Today the Western world is divided between two visions of our economic future. One vision is of austerity and the other is of growth. One is of hope and possibility, the other of despair and cynicism. The battle between these two visions has divided the United States and the entire Western world.
And both of them can be found in in President Obama latest budget.
It's almost as if the President decided that if the Republicans can't provide him with a challenger worthy of this debate, he'll conduct it with himself.
Double Vision
In one vision, the excesses and errors of the 1 percent have left the Western world too broke to fulfill its social contract with anyone but the wealthiest among us. Middle class and lower-income citizens must be abandoned to face a future of ever-dwindling resources. Government's only permissible spending is on wasteful military systems that enrich wealthy contractors and their corporations.
In the other vision, government retains its role as an engine of growth and change. It's wise enough to invest in long-term expansion before pivoting to address its deficit problems. It manages its budget, not "like a family," but like a business -- one that understands that well-timed investment is the key to continued growth and prosperity, In today's world, that means investing in jobs, research, education, health, and infrastructure.
The President's budget won't pass, of course. The Republicans have made it clear that they would rather reject anything he proposes.At least the President's learning to fail more effectively than he's done in the past. He's finally starting to draw the clear distinction between growth and greed that the left's been advising him to make all along.
But he's still repeating the failed deficit logic of the past, too. Both of these approaches can be found in his budget. Which President will win the day?
Pro-Growth Obama
In this budget the Pro-Growth, Pro-Fairness President commits himself to real spending for jobs, with less of the smoke-and-mirrors pseudo-spending represented by tax cuts and other gimmicks. He commits to $476 billion in transportation spending, $141 billion in research and development, and additional spending on education and other initiatives.
The budget presentation given to the press by Alan Krueger, who chairs the President's Council of Economic Advisors, was as eloquent an explanation of our economic situation as has been given from the White House in many decades.
The Pro-Growth President would end the Bush tax cuts for income over $250,000 (which is not the same as "ending Bush-era tax cuts for families who earn more than $250,000," as the Wall Street Journal should know. A family that earns $250,001 would only lose that tax break for $1 in income. C'mon, guys, get it right.)
The Pro-Growth President also ends the 15 percent cap on dividends for earnings above $250,000 and imposes the "Buffett rule" of a 30 percent minimum tax rate for high earners. And it would collect $61 billion from Wall Street with a "Financial Crisis Responsibility Fee."
Well done, Mr. Pro-Growth President!
Austerity Obama
Unfortunately, with this budget Barack Obama also presents himself as the Austerity President. That's the same President who turned the economic reins over to failed economic thinkers -- the kind who bullied down Christina Romer's $1.8 trillion stimulus recommendation, which conceivably could have ended the Great Recession and helped the 23 million Americans who are still un- or under-employed.
The Austerity President once again commits himself to the meaningless -- and potentially reckless -- goal of reducing the federal deficit by $4 trillion over the next ten years. Most economic experts agree that a period of pro-growth spending should be followed by a concerted effort to address the federal deficit. But it's too early to know when and how that should best be done.
By committing to this artificial goal, the President is reinforcing the pro-austerity arguments of his opponents -- and of the decision-makers who have gutted Europe's economy and thrown it into another recession.
How badly has austerity wounded Europe? Its economy shrank by 0.3 percent in the last quarter of 2011. The deceleration continued throughout 2011: 0.8 percent growth in the first quarter, 0.2 percent growth in the second quarter, 0.1 percent growth in the third quarter, and -0.3 percent growth in the fourth quarter.
Italy swallowed the recessionary pill forced on it and is now officially in its fourth recession in the last ten years. It's not even really deficit reduction: The more Greece accedes to the demands of the Austerians, the worse its deficit becomes.
Heck of a job, Sarkozy and Merkel-ie! If that's not recession, it's recession's first cousin come for a very long visit.
Weak Tea
The Austerity President is too diffident to propose corporate tax changes that would significantly increase overall collections, even though the real tax rate for US companies is one of the lowest in the developed world. Apparently the fact that corporations are sitting on three trillion dollars in cash isn't enough to convince the White House that our corporate tax structure is seriously askew.
The Austerity President's pro-growth measures are still too small. Even if they were enacted, millions would still go without the work they need and want. $476 billion over six years is less than $80 billion per year. We need a short, sharp infusion of several times that amount to create jobs and restart the economy. We need it for 23 million people who need work, for an entire generation that's beginning its work life under the twin shadows of debt and unemployment, and for especially hard-hit minority workers.
Rebuilding our crumbling infrastructure alone will take an estimated $1.7 trillion, according to the American Society of Civil Engineers, and if it isn't done the entire economy will suffer.
And asking banks to pay $61 billion over ten years for destroying the economy is equally timid. That's $6.1 billion per year, which is a tiny fraction of the $20 billion bankers paid themselves in bonuses in 2010 alone, three years after destroying the economy and being rescued by the same taxpayers they continued to mistreat.
Austerity Cuts
The Austerity President's budget cuts social programs by a devastating 14 percent, after years of skyrocketing poverty and barely-abated widespread unemployment, much of it at historically high long-term levels As Karen Dolan notes, cuts would affect health care services, career opportunities programs for low-income people, Children's mental health services, housing for disabled people and people with HIV/AIDS, Rental Assistance benefits for low-income people, Community Development Block Grants, and programs in the National Park Service.
The Austerity President's budget cuts funding for the Department of Labor by five percent, a reduction that will mean less enforcement of working people's rights -- and therefore less financial security for the middle class. As we should have learned by now, the middle class is the engine of economic growth. Anything that cuts into its prosperity hurts the entire economy.
The Austerity President's budget ends Saturday mail delivery, meaning that staffing cuts would presumably follow, and would impose an additional middle-class tax by allowing it to increase postal rates more quickly than the rate of inflation.
The cuts to Medicare place the burden on seniors, not on runaway health profits. They're just tinkering with a broken system. The Austerity President would rather not address the systemic problem that profit-making incentives present to our health economy. Increasing out-of-pocket costs and making overly crude cuts to provider reimbursement aren't the solutions we need.
The Austerity President cuts $33 billion for the Superfund to clean up toxic waste. It cuts $359 in Environmental Protection Agency funds for safe drinking water infrastructure, which is a doubly bad idea since it also costs the economy much-needed jobs. It even cuts $459 million in heating oil assistance for low-income households, which is very badly timed given oil's unexplained price increases lately.
The Austerity President's budget even cuts bacteria testing for produce, a reduction that fits in with the Austerity President's penchant for echoing anti-regulatory rhetoric from the right.
Austerity = Military Spending
Like other so-called austerity thinkers, this Austerity President makes an exception to his anti-spending beliefs when it comes to massive military expenditures. Despite the advertised Pentagon "cuts" -- which are really reductions in the rate of growth -- the President's budget spends more than half a trillion dollars for military spending in our post-Cold War world in 2013 alone.
$535 billion in spending goes to standard Department of Defense operations, while another $88.5 billion goes to the wars in Iraq and Afghanistan. Homeland Security and the intelligence agencies account for nearly $100 billion in additional spending.
How much is the Administration planning to spend in its much-touted expansion of its investigation into the Wall Street fraud that shattered the economy? $55 million in new spending, That's $55 million in new spending to combat securities and mortgage fraud, versus nearly three quarters of a trillion in national security spending. $55 million is roughly 1/500th of the Justice Department's total budget.
Two Vision, One Budget -- and an Election
The President deserves praise for submitting a budget that's much better than those of earlier years. He has clearly learned that progressives have been giving him the right advice all along: Americans want someone who will fight for them, someone who will articulate a vision of government's role in securing a better life for all of us. This budget makes that case. But it also repeats some of the erroneous assumptions and flawed austerity thinking that's been so thoroughly discredited by Europe's recent experience.
Sadly, the negative ideas are still at least as visible in this budget as the newer, more constructive ones. It's not clear what advantage the President and his advisers think he'll gain from amplifying the right's messaging and muddying his own. Do they really think they'll stop calling him a "socialist"?
If the economy is still seen as improving throughout the year -- and given the low quality of opponents the Republicans seem determined to send his way -- the Two-Vision President could win handily. But if there are more setbacks -- a European bank crisis, more oil shocks -- the President will need to articulate a clear, unadulterated vision of economic growth. The ambiguity of this budget won't help him do that, and there are land mines that could hurt him with key constituencies.
Last year at this time we were facing a Washington consensus that seemed unaware of the economic reality faced by most people outside the Beltway. This year that's changed. At least there's a raging debate underway between the forces of what the austerity extremists call "creative destruction" -- but which is really just destruction -- and those who would restore our country to its past prosperity, a task which can and should be done.
It's too bad that both of these forces are led by the same person. The right policies are finally being discussed in Washington. But they're in danger of being drowned out -- by the same voice that's articulating them.