The Anti-Stimulus Plan
The Obama budget ignores the economic crisis.
By Yuval Levin
Posted: Monday, March 16, 2009
Weekly Standard -- Volume 014, Issue 25
Publication Date: March 9, 2009
Last September, during the first presidential debate between Barack Obama and John McCain, moderator Jim Lehrer asked Obama what the growing economic crisis would mean for his policy ambitions: “What are you going to have to give up, in terms of the priorities that you would bring as president of the United States, as a result of having to pay for the financial rescue plan?” Obama’s answer was so evasive that Lehrer asked him if he really meant to say that essentially nothing would change.
Over the past two weeks, we have seen something of a reiteration of that answer in practice. Obama indeed meant that no part of his agenda would be given up to pay for the economic recovery. On the contrary, recovery efforts will be undercut in favor of the new administration’s sweeping liberal ambitions.
The stimulus plan enacted last month came under fire for its many flaws and excesses. But the debate about the plan was a debate about how best to stimulate the economy. Both sides essentially called for throwing money at the public; the Democrats preferred vast new government spending and the Republicans deep if temporary tax cuts. Both sought to use the crisis to advance their preferred political vision, but both sought to do so in ways addressed to some of the real economic problems at hand.
The Democratic plan that was signed into law was an incoherent wasteful mess, but it is likely to stimulate the economy some. It could be (as it often was) sold as something like the New Deal: an ambitious and ideologically laden response to a genuine economic crisis.
But the Obama administration’s proposed 2010 budget, unveiled just a week after the stimulus plan was signed into law, cannot be advanced on such grounds. It is certainly ambitious and certainly ideologically laden, but it is not a response to the economic crisis. Rather, it denies the crisis and complicates the effort to combat it.
The budget offers an audacious array of technocratic initiatives aimed at transforming the relationship between Americans and their government and moving the country in the direction of European social democracy. It sets the stage for a vastly expanded federal role in the health insurance market–as one “option” among many to begin with, but with the help of price controls and the power to set rules of entry guaranteed to soon be the reigning, if not the only, option. It puts the federal government in command of a complex scheme of carbon-emission taxes and credits. It opens the way for a significantly increased federal role in education (including higher education).
These programs are not directed at the economic emergency, but are instead unrelated, enormous policy initiatives. They are not akin to the New Deal but to the Great Society initiatives of the mid-1960s, which were the outcome of a progressive worldview that wanted to change the character and role of government in American life. But the Great Society was not enacted in the midst of an economic crisis. It came in the middle of a lengthy and sustained period of growth and prosperity and was in part understood as a way to make use of the tax revenues flooding federal coffers. The kind of ambitious expansion of government Obama envisions requires similar economic growth.
Watching the market these days, and listening to economists’ predictions (not to mention the president’s own dire speeches before the enactment of the stimulus bill), you might think such growth is exceedingly unlikely in the short term. But the Obama budget simply assumes it will happen: predicting the economy will begin a sustained expansion this year and grow by 3.2 percent in 2010, 4 percent in 2011, and 4.6 percent in 2012.
Yet even as it assumes such a prompt and thorough recovery, the budget plants obstacles in its path. It raises taxes by a trillion dollars on the 2.5 million or so American taxpayers who earn above $200,000 a year (or $250,000 for a couple), and a further $646 billion through a proposed cap-and-trade system that, as administration officials have acknowledged, will be paid by all Americans through higher electricity bills.
The budget will double the national debt held by the public by 2015, and by 2019 the White House predicts that debt will equal 67 percent of the country’s GDP (up from last year’s 41 percent). Such spending ambitions send a signal about future tax and interest rates that can only depress investment.
And, most important, as it lays out its ambitious agenda, the Obama administration is doing little about the source of the economic calamity we confront: the banking and credit crisis. The budget includes a placeholder for further action but no particulars, and those have not been forthcoming from elsewhere so far. Amazingly, six weeks and two vast legislative proposals into his administration, the president has not said what action he will take to address the bad debt that has turned some of our largest banks into dead men walking and continues to debilitate our economy.
This combination of counter-productive action and baffling inaction only unnerves investors and is deeply anti-stimulative. The administration appears to have decided to look past the economic crisis and start spending the windfall of the coming recovery, even if that spending comes at the expense of the recovery itself.
— Yuval Levin is the Hertog fellow at the Ethics and Public Policy Center and senior editor at the New Atlantis magazine.