Wednesday, January 27, 2010

Reich, Krugman Criticize Obama's Spending Freeze

President Obama will propose a spending freeze on domestic programs during his State of the Union speech Wednesday night. Unaffected will be the Pentagon, foreign aid, the Veterans Administration, homeland security and the most costly domestic programs, Medicare, Medicaid and Social Security. The administration said that the $447 billion to be cut amounts to just one-eighth of the deficit.

Former Secretary of State Robert Reich and Nobel Prize-winning economist Paul Krugman criticized the freeze as ineffective and a reversal of priorities. Reich outlined his objections to Larry King:

...This is something that a lot of people have difficulty understanding, because you don't want bigger deficits in the long term. But in the short-term government has to spend more to get the economy moving, to get jobs, so people can actually work and generate a larger economy and therefore get the outside budget, the long-term budget down.

On his blog, Reich advocated a second stimulus:

It should mainly focus on bailing out state and local governments that are now cutting services and raising taxes, and squeezing the middle class. This would be the best way to reinvigorate the economy quickly.

Krugman criticized the proposals from both economic and political perspectives:

It’s bad economics, depressing demand when the economy is still suffering from mass unemployment.

...It’s bad long-run fiscal policy, shifting attention away from the essential need to reform health care and focusing on small change instead.

And it’s a betrayal of everything Obama’s supporters thought they were working for. Just like that, Obama has embraced and validated the Republican world-view — and more specifically, he has embraced the policy ideas of the man he defeated in 2008. A correspondent writes, “I feel like an idiot for supporting this guy.”

Personally, I wouldn't go as far as Krugman's correspondent, though I do agree that Obama's proposal embraces the Republican outlook–even though the GOP is mocking it already. Speaking of "the man he defeated," during the presidential debates, Obama criticized McCain's spending freeze proposals as "unfair burden sharing" and "using a hatchet where you need a scalpel":

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