Obama Is Not a Deficit Hawk. He's Just a Keynesian

Posted: Feb 13, 2013 2:05 PM
Over at Investors Business Daily, Jed Graham writes about "the deficit chart that should embarrass budget hawks," which shows that the federal deficit has been shrinking in the last two years and is projected to shrink further this year:

Graham writes that the draw-down in federal spending puts a precarious economic recovery at risk. That's certainly a take in line with conventional Keynesian economic analysis - the Congressional Budget Office has similarly projected this year's sequester to knock 0.6% off of projected GDP growth and cost 750,000 jobs by the end of the year.

Indeed, the current policy environment sees the deficit relatively stabilizing for the next few years. Federal debt between now and 2018 is projected to increase at a slower rate than in the last four years.

The implication, however, that this is somehow "embarrassing for deficit hawks" misses the mark. I'm a self-proclaimed deficit hawk, and I'll be the first to tell you that the federal deficit is not imminent in the way that it needs to be cut this year. Jim Pethokoukis' comments on the gimmickry of a 10-year balanced budget plan are spot on. It is, however, an imminent policy problem in that it's going to be extremely difficult to fix the long-term deficit, so the federal government needs to be working on solutions right now. The impracticality of balancing the budget in ten years should be example enough of the situation we're in.

Other progressives have taken the kind of data that Jed Graham provides as evidence that Obama is a "deficit hawk." Robert Kuttner over at the American Prospect writes that President Obama had a "conversion to the deficit-hawk side" of the budget argument in 2010.

It seems like the simplest answer is actually the correct one here: Obama is a Keynesian, not a deficit hawk. Consistent with Keynesian policy proposals, federal spending was massively ramped up 2008-2010 to counter a deep recession while tax revenues were low due to sluggish economic growth, and now federal spending is coming modestly down while tax revenues are slowly making their way back up. President Obama's not on a campaign of massive deficit reduction, he's just accepting that we're (slowly) coming out of a recession, and if you ask any Keynesian, that means the deficit is supposed to shrink.

The prominent Keynesian critique is that President Obama seriously underestimated the depth and breadth of the recent recession and far more government stimulus was need and is still needed. That critique doesn't mean the President is a deficit hawk. It just means he's a Keynesian with a different diagnosis of the economy he's facing.

Courtesy of the Congressional Budget Office, here are the two charts that should drive home the importance of deficit hawks' concerns:

The U.S. has not held this much federal debt since World War II, and our current policy shows little hope of getting debt as a percentage of GDP back down to pre-2008 recession levels. And, obviously, the world was a much different place in the 1940s, especially economically. These projections are also under ideal economic and policy conditions: these outlooks assume a fairly optimistic scenario for economic growth in the next few years and assume that President Obama's signature "entitlement reform" policy - the Independent Payment Advisory Board - works perfectly, holding Medicare cost increases to a minimal level.

No, budget hawks should not be "embarrassed" by a 2011-2012 drop in federal spending. We've been told over and over that the 2008 recession was a crisis unprecedented since the great depression. That creates a unique policy environment and, as the economy (slowly) recovers, a standard Keynesian would accept an unprecedented *drop* in federal spending. But let's not mistake this for an austerity agenda - it's just Keynesianism.

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