How Will Obama's Spending Freeze Play in Washington?

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The announcement that President Obama will freeze non-military discretionary spending for three years has the liberal caucus in a tizzy. The key fact is that non-military discretionary spending today is about 25 percent of the budget. Freezing 25 percent of spending while entitlements grow faster than inflation does not confront our deficit, but it does make the Democratic base really really mad.

Here are five quick questions about the gambit and some answers.


Where will the cuts come from?
This is being called a budget freeze, but the biggest parts of the budget won't feel the frostbite. The exemptions include: security departments like the Pentagon, Homeland Security, the Veterans Administration, and entitlements like Medicare, Medicaid and Social Security. The freeze targets close to a quarter of the yearly budget -- departments like Education and Health and Human Services, agricultural subsidies and earmarks. The White House will provide a specific list of possible cuts to adhere to the freeze, but ultimately it will be up to Congress to determine how the money sloshes around.

Will it dent the debt?
A little. The freeze is not -- repeat, not -- tied to inflation. That means the cuts will get even deeper each year. $15 billion saved next year. Maybe $50 billion the next year, and $75 billion the year after that. The White House is projecting $250 billion saved over ten years. My understanding is that our projected accumulated debt over that time is close to $9 trillion.

Who is the intended audience?
There are a couple candidates. (1) Moderates concerned about the deficit, whom the administration fears are slipping away nationally, as they did in Massachusetts. (2) Republicans who want to see good-faith compromises from the president to verify that he is willing to work with them, not around them, in 2010. (3) Foreign investors looking for a signal that the administration is aware of/concerned about the deficit. This freeze would represent more of a psychological boost for bondholders than a substantive economic shift.

What do the Republicans/Democrats think about it?
It sounds like they're laughing. And not with the president, either. At him. From the Times:

Republicans were quick to mock the freeze proposal. "Given Washington Democrats' unprecedented spending binge, this is like announcing you're going on a diet after winning a pie-eating contest," said Michael Steel, a spokesman for the House Republican leader, Representative John A. Boehner of Ohio.

The year on liberal economists' minds is 1937. That's the year that FDR, seeing an economic recovery, pulled back the reigns on fiscal and monetary stimulus, causing the economy to "double-dip" into a second recession. The left is worried that, since government spending is very clearly fueling what consumer spending we've got going, tightening the federal budget could drive down the economy. You could also make the case that if the economy does turn down again after the freeze -- whether or not the freeze has anything to do with the downturn -- it will look horrible for the administration.

What could be the fallout/unintended consequences?
A couple theories are floating around. Could this be a move to slow the growth of earmarks? Possibly.  By forcing a broadly Democratic Congress to wrangle amongst themselves for the cuts, it seems to me that he's setting the stage for hoards of angry electeds who are in danger of seriously ticking off their constituents in an election year. Take Blanche Lincoln for example. She chairs the Senate Agricultural Committee, is a conservative Democrat, a swing vote on every major issue including health care, and is locked in a tough reelection battle. You think the White House is going to force her to sign off on agricultural subsidy cuts?

Maybe the administration thinks this move gives them political space. You propose a freeze that is unpopular with Congress, hold it over electeds' heads as a bargaining chip, and then approach senators throughout the year making promises to spare their programs from the Deep Freeze in exchange for votes.

I'm interested to see how this polls. America's deficit hawk streak has been on a tear for months. Confronted with this semi-serious effort to demonstrate deficit hawkery, will Americans applaud the move? I'm sure the administration is hoping it can buy some good will among moderate debt watchers -- enough to forge ahead with a maybe-sorta-still-alive health care bill and apparently-very-still-alive jobs bill.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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