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  • Austerity Budget Means More Unemployment


    Dean Baker: Obama is arguing on the Republican's turf, he's lost control of the debate -   February 14, 2011
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    Bio

    Dean Baker is co-director of The Center for Economic and Policy Research (CEPR). He is the author of several books including, The United States Since 1980; Social Security: The Phony Crisis (with Mark Weisbrot); and The Benefits of Full Employment (with Jared Bernstein). He appears frequently on TV and radio programs, including CNN, CBS News, PBS NewsHour, and National Public Radio.

    Transcript

    Austerity Budget Means More UnemploymentPAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News. I'm Paul Jay in Washington. And in Washington on Monday, President Obama proposed his new budget. Here's a little bit of what he had to say.

    ~~~

    BARACK OBAMA, US PRESIDENT: As a start, I've called for a freeze on annual domestic spending over the next five years. This freeze would cut the deficit by more than $400 billion over the next decade, bringing this kind of spending, domestic discretionary spending, to its lowest share of our economy since Dwight Eisenhower was president. Still, even as we cut waste and inefficiency, this budget freeze will require some tough choices. It'll mean cutting things that I care deeply about, for example, community action programs in low-income neighborhoods and towns, and community development block grants that so many of our cities and states rely on. But if we're going to walk the walk when what it comes to fiscal discipline, these kinds of cuts will be necessary.

    ~~~

    JAY: Now joining us from his office in Washington to give his take on President Obama's Valentine's gift to the nation is Dean Baker. He's codirector of Center for Economic Policy Research. Thanks for joining us, Dean.

    DEAN BAKER, CODIRECTOR, CENTER FOR ECONOMIC AND POLICY RESEARCH: Thanks for having me on.

    JAY: So, Dean, give us the highlights of what President Obama is proposing and what you make of it.

    BAKER: Well, it's the beginning of an austerity budget. We had--or one of the central themes is that we're going to be freezing domestic discretionary spending. This is a very broad area of spending, involves most of the spending on education, a lot of the spending on health care, transportation. That area of the budget's going to be frozen, in nominal terms, for five years, which if we assume 2 percent inflation, by the end of that period that means a cut of more than 10 percent. Now, that won't be distributed evenly; that'll be distributed more in some areas, less in others. But what that means also is that President Obama made a big point in his State of the Union Address talking about investment. That's the area where you have pretty much all the investment in the budget. Now, we're not going to see a lot of it. The other big point about the budget is that we actually are going to be seeing a big shrinking in the deficit, at least according to projections, at the end of the year. And the problem with that is that the unemployment rate's still 9 percent today, and in fact they project it to be 9 percent at the end of the year. And if you have a big fall in the deficit, what that means is that the budget's going to be contractionary, it's going to be dampening growth. And I really worry about that in a context where we still have what's a very high unemployment rate by any measure.

    JAY: One of President Obama's promises in the State of the Union speech was growth through a commitment to a clean-energy policy. Do we see any of this in the budget?

    BAKER: Well, there's some of it, but it's not really the right scale. I mean, you could talk about having more money spent on alternative fuels, and there's some in there, and some money on retrofitting buildings, and, again, there's some in there, but it's just not the right orders of magnitude. In principal we're talking about transforming the country's economy. You're not going to do that by spending a few hundred million here and there. I mean, we spend somewhere on the order of $500 billion, $600 billion a year on energy. We can't think we're going to overhaul our system of energy by spending, you know, $500 million from the Federal budget. So it's helpful, but it's not nearly as much as what's needed for the sort of aggressive program that he seemed to be describing in his State of the Union address.

    JAY: So does that mean that some of the commitment to clean energy and some of the other expected expenditure is more for political positioning than for actual effect?

    BAKER: Well, political positioning, pilot projects, you might say. I mean, you know, if that turns out well, then maybe there'll be a push for more of it later. But it's just not--it's not enough to really overhaul our system of energy.

    JAY: Is an underlying problem that--to use psychological terminology, that President Obama has internalized the deficit hawk argument? In other words, the deficit's a bigger danger than depression.

    BAKER: Exactly. I mean, he's really arguing on the Republicans' turf. And the issue here is we came into this downturn because we had a housing bubble that burst. And that was the core problem. The Republicans have been arguing, oh, we have an out-of-control government, we have bloated budgets, and all this, and there's just no truth to that. And what's unfortunate is that the basic story, that we had this housing bubble that burst and wrecked the economy, and Wall Street greed that helped to fuel it, that's largely disappeared from the picture. So instead we're arguing about which programs to cut, rather than what we do to fix the economy. So I think he really has lost control of the debate in a very fundamental way.

    JAY: So I guess one of the arguments you'd get from Obama supporters is that he's dealing with the political realities of America. What do you make of that argument, that he really had no choice?

    BAKER: I have to say he played his hand very poorly from early on. When he pushed his stimulus package back in '09, I don't think he aggressively sold that. I don't think people understood what he was doing, and they were focusing on, oh my God, it's going to raise the deficit. He never said, yes, it's going to raise the deficit, and that's exactly what we need to do because the government has to make up for the shortfall in the private sector. He never made that argument clearly, so very few people understood that. And then he was very quick to try and say, oh, this is going to turn things around, when his own economic advisors were telling him it was nowhere near large enough. So he basically dug himself into a hole very quickly. And at this point, certainly, you know, his advisors would be right--it's hard to dig out of that hole. But, again, if you talk about how do you get the economy on the right track, how do you get the country on the right track, there is no alternative.

    JAY: Some people suggest President Obama's heart is just not in this, this being more stimulus spending, a more, you could say, liberal economic approach, as opposed to a neoliberal economic approach. They point to health care, where he gave up pretty easily on the public option fairly early in the process. In other words, this budget is who President Obama actually is.

    BAKER: Well, I don't really know who he is. I mean, all we can go by is what he says. And, you know, to me, he did not make a strong argument for stimulus. He didn't try and frame the debate in a way that was conducive towards more stimulus if it was needed, which he knew would be the case. So I think it ended up very, very poorly, in ways that really were very much predictable and predicted. I mean, people, myself, Paul Krugman most visibly, you know, there were others of us, we were saying this, we were saying, you're going to end up in this hole. So it should not have been a surprise that he's now in this situation where we're just arguing over how much to cut.

    JAY: So, finally, looking ahead over the next year, what do you think will be the economic consequences of this budget? It's not likely that the final budget that gets passed is going to have more spending in it, and if anything, there might be even more cuts, given that President Obama and the Democratic Party have to negotiate with the Republicans.

    BAKER: Well, I very much worry that we're going to see very weak growth. I mean, I think the economy's, you know, growing modestly now. But what we really should be seeing is growth on the order of 5, 6, 7 percent a year. That's what we've gotten after past severe downturns. The consequence, of course, will be is that tens of millions of people are going to be unemployed or underemployed. So you have a case where, you know, people who want to work, have the ability and skills to work, are being denied the opportunity, basically because of economic mismanagement in Washington. That's a pretty bad story in my view.

    JAY: Thanks very much for joining us, Dean.

    BAKER: Thanks for having me on.

    JAY: And thank you for joining us on The Real News Network.

    End of Transcript

    DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


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