Obama’s Budget Freeze

Shaping the future with today’s choices.

I genuinely don’t get it.

First, while the freeze is stated as applying to domestic, discretionary budget authority, after allowing for the stimulus package of last year — which raised spending in order to increase the economic growth rate and reduce unemployment, it clearly reduces the effect of the stimulus. And that already looked too small. So the freeze runs directly counter to what turned out to be the signature policy of the administration’s first term. Second, while the numbers are small –  they amount, very roughly, to 1/6th of 1% of GDP per year accumulating year by year — they will certainly have the effect of reducing employment and growth. Third, the freeze clearly puts an end to any effort to supplement state budgets, or have any sort of jobs program. So we are done with fiscal policy.

I am a proud budget deficit terrorist. But I don’t understand the logic here. We have a horrible long run budget and debt problem, but this is way too small to change that. It applies to the part of the budget which has not shown an historical tendency to grow too rapidly. A freeze is very, very hard to manage — in my various incarnations in the government, I was involved in a couple — and gets messy very fast. And, in my view, it makes the structure of the budget worse. (By the way, doesn’t this mean that the administration cannot do any the discretionary expenditures in the health care bills?)

We have an extremely smart president; and one of the best senior economic teams ever; and we can be certain - given other policy exercises we have seen - that this was discussed endlessly. But from way far away from Washington, this looks as though the Administration has backed itself into a economic policy corner and paid a high price for a small symbol.

Roosevelt Institute Senior Fellow and Braintruster Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team.