I happen to have some experience in sales training, which, in combination with my psychology degree, has given me a weird and unique perspective on this whole economic downturn and how perceptions affect our economic future.
If you haven't paid close attention to the work of folks like Dan Ariely, who regularly appears on NPR's Marketplace to discuss the growing field of behavioral economics, you need to. His fascinating analyses and behavioral experiments actually look at how consumers make decisions based on emotion, rationality, and perception. He summarizes some of these findings in his book Predictably Irrational and on his blog.
What President Obama is doing, by calling for an end to Keynesian stimulus by 2011, is actually creating demand for immediate stimulus while simultaneously calming fears of long-term debt spirals. Frankly, I think it's brilliant.
We all know that it takes an act of Congress to get anything done in Congress. They won't do something unless there is no political risk in doing so. Especially in the Senate (aptly dubbed a "House of Lords" by House Whip James Clyburn of South Carolina), there is a very conservative mentality driven by a combination of special interests, lobbyists, and rules designed to protect small states, minority groups, and the rights of a few to block the will of the majority.
What President Obama is doing with his leaked story of a spending freeze is not just some kind of Jedi mind trick. He's not playing games - he's fulfilling a promise, as I illustrated in my diary yesterday evening. President Obama, during the 2008 campaign, won the support of moderates and independents by attacking the failed borrow and spend policies of the Reagan-Bush-GOP crowd and identifying himself as the candidate of fiscal restraint. He successfully attacked the hypocrisy of a Republican Party that claimed to oppose big government, but then made up false intelligence to justify invading a country that posed no significant threat to our national security - ringing up a trillion dollars in debt in the process. In short, President Obama won because he convinced us that he understood what was wrong and how to set it right.
Then we had the financial system catastrophe of September 2008. Credit markets dried up. There was no liquidity in the global financial system. If not for the quick, decisive, and counterintuitive actions of the Fed, Congress, and others, we would have most surely ended up in a Second Great Depression. Again, Barack Obama was ready (while John McCain was ready to suspend his campaign) because he knew the score - we shouldn't be afraid to spend when necessary or beneficial, but we need to focus on making smart investments that help the middle class and promote long-term economic prosperity. The economic crisis proved his point - that we can't afford to concentrate wealth in the hands of a few, and then create systemic risk by allowing the wealthy to invent new ways to make money by pushing paper around.
With the Dow at around 6,500 in March 2009, it was clear that fixing the credit markets wasn't enough. Americans who had saved their entire lives in order to prepare for retirement were facing financial calamity, unable to recover any of their losses from their 401K plans or losses on their home values. Obama and his team knew that we couldn't allow the system to languish. And so, even though it was totally unsavory (and invited criticisms that Obama was bailing out banks instead of helping ordinary people), Obama (along with Geithner, Bernanke, and the rest) committed to making 2009 a year of topline economic recovery, even while he passed the Recovery Act that pushed money out to the states and encouraged infrastructure investments and assistance to our education, police, and other vital government services. He also encouraged green job creation, gave a $288 billion tax cut to the middle class, and incentivized the purchase of big ticket items like cars (Cash for Clunkers) and homes (first-time homebuyer tax credit).
But Obama knew this was simply a detour from his original commitment. And while John Boehner, Mitch McConnell and the GOP continued in 2009 to have a field day attacking Obama as a promise-breaking liberal spendthrift with no interest in fiscal discipline, Obama continued to push for reforms that eliminated wasteful spending. As OMB chief Peter Orszag noted on the OMB Blog, there were $17 billion in cuts to wasteful spending proposed in 2009, and 60% of those cuts were approved by Congress, which is better than the "conservative" Bush accomplished in his best year.
So, to come back to my original point, Obama's 2011 spending freeze proposal is an incentive to get Congress to take decisive action, this year, in order to stimulate job creation and develop smart policies that contribute to our long-term economic growth. Uncle Sam is not merely the spender of last resort. The Federal Government is here to promote the general welfare and ensure the common defense - to make sure that our nation is protected from addiction to oil, dependence on foreign debt, outsourcing jobs overseas, and running up huge trade deficits. All of these things need to change, and we need to stop pretending that increasing national debt will somehow make us better off in the long term.
To those concerned about tax policy, please note that there is nothing in President Obama's spending freeze proposal that precludes increasing taxes on the wealthy. We can do both, and we should. President Obama has always supported letting the Bush tax cuts expire, and continues to work on collecting taxes from tax-dodgers using off-shore tax havens and Swiss bank accounts and nondisclosure of income.
But now is the time for us to make real, smart, sustainable proposals for job creation. I wish we'd spend more time making these proposals here in the Big Orange, and less time second-guessing Obama's commitment to protect our national security by reducing our debt obligations.