we have just experienced probably the largest single annual % increase in government spending in a good long while, so I suspect that the public is shifting precisely --and probably very quickly-- in the other direction: ie, constrain spending.

I don't like it...but it seems to me Obama is tacking to where the votes are.

BTW: with the equation reversed (opinion predicting spending), this also exactly what the Wlezien and Stimson models would predict....government responds to public hand on the thermostat to dial down spending... ". Wlezien in particular has written an error correction model of this phenomenon that works quite well.


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