Killing Us Softly With his Song

by digby

Krugman links today to Ronald Reagan’s first State of the Union address and makes this point:

His approval rating was about the same as Barack Obama’s now. His economic track record was considerably worse: instead of presiding over the end of a recession, he had presided over the beginning of one, and the economy was in free fall. Nonetheless, Reagan mounted an unapologetic defense of his economic ideology, combined with a harsh critique of his precedecessors.

Here’s an excerpt:

First, we must understand what’s happening at the moment to the economy. Our current problems are not the product of the recovery program that’s only just now getting under way, as some would have you believe; they are the inheritance of decades of tax and tax, and spend and spend.

Second, because our economic problems are deeply rooted and will not respond to quick political fixes, we must stick to our carefully integrated plan for recovery. And that plan is based on four common-sense fundamentals: continued reduction of the growth in Federal spending, preserving the individual and business tax deductions that will stimulate saving and investment, removing unnecessary Federal regulations to spark productivity and maintaining a healthy dollar and a stable monetary policy the latter a responsibility of the Federal Reserve System.

The only alternative being offered to this economic program is a return to the policies that gave us a trillion-dollar debt, runaway inflation, runaway interest rates and unemployment.

The doubters would have us turn back the clock with tax increases that would offset the personal tax-rate reductions already passed by this Congress.

Raise present taxes to cut future deficits, they tell us. Well, I don’t believe we should buy that argument. There are too many imponderables for anyone to predict deficits or surpluses several years ahead with any degree of accuracy. The budget in place when I took office had been projected as balanced. It turned out to have one of the biggest deficits in history. Another example of the imponderables that can make deficit projections highly questionable: A change of only one percentage point in unemployment can alter a deficit up or down by some $25 billion.

As it now stands, our forecasts, which we’re required by law to make, will show major deficits, starting at less than $100 billion and declining, but still too high.

More important, we are making progress with the three keys to reducing deficits: economic growth, lower interest rates and spending control. The policies we have in place will reduce the deficit steadily, surely and, in time, completely.

Higher taxes would not mean lower deficits. If they did, how would we explain tax revenues more than doubled just since 1976, yet in that same six-year period we ran the largest series of deficits in our history. In 1980 tax revenues increased by $54 bil lion, and in 1980 we had one of our all-time biggest deficits.

Raising taxes won’t balance the budget. It will encourage more Government spending and less private investment. Raising taxes will slow economic growth, reduce production and destroy future jobs, making it more difficult for those without jobs to find th em and more likely that those who now have jobs could lose them.

So I will not ask you to try to balance the budget on the backs of the American taxpayers. I will seek no tax increases this year and I have no intention of retreating from our basic program of tax relief. I promised the American people to bring their taxes x rates down and keep them down to provide them incentives to rebuild our economy, to save, to invest in America’s future. I will stand by my word. Tonight I’m urging the American people: Seize these new opportunities to produce, to save, to invest, and t together we’ll make this economy a mighty engine of freedom, hope and prosperity again.

Now the budget deficit this year will exceed our earlier expectations. The recession did that. It lowered revenues and increased costs. To some extent, we’re also victims of our own success. We’ve brought inflation down faster than we thought we could and in doing this we’ve deprived Government of those hidden revenues that occur when inflation pushes people into higher income tax brackets. And the continued high interest rates last year cost the Government about $5 billion more than anticipated.

He didn’t give an inch.

Now the truth of the matter is that “Reagan proved deficits don’t matter” because he left a much higher deficit than when he came in and Republican presidents continued to create huge deficits ever since then. But what he did do was make “deficits” the boogeyman which Republicans would use as a weapon against any liberal initiatives. And Democrats still go along with it, as if they were all just born that morning and have no idea what came before.

Clinton had the benefit of a major tech boom that helped turn around the deficit, but there’s little reason to believe that’s going to happen again. And even then, he ended up having to put the surpluses in a metaphorical lock box that was raided at the first opportunity by Bush and Cheney as a gift to their benefactors. And then they ran up another deficit as quickly as they possibly could.

Until Democrats take conservative ideology head on, expose its inconsistency and self dealing and then make an affirmative case for liberalism, this little game of Lucy and the political football will continue. Unfortunately, it doesn’t look as though President Obama is going to be the one to do that, even under these strained economic conditions. In fact, he is playing into the worst misapprehensions among the public instead of educating them about what’s at stake and thus failing to prepare to take the credit when (and if) their programs work. For instance, Robert Gibbs said today that the president looks at the government’s budget just like the average family looks at theirs. If that’s true then he’s committing political malpractice and he shouldn’t be president. He needs to be explaining why and how the government is the only entity that can bring this economy back when the private sector is unable to do it. Indeed, its responsibility is to be the economic engine when everything else is going wrong. And 10% unemployment month after month means that something is still going very, very wrong.

Reagan may have proved that deficits don’t matter politically, but Clinton proved that fixing deficits doesn’t matter politically either. They impeached the man over unauthorized fellatio and then ran on tax cuts, stole the election and immediately put the country into debt all over again. The idea that Democrats will get some political benefit from a lot of sharp talk about deficits and “freezes” is a pipe dream. Obama will be hurt by the bad economy and benefit from its revival. But unlike Reagan, he’s tied his own hands on policy leaving him little room to maneuver if the economy stays bad. And when (if) the economy rebounds he will not seen as someone who was courageous for “staying the course” and validating his own liberal beliefs — he will be seen as having acquiesced to the conservative agenda, which will get all the credit. And conversely, liberalism will be discredited even though it did all the heavy lifting. Awesome.

Update: Oh btw, let’s not even whisper a word about the defense budget. In fact, let’s go for a supplemental!

President Obama’s commitment to “honest budgeting” for the wars in Iraq and Afghanistan is going to take another hit when the Pentagon asks for over $740 billion in defense funding next month.

The administration came in promising not only to curb the drastic rise in military spending since 2001 but also to account for war spending transparently and on budget. Shortly after taking office, the White House requested $537 billion for the Pentagon as well as $128 billion for the wars in 2010, but stated in its budget documents that war funding is expected to go down to $50 billion for each year afterwards.

Well, so much for that. In addition to another $33 billion the administration will ask for in 2010 money to pay for the Afghanistan surge, the White House is seeking $159 billion for war operations in the 2011 budget request, according to this AP story. So the Obama team was only off by about $110 billion.What’s more, the total $708 billion Pentagon request for 2011 would give about $549 billion for regular military operations, the largest total in history. Although to be fair, that’s only about a 2 percent increase, which roughly matches the rate of inflation.

But those numbers are just the starting point of negotiations; Congress will have to weigh in. House defense spending cardinal John Murtha, D-PA, has already said he wants to add billions to the 2010 war funding bill. Because that’s supplemental legislation, all that money is off budget and therefore not paid for.

So has the administration learned its lesson about promising drastic cuts in war funding? Not by a long shot.

“The Pentagon projects that war funding would drop sharply in 2012, to $50 billion, and remain there through 2015,” the AP story states.

Yeah, right. This is part of the perennial shell game by which the administration is required to project out five years worth of funding, but everybody inside the system knows those projections are pretty much meaningless. This was a common tactic in the Bush years.

Now watch this drive …

.