What Can We Say About President Obama’s Economic Performance in Early 2010?: [T]he President’s powers are going to be held in check by Congress – with a dysfunctional Senate – and the Federal Reserve – where liberals haven’t been agitating for more hawkishness…. But… everything the President could do by himself is… more important, especially when it comes to government spending. And the President actually did counterproductive things, things that signaled they were happy with a slow recovery. Let’s go to the 2010 State of the Union:
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.…
Now, I know that some in my own party will argue that we can’t address the deficit or freeze government spending when so many are still hurting. And I agree — which is why this freeze won’t take effect until next year — (laughter) — when the economy is stronger. That’s how budgeting works. But understand –- understand if we don’t take meaningful steps to rein in our debt, it could damage our markets, increase the cost of borrowing, and jeopardize our recovery -– all of which would have an even worse effect on our job growth and family incomes.
A veto threat! The economy would be strong enough in 2011 to start freezing government spending…. [L]et’s go to the January 2010 Federal Reserve economic projections, which summarizes how leading economists would have thought about how the recovery looked going forward…. [In] January 2010… [the Fed] projected an unemployment rate between 8.2% and 8.5% in 2011…. [A]n unemployment rate of 8.3% is still way too high for our workforce. Why weren’t they sounding alarm bells in early 2010?
It’s clear from the speech: President Obama announced the freeze and veto threat, and didn’t sound alarm bells, because he believed that the potential risks associated with not signaling to the bond market that deficit reduction was coming outweighed the reality of high unemployment and trying to expand the deficit immediately. 20+ million people not finding full-time work with certainty is bad, but just the possibility of the confidence fairy getting angry is far worse….
The deficit hawkery negates the most powerful market indicator we have for what the government should do – the interest rate. This approach puts boundaries on the range of acceptable ideas on what can be done for the economy – and places getting stimulus out the door through discretionary spending out of bounds. And meanwhile current interest rates have never been lower – they are negative in real terms for 10 years out. This was exactly the wrong call to make in early 2010.
(Oh, and Mitt Romney is writing that ”President Obama has put our nation on an unsustainable course. Spending is out of control.” He’s very much not mentioning the time Obama dressed down the hippies – “That’s how budgeting works” - with a veto threat in order to curtail government spending with unemployment over 8% – nor will he.)