Sure, there were some nice parts in Obama’s State of the Union speech. But this part is the equivalent of flat-eartherism and creationism (italics mine):
Starting in 2011, we are prepared to freeze government spending for three years. Spending related to our national security, Medicare, Medicaid, and Social Security will not be affected. But all other discretionary government programs will. Like any cash-strapped family, we will work within a budget to invest in what we need and sacrifice what we don’t. And if I have to enforce this discipline by veto, I will.
We will continue to go through the budget line by line to eliminate programs that we can’t afford and don’t work.
Look, I think Larry Summers is an idiot–and I’m not alone. But even Larry Summers knows that a household budget is not like the federal budget. To start with, your family can’t print up a global reserve currency if it feels like it. What matters is the ratio of debt to GDP. It’s an inane argument, and everyone–certainly, every single one of Obama’s economic advisers–knows it. And what happens if we have more spending needs than available cuts–particularly when the most bloated part of the budget, defense spending, is of the table?
Then there was this about housing:
That’s why we’re working to lift the value of a family’s single largest investment – their home.
Yes, let’s reinflate the bubble, instead of doing what needs to be done: mortgage cramdown. Instead, we are artificially keeping housing prices high–which not only reduces resources available for other purposes, but also increases the likelihood of default. This policy has nothing to do with helping families, and everything to do with helping banks avoid their day of reckoning by overstating the value of their assets–to a bank, a loan to you is an asset.
I hope Obama is right, that by 2011, unemployment will have dropped (really, I would love to be wrong). But I would be stunned if the unemployment rate dropped from ten to even nine percent. Why. First, there is a massive ARM recast beginning towards the end of 2010. Second, commercial real estate really has begun to implode. Third, there are many more foreclosures waiting in the wings–we have a backlog of unprocessed foreclosures. Fourth, we need to put people to work through government spending (banks aren’t loaning, and private spending has decreased), and there isn’t enough political will to do that. We are going to need much more government spending to lower unemployment.
All this speech has done is made it more difficult to fund the things we need funded–do you really think that agricultural subsidies are going to be cut? Of course not. Like faux-tough guy Rahm Emanuel is going to take on farm state senators Nelson and Conrad: hell, they already have his balls floating in a jar. Women and children will get the axe first, followed by science and infrastructure.
In the short term, this speech will do well: Obama used all of the correct Pavlovian stimuli. But, as I keep saying, ultimately people have to like this crap. And they won’t, because it won’t put them back to work, it won’t fix the problems that need fixing.
Not feeling hopey or changey right now…
Update: The Krugman:
The saving grace, such as it is, is that administration officials know better; they’re well aware that the spending freeze will make no difference to the long-run budget outlook. This is just a sop to public prejudices and/or centrist Democrats in the Senate.
But it’s a spectacular demonstration of Obama’s failure to change the narrative. Not only is he accepting the general Republican world view, he’s parroting their dumb attacks on his own policies.