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‘Spending Freeze’? At Least Someone Recognizes There’s a Problem

But we need a budget proposal that tackles the broken entitlement programs. This is hardly a baby step.

by
Douglas Holtz-Eakin

Bio

January 28, 2010 - 12:00 am

President Obama’s spending “freeze” is the center of a budget frenzy. The left is incensed by the assault on its “spend first, think later” tenets. The right is nervously looking for the trick — he can’t really mean it, can he? Meanwhile, the average person is wondering: “What exactly does this freeze do?”

The first thing to get straight is that that this does not save the advertised $250 billion over 10 years. It does not even matter for three years. Discretionary spending is set each year, so this is in effect a one-year freeze. Period.

The second important point is that this is a very narrow freeze. All entitlement spending is left out. All defense spending, veterans spending, and homeland security spending is also exempt. That means that the affected areas are a tiny fraction of the budget. The bottom line: this cuts spending by $15 billion when the deficit is projected to be $1.3 trillion.

It’s not that this is not important. This is a step — a really tiny baby step — in the right direction. The previous Obama budget planned (that’s what budgets are — planning documents) to run a deficit of $1 trillion in 2019. That is, long after the economy was assumed to have recovered, after the financial crisis was just a memory, and well past time it was fair to blame George W. Bush for everything, the plan was to run a deficit of $1 trillion, or 5.5 percent of GDP. Importantly, revenues were projected to have recovered to 19 percent of GDP — above the historic norm.

So, in a nutshell, the previous approach was to plan for out-of-control spending and the enormous debt accumulation that comes with it. Any evidence of changing direction is welcome.

Now, I confess that I do find a lot of this somewhat amusing. After all, the president has already signed off on two rounds of spending bills that raised discretionary spending by 20 percent over spending in fiscal 2008. This initiative has the feel of planning to diet one day a year — but I guess that beats zero. It’s also notable that it reflects (another) flip-flop from his campaign, where he described freezes as “using a hatchet where you need a scalpel.” To be honest, more powerful weaponry may be needed when faced with the Pelosi-Reid axis, but at least he picked up the hatchet. And, of course, the ultimate bemusement is that this is precisely what George W. Bush did when his deficits got out of control. So much for change.

In the end, the most important aspect about the Obama freeze is that it is one of a much larger set of initiatives that address how Congress formulates its budgets. Obama wants a freeze. A bipartisan coalition wants a commission. There are proposals for spending caps, pay-as-you-go rules, and constitutional amendments to constrain the size of spending. This is real evidence that (a) there is a problem, (b) Washington gets that there is a problem, and (c) the larger body politic has no idea what to do about the problem. The first step in these circumstances is to change the process by which budgets are put together. The second step — often not taken, clearly more difficult — is to change the budgets that are put together.

Step two is the key. All citizens should await the arrival of step two. It is the key to eliminating the possibility of a U.S. debt crisis. It is the path to preserving economic prosperity. It is at the heart of retaining the autonomy to choose the future of our dreams, not those of our international bankers.

Which brings us back to the Obama freeze. It is not a budget proposal that tackles the broken entitlement programs. It is not a fundamental rethinking of the role of government in a free enterprise system.

And it is not the solution for a threat to our future.

Douglas Holtz-Eakin was the director of the Congressional Budget Office (2003–05). He also was chief economist in the President’s Council of Economic Advisers under President George W. Bush (2001–02) and senior staff economist in President George H. W. Bush’s Council of Economic Advisers (1989–90). He is currently the president of the American Action Forum.
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