On the budget: "Go Big or Go Home"

[ProSense]

Start with Krugman on Obama's budget:

Climate of Change

By PAUL KRUGMAN
Published: February 27, 2009

Elections have consequences. President Obama’s new budget represents a huge break, not just with the policies of the past eight years, but with policy trends over the past 30 years. If he can get anything like the plan he announced on Thursday through Congress, he will set America on a fundamentally new course.

The budget will, among other things, come as a huge relief to Democrats who were starting to feel a bit of postpartisan depression. The stimulus bill that Congress passed may have been too weak and too focused on tax cuts. The administration’s refusal to get tough on the banks may be deeply disappointing. But fears that Mr. Obama would sacrifice progressive priorities in his budget plans, and satisfy himself with fiddling around the edges of the tax system, have now been banished.

For this budget allocates $634 billion over the next decade for health reform. That’s not enough to pay for universal coverage, but it’s an impressive start. And Mr. Obama plans to pay for health reform, not just with higher taxes on the affluent, but by putting a halt to the creeping privatization of Medicare, eliminating overpayments to insurance companies.

On another front, it’s also heartening to see that the budget projects $645 billion in revenues from the sale of emission allowances. After years of denial and delay by its predecessor, the Obama administration is signaling that it’s ready to take on climate change.

And these new priorities are laid out in a document whose clarity and plausibility seem almost incredible to those of us who grew accustomed to reading Bush-era budgets, which insulted our intelligence on every page. This is budgeting we can believe in.

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The British size up the scope of things to be done:

British PM calls for 'New Deal,' elevates Obama

Posted: Wednesday, March 04, 2009 2:34 PM by Domenico Montanaro

British Prime Minister Gordon Brown called on the United States today to join the U.K. and other countries around the world to “seize the moment” and launch a “Global New Deal.”

“(W)e should seize the moment, because never before have I seen a world so willing to come together,” Brown said in an address to a joint session of Congress in Washington. “Never before has that been more needed. … We can achieve more working together.”

He continued, “I believe that ours too is a time for renewal, for a plan for tackling recession and building for the future. Every continent playing their part in a global new deal, a plan for prosperity that can benefit us all.”

Brown used the word prosperity, by the way, eight times in his approximately 32-minute speech, an average of about once every four minutes.

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Making the case:

Go Big or Go Home

JB

This article from Politico gives several reasons why Obama has decided to drop an enormous agenda in Congress's lap in the form of his budget proposals. As it turns out, the strategy is overdetermined: several factors point in the same direction. The rhetoric of emergency allows Obama to insist that drastic times call for revolutionary measures; his influence is at its height and will only decrease over time; throwing everything at Congress allows him to delegate the details to the political process, so that Congress can take some credit (and blame); and finally, rather than bargaining with himself by offering more modest proposals, Obama increases the chances of significant change: he wins if only a portion of what he proposes makes it through.

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No lame excuses:

The Big Deal

03.04.09 -- 12:22PM By Josh Marshall

Over the last week, there's been a growing realization that President Obama's budget makes big structural changes to the federal budget and thus to the federal government in general. As the preferred cliches have it, he's going long or swinging for the fences. And in the last few days we've begun to hear not only about Republican opposition, which is expected, but substantial Democratic opposition, or perhaps better to say, resistance. Fourteen Democratic senators (plus Joe Lieberman) met yesterday to discuss their opposition to various parts of the 2010 budget.

In the case of the Stimulus bill, a lot of the objections struck me as pretty weak. That is not to say that there were no grounds for opposition. But the reasons the opposers actually brought forward didn't really even hold up logically, let alone on policy terms. You don't think the bill provides enough stimulus, so you cut the parts which provide the most efficient stimulus, and so forth. So my general sense was that the objections were driven more by optics and positioning than specific disagreements on policy.

So we're digging in on this story to get our best sense of who the opposers are, what's motivating them, who opposes which provisions and so forth.

This isn't just any legislative battle. These are big changes and they'll have profound effects on the country going years and likely decades into the future, especially if they're perpetrated out through an eight year presidency. So this basic cleavage within the Democratic party, how deep it is, what's driving it, how imbedded it is, is of the greatest importance. We're kicking into high gear on the reporting side. But we want your input and insights, and of course your tips if you're up there on the Hill watching or somewhere else that gives you some angle into what's happening.

This is no time for timid Democrats and rigid obstructionist Republicans. Get out of the way.

[ProSense]

1. CBO Says Stimulus Will Work, But in the Long Run…

CBO Says Stimulus Will Work, But in the Long Run…

Some good sense from the Congressional Budget Office as they estimate the macroeconomic impact of the recovery act:

We estimate that the legislation will raise gross domestic product (GDP) and increase employment in the short run—by adding to aggregate demand and boosting the utilization of labor and capital. In contrast, we expect that the legislation will reduce output slightly in the long run because the resulting increase in government debt will tend to “crowd out” private investment and thereby reduce the stock of productive private capital. That crowding-out effect will be diminished to the extent that some of the funding in the legislation will go for activities that could add to the nation’s long-term output.

There’s been a stunning renaissance over the past few months of long-discredited arguments to the effect that a short-term increase in deficit spending can’t boost growth amidst a giant recession. One would hope that this kind of analysis from the CBO can help put a stop to that kind of talk. Among other things, you can tell that this is serious analysis and not just propaganda by the fact that the CBO is rightly calling attention to the very real possibility that short-term deficits will have detrimental long-term impacts. This, rather than debates about whether or not stimulus can “work,” is a debate about priorities that’s worth having.

One element to the debate is whether or not the things funded by this bill have the capacity to boost growth over the long-term. I would argue that some of them certainly do have that impact, and that the absence of such a beneficial long-term impact to things like the AMT patch is one of the reasons why its inclusion is problematic. Obviously, though, disagreement about the macroeconomic impact of public sector investments in things like health care, education, and basic infrastructure is one of the fundamental points of ideological disagreement so it’d hardly be surprising to find that many people on the right side of the spectrum disagree with me about that.

Another aspect to this is just disagreement about the relative value of the short- and long- terms here. In the spirit of us all being dead in the long-term, I think that faced with a severe crisis it makes sense to focus on short-term recovery. Really grave economic downturns pose enormous political risks both domestically and internationally that could do far more to harm long-term growth potential than would a higher budget deficit. Standing impassively in the face of these kind of job losses will lead to demands for protectionism, and risk really severe political meltdowns in China and Eastern Europe. And politics aside, if we’re underestimating how bad things will get in the short run there’s a risk that, absent stimulus, we’ll wind up in a serious deflationary trap. Long story short, there are serious short-term downside risks that stimulus helps us avoid. For the long-term, there’s always time to try to adopt counterveiling pro-growth policies—tax reform that broadens the base and lowers rates, congestion pricing for our key transportation infrastructure, schools that better serve the needs of low-income children, etc.

DeLong: Deficit Spending Does too Spur Employment and Production: U.C. Davis Stimulus Debate