Wow. Sometimes the headlines really get ahead of the news, not to mention reality. “In a world of austerity, Obama bucks the trend.”
That bolded header screamed off the pages of the Globe and Mail business section the morning after embattled U.S. president Barack Obama informed the world that he was ready to uncork America’s seemingly bottomless bottle of liquidity and pour another US$447 billion on the unemployment problem haunting the stalled U.S. economy.
Obama’s jobs plan (speech transcript) has to win the approval of the same debt hawks in Washington who recently gave Standard & Poor’s an excuse (read the press release here) to downgrade America’s credit by threatening to not raise the nation’s debt ceiling. (This would have cut the U.S. ability to borrow what it needs to operate on a day-to-day basis while the political leaders try to figure out a way to get Uncle Sam’s fiscal house in order.)
In other words, nobody in the White House is bucking any trend just yet. To be fair, the Globe story did mention this point. Then again, as anyone who is closely following the world’s sovereign debt crisis can tell you, the austerity trend Obama is apparently trying to buck doesn’t really exist.
As Globe columnist Neil Reynolds recently noted, the IMF has called on the United States and Europe to abandon austerity programs before either had put any in place. “Used to describe fiscal restraint,” he wrote, “austerity—you would think —means austere: A word (from Latin and Greek) that expresses sacrifice. Indeed austerity means an almost puritanical self-discipline.”
But when used to denote government restraint, Reynolds adds, austerity is a euphemism. “It doesn’t mean making do with less. It means making do with smaller degrees of more. Few countries ever reduce spending in real terms. Even in hard times, few even try.” People in Britain have been rioting over budget cuts. And yet, as Reynolds points out, the Conservative-Liberal coalition government actually increased spending in real-dollar terms by 5.3% in the past year.
Plenty of people think more fiscal stimulus is the right thing for the U.S. economy. And plenty don’t. Keep in mind unemployment is the issue. And in this case, U.S. companies are not hiring because they are worried about the impact of national debt on the economy and consumer demand, while U.S. consumers are not spending because they are broke and expect the economy to get worse thanks to the ballooning national deficit.
If you believe the White House, Obama’s jobs package will not put America any further in the red. However, since the last round of stimulus was supposed to be enough to produce jobs that have not come, the only sure thing we can say at this point is that the extra spending will not do anything to help Washington learn to live within its means.
Simply put, as part of a desperate attempt to keep America out of recession and himself out of the ranks of unemployed Americans, Obama has torn a page from the questionable Keynesian play book and just asked his political opponents for permission to toss the mother of all Hail Mary passes.
Will it happen? Will it work? Place your bets.