Tuesday, November 03, 2009

Another Stimulus Bill?

Paul Krugman interprets President Obama's comments on budget deficits, "that now is the time to 'get serious' about reducing debt", as "an unfortunate tendency to echo 'centrist' conventional wisdom". While I grant that if employment is on a significant upswing a year from now, the size of the deficit won't much affect the election, I think Krugman is missing a couple of important factors.

First, Obama is not merely echoing "centrist convential wisdom". If you take him at his word, he's likely in the same boat as a majority of Americans, and is concerned about the ramifications of Bush's financial recklessness, the cost of two wars, the financial industry collapse, and stimulus spending, on top of the rest of the federal budget. Clearly Obama isn't obsessed with balancing the budget - take a look at the numbers - but he's right to be concerned.

Second, let's assume that Obama doesn't believe that reducing the budget deficit should be a priority within the context of the current economy. He still has to deal with a Congress that does, at least when domestic spending is involved. No matter how compelling the argument, I would expect Congress to reject a new stimulus bill in the current fiscal year.

President Obama is already testing the waters for a second stimulus bill - for now that means sticking a toe in the water and pulling back when the sharks start to bite. If the political climate becomes more friendly to additional stimulus spending, and the bill passes on next year's budget such that Obama can still claim an overall deficit decrease (even if the total deficit remains very high), I think it's quite possible Obama will push additional stimulus spending.

I think that when Krugman and Robert Reich advocate for additional stimulus spending, they help lay the groundwork that could help Obama advance a new stimulus bill. Yet it's not lip service to centrism, but acknowledgment of reality, that unless things get suddenly and drastically worse it's not happening in the current fiscal year. (I'll buy you a cookie if I'm wrong - but you'll have to come here to collect.)

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