Did Obama's Budget Proposals Hide His True Economic Plan?

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In summary, the President negotiated with House Republicans behind closed doors on a plan that ultimately House Republicans would submit for a vote - and for CBO analysis. The CBO analysis showed that Obama's policies would increase GDP growth over the first 5 years, but decrease economic growth over the second 5 years.
  • #1
russ_watters
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During debt negotiations, Obama negotiated with House Republicans behind closed doors on a plan that ultimately House Republicans would submit for a vote - and for CBO analysis. So except for the the soundbyte/rhetoric version, we never really got to see what Obama really wanted for the economy. Particularly since even the plan submitted by the Senate is far from what Democrats typically want, we don't really have much of an idea what Obama intended for us - except of course, for his history. I have a theory on why that is. First, the background:

Obama submitted budget proposals for FY2010 and 2011 and the CBO analysis can be found in these links:
http://www.cbo.gov/ftpdocs/100xx/doc10014/03-20-PresidentBudget.pdf
http://www.cbo.gov/ftpdocs/112xx/doc11280/03-24-apb.pdf

In terms of the hot topic of the day - the debt - these proposals are little short of disastrous. Graphs on page 1 and 13, respectively, show a drop in the deficit to around $400 billion as the economy recovers over the next few years, then a gradual increase to around $600 billion over the life of the proposals. Overall, the 2011 proposal was worse than the 2010 proposal on that score, projecting to increase the debt from $7.5T (53% of GDP) at the end of 2009 to $20.3T (90% of GDP) at the end of 2020 (page 11). This is also $5T worse than the CBO's baseline estimate.

But it gets still worse. On page 33, the CBO analyzes Obama's policies vs their baseline assumptions and concluded that while his policies would increase GDP growth over the first 5 years, they'd decrease economic growth over the second five years vs how it would look if his policies weren't implimented (which they weren't, since no budget was passed).

But it gets still worse. Less than a year ago, before the last election, Obama broached the subject of a second stimulus. That's more spending that didn't show up on the budget proposal and the opposite of what was just agreed to.

The other side of the 'tax and spend' coin is, of course, taxes. The only tax increase proposal I'm aware of is for those above $250k income and as V50 likes to point out, it is mathematically impossible to balance the budget even by taxing them into oblivion. And back to the first side - despite what Obama says, it is mathematically possible to balance the budget with spending cuts.

So my theory: I think Obama is aware of the math problems in his proposals. He's a smart guy and I think he's self-aware. He knows that his strength is vague, rhetorical speaches about principles and not specific plans. And he knows that in order to put together a plan that wouldn't get crushed by the CBO when compared to the plans by the House and Senate, he'd have to completely reverse course on some of his major policy stances. So he chose the lesser of three evils: he let himself (not that he had much of a choice) appear get bullied into a plan that is all but the opposite of his actual vision.
 
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  • #2
I don't think he's capable of developing a "balanced" working plan - what is his experience? Harry Reid made a political deal - nothing more.

Have you noticed the President, the Dem's and the press are no longer talking about raising taxes on people who make over $250,000 - now it's "millionaires and billionaires", (just) "billionaires", "hedge fund managers", and "corporate jet owners"? The President all but promised to try and raise their taxes in the "next" round.

If I interpreted their speeches today, both the President and Harry Reid are working on a "jobs stimulus" plan now?:smile: This of course is not a "balanced" plan.

If the Republicans don't shoot themselves in the foot in 2012 - all they really need to do is run commercials with strings of President Obama's sound bites - they tell the story of his failures - in his words. He's been talking about jobs being the top priority for about 3 years - even sold "Obamacare" as a jobs bill.
 
  • #3
WhoWee said:
He's been talking about jobs being the top priority for about 3 years - even sold "Obamacare" as a jobs bill.

Well, the demand for health care professionals WILL go up... (even though they're already one of the highest in demand jobs)

What will that do to the real costs of health care? Isn't this type of logic high school economics?
 
  • #4
mege said:
Well, the demand for health care professionals WILL go up... (even though they're already one of the highest in demand jobs)

What will that do to the real costs of health care? Isn't this type of logic high school economics?

Let's not forget the thousands of IRS agents they plan to hire - to enforce the mandates.
 
  • #6
russ_watters said:
So my theory: I think Obama is aware of the math problems in his proposals. He's a smart guy and I think he's self-aware. He knows that his strength is vague, rhetorical speaches about principles and not specific plans. And he knows that in order to put together a plan that wouldn't get crushed by the CBO when compared to the plans by the House and Senate, he'd have to completely reverse course on some of his major policy stances. So he chose the lesser of three evils: he let himself (not that he had much of a choice) appear get bullied into a plan that is all but the opposite of his actual vision.

Perhaps msnbc prepared this list to help him organize a plan to deal with the next problem - otherwise he might come to be known the "big dipper"?
http://www.msnbc.msn.com/id/43946055/ns/business-us_business/t/signs-double-dip-recession-has-begun/
"10 signs the double-dip recession has begun "
 
  • #7
russ_watters said:
...
So my theory: I think Obama is aware of the math problems in his proposals. He's a smart guy and I think he's self-aware. He knows that his strength is vague, rhetorical speaches about principles and not specific plans. And he knows that in order to put together a plan that wouldn't get crushed by the CBO when compared to the plans by the House and Senate, he'd have to completely reverse course on some of his major policy stances. So he chose the lesser of three evils: he let himself (not that he had much of a choice) appear get bullied into a plan that is all but the opposite of his actual vision.
Nicely done. Yes I agree your theory fits, though who knows, making for a very lame Presidential legacy if true.

Here's what I think he (not me) might have done: propose to kill or nearly kill one entire federal department, say one of the low hanging fruit departments like Commerce or Education, merge NASA and the FAA, or kill a redundant law enforcement agency like ATF; it is an apropos target given the imbecilic Fast and Furious scandal. He could spin it with some "I have always said"s about cutting the old to seriously invest in the future. Use the saved money to both cut the deficit immediately far more than the Republicans had proposed and throw a bone with what's left to shoring up Medicare or SS. Such a move would have put him out front of Boehner as one who's willing to confront the spending problem, and in return such a move would have given him something real to bargain with to get what he wanted most: his tax increases. Would have been a tricky game though (for him): he can't mention a department that can go without getting the tax increases first, else the dept becomes admitted dead weight.
 
  • #8
russ_watters said:
And back to the first side - despite what Obama says, it is mathematically possible to balance the budget with spending cuts.

Only by cutting entitlements, though. The deficit is larger than the entire discretionary budget.
 
  • #9
Understood, V. I'm not a person for whom the term "entitlement" (or "mandatory spending") is an acceptable label for any government program.
 
  • #10
russ_watters said:
Understood, V. I'm not a person for whom the term "entitlement" (or "mandatory spending") is an acceptable label for any government program.

I agree - spending is spending.

On the tax side, the re-distribution of taxes through EITC (for instance) is a cash outlay - an expense of 100% of the amount. A tax deduction is not a payment of cash and is not a 1:1 relationship - a $100 deduction might only be worth $35 in taxes - lot's of misinformation in the political rhetoric - IMO.
 
  • #11
Obama's plan was to concentrate first on to getting the economy out of the recession, let it grow and reduce unemployment. That not only helps the economy right now, but is in the short term the only way to help reducing the deficit or at least let it not further to grow.

Cutting government expenses in fragile economy prolongs the recession, or even leads to depression. Open every macroeconomics of your choice which exactly will tell you that.

Note: Important is the ratio debt/ GDP and the interest on existing debt. not the stock of debt alone.

You can even keep borrowing and have a sustainable deficit over the longer term as long as the real growth rate of the economy is higher than the real cost of debt.

In times where that's not the case, you have a primary deficit, which requires that in economical better times a surplus is needed to go back to the sustainable debt/ GDP ratio.

But again, and that is the most important lesson to learn from this deficit issue: it is the stock of debt, growth of GDP and interest rates together which tell you how bad the deficit situation is.

The strange thing is every economist will tell you that, but many people rather believe in this nonsense that government cuts in a recession will make the economy grow and the deficit smaller. The opposite is true.

To make things super-worse, on top of the dim growth prospect, one political party choose to frigthen the financial markets even more by suggesting not paying government debt. The consequences can be seen now at Wall Street and the likehood that real interest rates will go up and deficit problem gets much, much worse...
 
  • #12
Lapidus said:
Cutting government expenses in fragile economy prolongs the recession, or even leads to depression. Open every macroeconomics of your choice which exactly will tell you that.

Note: Important is the ratio debt/ GDP and the interest on existing debt. not the stock of debt alone.

You can even keep borrowing and have a sustainable deficit over the longer term as long as the real growth rate of the economy is higher than the real cost of debt.

In times where that's not the case, you have a primary deficit, which requires that in economical better times a surplus is needed to go back to the sustainable debt/ GDP ratio.

But again, and that is the most important lesson to learn from this deficit issue: it is the stock of debt, growth of GDP and interest rates together which tell you how bad the deficit situation is.

The strange thing is every economist will tell you that, but many people rather believe in this nonsense that government cuts in a recession will make the economy grow and the deficit smaller. The opposite is true.

Actually... my Economics textbook explains how you have to increase the value of money by slowing inflation to get out of a recession. So how does stacking debt do this when we're printing fiat money to do so?

The textbook specifically states that CONSUMER spending on real goods is what helps relieve a recession (money becomes useful again). Again, how does government spending and taxing (reducing consumer worth) do this?

Lapidus said:
To make things super-worse, on top of the dim growth prospect, one political party choose to frigthen the financial markets even more by suggesting not paying government debt. The consequences can be seen now at Wall Street and the likehood that real interest rates will go up and deficit problem gets much, much worse...

Actually, most of the blame for the stock dip the last 2 days has been because of the jobs report, not the 'debt issue'. This type of random fluctuation has happened positively and negatively the last few months of US labor reports. We'll see what happens in an hour or so. The outlook was supposed to be 'positive' the last few months, but when the report came out it was mixed. Now, it's supposed to be not so good, so the market is already reacting.

It's fatalistic journalists that are spewing and trying to continue the 'debt crisis' as a policy/market management tool. Talk about manufacturing a crisis - the left and liberal media is getting their full value out of this. Like you even said yourself, the debt isn't really that big of an issue - so a few life-long debaters getting their jollys paying off some interest is going to have no real impact on the markets. Wall Street and the world are too smart for that, they understand the crisis was mostly manufactured by the collectivists in Washington trying to paint the republicans into a corner.
 
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  • #13
The textbook specifically states that CONSUMER spending on real goods is what helps relieve a recession (money becomes useful again). Again, how does government spending and taxing (reducing consumer worth) do this?

Let me get this straight. You want to cut real income for poor, low-income and middle-income people ( that what it comes down to if you cut 2 to 4 billions in 'entitlements') and not raise taxes for high-income people and expect from that a net growth in consumption?

That's hilarious at best.

If you need more tax revenue but at same time do not want to hurt consumption (on which the US economy heavily relies) than of course you rather get money from people that spend proportional less of their income on consumption, which are the higher-income people.

Again, basic economics.
 
  • #14
Lapidus said:
Let me get this straight. You want to cut real income for poor, low-income and middle-income people ( that what it comes down to if you cut 2 to 4 billions in 'entitlements') and not raise taxes for high-income people and expect from that a net growth in consumption?

Not that I agree with it, but the (general) conservative argument is that by lowering taxes on the rich (i.e., those who have money to invest), more of their money is available for investment, which spurs job growth, which creates more taxpayers, which brings in more money than if taxes weren't lowered. Combined with the lowering of spending, this lowers the debt.
 
  • #15
Lapidus said:
Obama's plan was to concentrate first on to getting the economy out of the recession, let it grow and reduce unemployment. That not only helps the economy right now, but is in the short term the only way to help reducing the deficit or at least let it not further to grow.

Then his plan was a total failure - wasn't it?
 
  • #16
Lapidus said:
Let me get this straight. You want to cut real income for poor, low-income and middle-income people ( that what it comes down to if you cut 2 to 4 billions in 'entitlements') and not raise taxes for high-income people and expect from that a net growth in consumption?

Actually - the goal is for them to get jobs that are not funded with tax revenues - this will create new tax revenues.
 
  • #17
Lapidus said:
Let me get this straight. You want to cut real income for poor, low-income and middle-income people ( that what it comes down to if you cut 2 to 4 billions in 'entitlements') and not raise taxes for high-income people and expect from that a net growth in consumption?

That's hilarious at best.

If you need more tax revenue but at same time do not want to hurt consumption (on which the US economy heavily relies) than of course you rather get money from people that spend proportional less of their income on consumption, which are the higher-income people.

Again, basic economics.

You have posted 3 times thus far - yet not a single comment is supported.
 
  • #18
Lapidus said:
Let me get this straight. You want to cut real income for poor, low-income and middle-income people ( that what it comes down to if you cut 2 to 4 billions in 'entitlements') and not raise taxes for high-income people and expect from that a net growth in consumption?

That's hilarious at best.

If you need more tax revenue but at same time do not want to hurt consumption (on which the US economy heavily relies) than of course you rather get money from people that spend proportional less of their income on consumption, which are the higher-income people.

Again, basic economics.

What did I say about rich vs poor? All consumers need to be able to spend. The 'rich' invest most of their capital into companies to allow them to keep their prices down and the not-rich spend most of their money on goods (made cheap by the former investing). Even if the wealthy aren't spending, their money and capital is sitting in a bank allowing others to lend against it.

If the government keeps on spending (via printing money) then the poor are going to be hurt even worse because their fiat money loses value. Prices continue to rise, but wages do not. So, according to your logic - the proper solution is to give people more money (which intrinsically devalues it). Money is worthless is everyone is a millionare when applied to the current market.

And you still didn't address the other points - what is President Obama's plan, specifically? Lots of ideas of what he wants to happen in the end, little specifics on how to get there has been the general perception of him IMO.
 
  • #19
If the economic prospects for the coming periods are bad, companies are very hesitant to invest, no matter how much the tax is lowered. On the opposite, companies cut production and eventually cut staff.

The government, as I just expalin in another post, smoothens the downturn with automatic stabilizer (look it up at wiki), which also includes that companies pay less taxes if profits are bad.

In addition, if the recession is very hard, government must and will make more stimulus fiscal policy, by for example investing in infrastructure, etc.

As far as private investment, there is enough private money ready for investment, no need to slash taxes for that. Companies and banks are just very reluctanct to invest or want simply a higher rate of return of investment that they won't find if the whole economy is down.

Also, look at the balance sheets of the pension fund, hedge funds, the cash reserves of big companies, or just the private capital wealth of US citiziens. There is no shortage of money for investment, only a reluctuance to invest in the US.

As far as Obama, I gave you his plan, which was to grow the economy and guarantee that the burden and benefits are shared equally.

He prevented the economy 2009 to slip into full blown depression, regulated the financial market so that a crash will not repeat, he gave the last western industry nation universal health care and he intended to keep a sustainable debt/ GDP ratio (as explained in an earlier post), but was kept from doing that by the Republican party...
 
  • #20
Lapidus said:
If the economic prospects for the coming periods are bad, companies are very hesitant to invest, no matter how much the tax is lowered. On the opposite, companies cut production and eventually cut staff.

The government, as I just expalin in another post, smoothens the downturn with automatic stabilizer (look it up at wiki), which also includes that companies pay less taxes if profits are bad.

In addition, if the recession is very hard, government must and will make more stimulus fiscal policy, by for example investing in infrastructure, etc.

As far as private investment, there is enough private money ready for investment, no need to slash taxes for that. Companies and banks are just very reluctanct to invest or want simply a higher rate of return of investment that they won't find if the whole economy is down.

Also, look at the balance sheets of the pension fund, hedge funds, the cash reserves of big companies, or just the private capital wealth of US citiziens. There is no shortage of money for investment, only a reluctuance to invest in the US.

As far as Obama, I gave you his plan, which was to grow the economy and guarantee that the burden and benefits are shared equally.

He prevented the economy 2009 to slip into full blown depression, regulated the financial market so that a crash will not repeat, he gave the last western industry nation universal health care and he intended to keep a sustainable debt/ GDP ratio (as explained in an earlier post), but was kept from doing that by the Republican party...

Still no support for your posts? If you don't care to follow the rules and support - please label all of your unsupported comments OPINION - or retract.
 
  • #21
Lapidus said:
Obama's plan was to concentrate first on to getting the economy out of the recession, let it grow and reduce unemployment. ...
That's a desired outcome, not a plan.
 
  • #22
http://www.bloomberg.com/news/2011-04-13/obama-is-said-to-target-4-trillion-deficit-reduction-in-12-years-or-less.html
 
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  • #23
Lapidus said:
http://www.bloomberg.com/news/2011-04-13/obama-is-said-to-target-4-trillion-deficit-reduction-in-12-years-or-less.html

Again, that's a campaign speech, not a CBO-vetted plan.
 
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  • #24
Lapidus said:
http://www.bloomberg.com/news/2011-04-13/obama-is-said-to-target-4-trillion-deficit-reduction-in-12-years-or-less.html

Given your link - I now accept that President Obama had a definitive plan. Accordingly, the one definitive element of President Obama's plan was to put Vice President Biden to work on the problem.

Do you have any other support for your various posts?
 
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  • #25
Lapidus said:
He prevented the economy 2009 to slip into full blown depression...
According to Obama himself, his policies when he got elected were intended to limit unemployment to 8% rather than his predicted 9%.

stimulus-vs-unemployment-may-corrected.gif


So there are two possibilities based on this graph and what we now know happened:

1. He badly underestimated how bad the economy was when he got into office.
2. His policies increased, instead of decreased, unemployment.

Which do you think is more likely?

And while we're at it - please provide a reference for your claim that the economy was predicted to be headed for a full-blown depression.
Lapidus said:
Also, look at the balance sheets of the pension fund, hedge funds, the cash reserves of big companies, or just the private capital wealth of US citiziens. There is no shortage of money for investment, only a reluctuance to invest in the US.
You said at least three times in that post that there is plenty of money out there to be invested, a fact which I agree with - companies have been hoarding money. No doubt, you believe this is a serious problem, otherwise you wouldn't have said it several times. So doesn't it make sense to implement policies that would promote investment by private companies, with money that they have sitting in the bank, rather than investment by the government, with borrowed money? Further, is it possible that a high debt and uncertain prospects for correcting the problem have played a part in companies' reluctance to invest?
 
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  • #26
Lapidus said:
http://www.bloomberg.com/news/2011-04-13/obama-is-said-to-target-4-trillion-deficit-reduction-in-12-years-or-less.html
Most of that speech is why the other guy's plan is evil, which he attacks in detail because the other guy has a plan in detail.

Here's the entire text, including all sixty 'I' references to himself.
http://www.whitehouse.gov/the-press-office/2011/04/13/remarks-president-fiscal-policy
Lots of outcome, not much plan.
 
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  • #28
russ_watters said:
1. He badly underestimated how bad the economy was when he got into office.
2. His policies increased, instead of decreased, unemployment.

Which do you think is more likely?

Far more likely that it decreased unemployment and prevented a depression. He couldn't do anything about the FACT that the Republicans drove the economy over a cliff and it was worse than anyone realized at the time - including and especially Paulson.

25% unemployment was a real possibility.

You really need to quit blaming Obama for a Republican driven economy. In spite of the propoganda, he really isn't God. There are limits to what is possible given the mess he was handed.
 
  • #29
Ivan Seeking said:
Far more likely that it decreased unemployment and prevented a depression. He couldn't do anything about the FACT that the Republicans drove the economy over a cliff and it was worse than anyone realized at the time - including and especially Paulson.

25% unemployment was a real possibility.

You really need to quit blaming Obama for a Republican driven economy. In spite of the propoganda, he really isn't God. There are limits to what is possible given the mess he was handed.

Are we forgetting the sizeable Democrat presence in Congress after 2006?
 
  • #30
Ivan Seeking said:
Far more likely that it decreased unemployment and prevented a depression.
That's not what I asked, but it is related to #1: That he misunderstood the state of the economy when he entered. So you agree that he misunderstood the state of the economy?

Now - the assertion of fact about the economy being headed for a depression when he entered: you need to substantiate it just like Lapidus does.
You really need to quit blaming Obama for a Republican driven economy.
I said nothing of the sort, Ivan. If you have a quote where I said that, please reference it.
 
  • #31
WhoWee said:
Are we forgetting the sizeable Democrat presence in Congress after 2006?

To be fair, they (the Dems) didn't have a filibuster proof majority in the Senate, unless every Dem and independent voted to break the filibuster. Even 1 going against means they couldn't break the filibuster.
 
  • #32
Ivan Seeking said:
You really need to quit blaming Obama for a Republican driven economy.

I don't blame Republicans or Democrats for the economy - I blame all of the politicians who frquently act more beholden to their corporate funding than to the average American.
 
  • #33
daveb said:
To be fair, they (the Dems) didn't have a filibuster proof majority in the Senate, unless every Dem and independent voted to break the filibuster. Even 1 going against means they couldn't break the filibuster.
And most of the time 'every' was all when a cloture vote was needed. Yes of course the Democrats had a filibuster proof majority, being 60, in the Senate until the election of Senator Brown.
 
  • #34
Ivan Seeking said:
Far more likely that it decreased unemployment and prevented a depression. He couldn't do anything about the FACT that the Republicans drove the economy over a cliff and it was worse than anyone realized at the time - including and especially Paulson.

25% unemployment was a real possibility.

You really need to quit blaming Obama for a Republican driven economy. In spite of the propoganda, he really isn't God. There are limits to what is possible given the mess he was handed.

How is this problem 'republican driven'? This is something that I haven't seen you explain. You blame the current tea party for their 'hinderance' of the debt ceiling debate, but what does that have to do with unemployement 3 years ago and it's impact now?

Finally, what does that have to do with President Obama not presenting a specific resolution for this? One thing that I got out of the debt ceiling debate is that the Democrats were too chicken-crap to present their own plans for critique. They knew damn well that their idealogically-driven plans to tax the hell out of the rich wasn't really going to go over well in the CBO. So, the public was left to scrutenize the only plan on the table - those presented by the republicans and the tea party.
 
  • #35
mege said:
How is this problem 'republican driven'? This is something that I haven't seen you explain. You blame the current tea party for their 'hinderance' of the debt ceiling debate, but what does that have to do with unemployement 3 years ago and it's impact now?

Finally, what does that have to do with President Obama not presenting a specific resolution for this? One thing that I got out of the debt ceiling debate is that the Democrats were too chicken-crap to present their own plans for critique. They knew damn well that their idealogically-driven plans to tax the hell out of the rich wasn't really going to go over well in the CBO. So, the public was left to scrutenize the only plan on the table - those presented by the republicans and the tea party.

From the Economist http://www.economist.com/blogs/lexin...debt-ceiling-1

The "something" the Republican House has come up with is a non-solution (since the Senate cannot buy it) to a problem entirely of the Republicans' own making. The reason for this crisis is that instead of just raising the debt ceiling in the customary way so that the government can pay the bills Congress has already run up, the Republicans decided to point a pistol at the American economy and threaten to pull the trigger if they did not get the spending cuts they wanted.

Sure, America needs to tackle its burgeoning entitlement programmes. But not now, when cutting spending will make an insipid recovery worse, and more especially not like this, hijacking a routine procedure and using it to bring the country to the edge of downgrading or default. At least the Republicans have done something? Gimme a break.


Defict problem has three components, stock of debt, GDP growth and interest rates. The proposed non-solutions by the Republicans hurt the latter two and thus eventually all three components, and make the deficit situation much worse. Obama made very concrete proposals for the legislation, which is the Senate and the Congress, to find a sensible and pragmatic compromise and let it become law.
 
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