A federal spending freeze in 2010 will cut government spending and job creation when the nation needs more stimulation, not less. As the first round of stimulus money is depleted, state and local governments will cut their spending, reducing demand in 2011. Why is a spending freeze a bad idea?
The math does not work. A spending freeze will exempt military, veterans and homeland-security related spending. It also cannot touch mandatory spending, and so could apply to only about 12 percent of the total federal budget. President Obama’s freeze would therefore cover less than 3 percent of the predicted deficit increase over the next decade.
The politics do not work. The drive to cut the deficit is led by people who think the government is out of control and does not provide real benefits. But a spending freeze would reduce services across the board and adversely affect those who favor government spending for education, infrastructure, social services and national parks. This group would politically oppose such cuts.
Should the government balance its budget? Sure. Large, long-term deficits are harmful. If the economy is booming, the government should shrink its debt. That is what President Clinton did in the 1990s, which allowed George W. Bush to enter the White House with a budget surplus. But President Bush increased spending—on wars, unnecessary tax cuts for the wealthy and a prescription drug program under Medicare—by going into debt. That used up the surplus and increased the deficit.
The economic measures do not work without inflationary pressure. U.S. Treasury notes are still one of the world’s most coveted assets. Foreigners will not stop buying our debt, as some have erroneously suggested. Instead, big banks have a vested interest in stirring up fears of inflation, because inflation erodes the value of debt repayment, which is actually just the medicine a recessionary economy needs.
A poor economy calls for continued government deficit spending, keeping interest rates virtually at zero and doing everything possible to create jobs. After the economy begins to recover, the government should fight inflation and reduce the debt. That effort would include serious action to lower health care costs and good faith, bipartisan support for long-term tax increases.