FacebookTwitterGoogle+RedditEmail

Obama’s Misguided Agenda

by DEAN BAKER

The debate around the budget is getting ever further removed from reality. As every budget expert knows, the reason that we have seen large budget deficits in the last five years is that the economy plunged following the collapse of the housing bubble. This collapse cost us more than $600 billion in annual construction demand and more than $500 billion in annual consumption demand.

This lost demand gave us large deficits because it led to plunging tax collections and more spending on programs like unemployment insurance. We deliberately raised deficits by roughly $300 billion annually in 2009 and 2010 with the stimulus package.

These deficits were supporting the economy, making up for the loss of private sector demand. They took the deficit from a very modest 1.2 percent of GDP in 2007 to a peak of more than 9 percent of GDP in 2009.

Unfortunately, rather than deal with the reality – that we need deficits to sustain demand in a context where the private sector will not do it – the politicians in Washington have gotten hysterical. This is like complaining about our use of water when the school is on fire with the kids still inside.

In spite of the hysterics coming out of Washington, the interest burden of the debt is near a post-war low. Even if no further cuts are made, it is not projected to get back to its early 1990s level for more than a decade.

In this context, it is unfortunate that President Obama has proposed a budget that has substantial cuts to Social Security. The vast majority of seniors are already struggling. The proposed cuts would be a reduction in their income of more than 2 percent. By contrast, his tax increase last fall cut the after-tax income of the typical wealthy household by less than 0.6 percent.

The budget should be focused on expanding the economy and creating jobs, ideally through more spending in infrastructure, education and research. It should also include funding for state and local governments to reverse layoffs and cutbacks that have slowed growth and raised unemployment.

Unfortunately, President Obama has accepted the agenda of the Washington elite, putting cuts to Social Security and Medicare at the center of his budget and offering little that will help to speed the growth of the economy and create jobs.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This article originally appeared in Debate Club (USNWR).

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

May 25, 2017
Jennifer Matsui
The Rise of the Alt-Center
Michael Hudson
Another Housing Bubble?
Robert Fisk
Trump Meets the New Leader of the Secular World, Pope Francis
John Laforge
Draft Treaty Banning Nuclear Weapons Unveiled
Benjamin Dangl
Trump’s Budget Expands War on the Backs of America’s Poor
Alice Donovan
US-Led Air Strikes Killed Record Number of Civilians in Syria
Andrew Moss
The Meaning of Trump’s Wall
Leslie Scott
Trump in the Middle East: New Ideas, Old Politics
George Wuerthner
Environmental Groups as Climate Deniers
Pauline Murphy
The Irish Dead: Fighting Fascism in Spain, 1937
Brian Trautman
Veterans on the March
Eric Sommer
Trumps Attack on Social Spending Escalates Long-term Massive Robbery of American Work
Binoy Kampmark
Twenty-Seven Hours: Donald Trump in Israel
Christian Hillegas
Trump’s Islamophobia: the Persistence of Orientalism in Western Rhetoric and Media
Michael J. Sainato
Russiagate: Clintonites Spread the Weiner Conspiracy
Walter Clemens
What the President Could Learn from Our Shih-Tzu Eddie
May 24, 2017
Paul Street
Beyond Neoliberal Identity Politics
Daniel Read
Powder Keg: Manchester Terror Attack Could Lead to Yet Another Resurgence in Nationalist Hate
Robert Fisk
When Peace is a Commodity: Trump in the Middle East
Kenneth Surin
The UK’s Epochal Election
Jeff Berg
Lessons From a Modern Greek Tragedy
Steve Cooper
A Concrete Agenda for Progressives
Michael McKinley
Australia-as-Concierge: the Need for a Change of Occupation
William Hawes
Where Are Your Minds? An Open Letter to Thomas de Maiziere and the CDU
Steve Early
“Corporate Free” Candidates Move Up
Fariborz Saremi
Presidential Elections in Iran and the Outcomes
Dan Bacher
The Dark Heart of California’s Water Politics
Alessandra Bajec
Never Ending Injustice for Pinar Selek
Rob Seimetz
Death By Demigod
Jesse Jackson
Venezuela Needs Helping Hand, Not a Hammer Blow 
Binoy Kampmark
Return to Realpolitik: Trump in Saudi Arabia
Vern Loomis
The NRA: the Dragon in Our Midst
May 23, 2017
John Wight
Manchester Attacks: What Price Hypocrisy?
Patrick Cockburn
A Gathering of Autocrats: Trump Puts US on Sunni Muslim Side of Bitter Sectarian War with Shias
Shamus Cooke
Can Trump Salvage His Presidency in Syria’s War?
Thomas S. Harrington
“Risk”: a Sad Comedown for Laura Poitras
Josh White
Towards the Corbyn Doctrine
Mike Whitney
Rosenstein and Mueller: the Regime Change Tag-Team
Jan Oberg
Trump in Riyadh: an Arab NATO Against Syria and Iran
Susan Babbitt
The Most Dangerous Spy You’ve Never Heard Of: Ana Belén Montes
Rannie Amiri
Al-Awamiya: City of Resistance
Dimitris Konstantakopoulos
The European Left and the Greek Tragedy
Laura Leigh
This Land is Your Land, Except If You’re a Wild Horse Advocate
Hervé Kempf
Macron, Old World President
Michael J. Sainato
Devos Takes Out Her Hatchet
FacebookTwitterGoogle+RedditEmail