Washington Fallacy: A Large Cut in Federal Spending to Reduce the Deficit is Good Politics for Mr. Obama

No, Good Economic Policy is Good Politics

In the last several weeks a number of supposedly astute political writers have set forth the position that a “large” deal to cut the deficit would be good politics for President Obama.  The Dismal Political Economist commented earlier on how former Bush adviser Karl Rove took this position, with the aptly titled “Incontrovertible Proof That President Obama is Pursuing the Wrong Deficit Reduction Policy”. Now the WSJ political writer Gerald Seib joins in with “deficit cutting is good politics for Mr. Obama right now and as he seeks re-election next year”.

So why is this just so wrong?

The answer lies in an earlier criticism that The Dismal Political Economist has expressed about budget cutters, namely that none of them on either side of the political aisle will be specific about what programs are going to be cut, or the rationale for cutting them.  The reason they will not be specific is very simple, the public demands deficit cutting, but the public also supports federal programs that aid education, agriculture, health care and research, environmental protection, energy development and the like.

As soon as programs are identified for the chopping block, the protests arise.  So while a lot of rhetoric has come out of the White House on deficit reduction, no mention at all has been made of exactly what programs will be cut and where the spending reductions will take place.  But that news cannot be postponed forever.

A second problem, of course, is the fact that cuts will contract the economy.  Jobs will be lost. What many people are unaware of is that Federal spending consists largely of transfer payments to other government units and to private companies under contract to provide services.  The loss of funds to state and local governments will  result in layoffs of state and local employees, service cuts and higher state and local taxes, along with the loss of private sector jobs.  This fact again is something that must be left unsaid by those proposing massive cuts, less it diminish support for federal deficit reduction.

So no, once the specifics of spending cuts are known,  deficit reduction by massive reductions in federal spending will not be popular. 

Budget negotiators have not found a way to avert a government default on federal debt obligations, but with their ideas to cut Medicare and Medicaid they have managed to provoke opposition from almost every major group that represents beneficiaries and health care providers.


Republicans will run against the President for cutting programs that they themselves voted to cut, and a weak and ineffective press, along with their monetary advantage will allow them to campaign successfully on that basis.

Mr. Obama may be a better choice than his Republican opponent, but losing the base and their enthusiasm may well make him look like the last losing Democrat who was a better choice than his Republican opponent, John Kerry, who lost the base and their enthusiasm.

Job creation is the number one issue of the public, and unless Mr. Obama turns his attention in that area with some immediate results, or unless the Republicans nominate an un-electable candidate, his re-election chances will take a major downward turn as the employment situation gets worse by his cutting government programs and by his failure to embrace job creating policy.